Wednesday, August 27, 2008

3 Day Lows - Part 2

As promised yesterday, these are the results of the 3 Day Low system for the Qs.
The upper record is performance without a stop, the lower records includes a $10/100 share Breakeven Floor stop. The frequency of trades is strikingly similar to the IWM profiled yesterday, and when optimized, 7 days pops out as the best fixed exit, just like the IWM. Does this suggest that the major indices tend to trade lockstep, or something deeper? I'm still working on that one.
While overall returns are not as great as IWM, we've got to remember that the Qs are trading at 46 and the IWM at 72. Five years ago, when the study began, the Qs were 26 and the IWM 38, so there's a bit of a skew in underlying price to consider. Once again, max consecutive losers is 3.
One difference between IWM and Qs performance is the Qs lack of gain using the stop. This is a bit surprising and I'm open to suggestions on possible reasons.
While I was at it, I decided to run the 3 day low on the XLE and NEM, to test the robustness of the system. Below are results for XLE. NEM %s were very similar to the XLE so I didn't post those records. Although 8 days pops up in the optimizes fixed exit, 7 days is almost identical, so no big discrepancy there. Again, a similar frequency of trades, max consecutive losers and % profitable when compared to the IWM and Qs.
Upper record is without stop, lower record is with $25/100 share Breakeven stop. This is where the system really falls apart. . . both on the XLE and NEM (not shown). % profitable drops to 30% range for XLE and NEM. So here's a case where stops (or at least this type of stop) are to be avoided.
Like many of my studies, this is a work in progress and I'll post updates as I uncover them. In the meantime, while the 3 day low system appears to have some legs and the ability to provide a viable income stream, there's a few wrinkles on the risk management side that need further work.

6 comments:

Matthew Sheppard-Brown said...

Greetings. I really do enjoy reading your opinions and Blog. If you are interested in Options and Market insights, definetely check out this blog linked below. He seems to be an advid reader of your blog as well. This particular article is definetely a key indicator of your very astute observation of the market.

http://criticalmassblog.blogspot.com/

bill said...

hi there,

very good job and very helpfull blog.
are you taking any of the trades or still studying it.

Wonder how will results be effected if we trade options instead of actuall stock

bzbtrader said...

Matthew,
Welcome. I'll be interested to see how your new blog focus and format develops.

bzbtrader said...

Bill,
Suspect your're a new reader as I frequently mention that I seldom trade the actual ETFs I profile, but trade the underlying options, mostly near OTMs, since my focus is mostly intraday with a little swing trading. I do trade based on my systems' momentum signals.
Thanks for checking in.

Cucca said...

I continue to be amazed, at people who don't understand, that for pennies on the dollar (IE, trade options, especially PENNY options), you get the same performance, you just have to understand the DELTA, that if you trade OTM, you will only get (depending of course), a 50 cent move in the option, as compared to a one dollar move in the underlying, BUT, you are making some shit percentage on the money you don't use, in your account each month. Hey, it don't seem like much, but it can add up.
I'm off the track, but it has been my "experience", that, YES, if you watch the "TICKS", they all move in lock step. IE, the "Programs", when they move, they move them all. That's intraday of course. Whether it matters of course, who knows, but that's my story, and I'm sticking to it.

Cucca said...

By the way, like I've said, I'm almost done with da Q's, certain strike prices in the SPY can trade in penny increments as well, and when da Boyz decide to move us, da Q's don't move nearly as much as da SPY'z, so why bother??? I've learned I can hate the stinking SPY as much as da Q's, so that's coooool!!!! The damn IWM, though, I just can't seem to hate them enough!!! Besides, I can't get my "arms" around them, I can't get enough information on them, like, how many are trading below their 50 day moving average, what the Put/Call is, etc etc. I'm working on it.