More on the 3 Finger Reverse

These are the results with pyramiding turned on for the 3 finger reverse. The system now returns over 2x the net profit, but the max consecutive winners/loser ratio has become pretty dismal (for me) and the max drawdown is similarly impacted because (this is a test) . . . we now have multiple positions exposed and the % drawdown is magnified by the number of those open positions.

As I mentioned in the original 3 finger lead post, it may be better to scale into these trades in lieu of the pyramiding function. Simply doubling the position size in the 3 finger reverse will generate almost as much net profit as the pyramid version, but with much better max winner/losers and greatly reduced max drawdown.

XLU Butterfly

Here are 4 butterfly scenarios that might play out on XLU, the Spyder utility sector ETF. The butterfly proposed for XLE earlier this month has played out nicely (so far) and as I expanded my search for other candidates, the XLU looked like a possibility with its essentially flat LR30 configuration for the past 2 .5 months. Not that this is any guarantee that the LR30 will continue to hold for the next 60 days, but it's something to at least consider when we examine potential risk/rewards for these trades. I've set this up to show 4 possibilities, 2 with 2 strike spreads and 2 with 3 strike spreads. . . you can see the implications below. Blogger apparently doesn't like the color red as it blurs the text with the red cells, so I'll alter that color for any future posts of the spreadsheets.
The problem (there's always a problem) with executing these trades is that XLU option volume is rather anemic, at best, with many strikes showing little or no volume on a day to day basis. I submit these trades as a single basket limit order and let the broker work it out. The hard way to do this is to trade each leg separately or to trade it as a spread and a straight buy. Commissions become too onerous and the stress can be frustrating as you wait for limit orders to execute in thinly traded options with 1 or another leg exposed and the stock price fluctuating.
HEY!. . .nobody every said this was easy.
Got some other ideas for stcoks or ETFs with XLU and XLE LR30 flat patterns, please mention them in the comments and I'll check em out.

GE Bumps

Just another example of the GE / NYAD scalp setup I've profiled before. Now, technically speaking, these aren't exactly scalps. . .as my scalper buddies have mentioned to me.

True scalps typically last only a few minutes, at the most, but HEY! it's my blog and I'm going to call these trades scalps for lack of any better term.

If you haven't seen these setups before, go to the right panel on the blog and check out the previous posts for GE/NYAD trades under How I Trade.

Going into this trade I've got to admit a little apprehension, as I was expecting the market to take off to the upside following the opening fade down so shorting was the opposite of the direction of my preferred trades for the day.

NEVERTHELESS. . .the NYAD was clearly flatline at 10:18 as GE began an abrupt ascent on no noticeable volume surge. With GE blowing through the PP pivot at 10:38, the odds for a pullback were high.

The PP penetration is followed by a little waffling at the PP for the next 8 minutes, when the parabolics trigger a SELL as GE penetrates and closes below the PP. This is bearish and supports the argument for a pullback down to the NYAD extension line (orange/blue).

Just going into the trade at 10:48 at $17.65 my expectation is for a retreat to the previous 10:15 low of 17.35 and if the NYAD shows weakness, then a hit or break of S1 at 17.24 so the risk/ reward looks pretty attractive.

GE does retreat to the NYAD extension at 11:24 and at the first parabolic COVER at 11:28 I'm out at $17.42. Obviously, I should have stuck with this thing a little longer, although the second parabolic COVER signal at 11:46 would have only netted an additional .06, so I don't feel THAT bad about my exit.

Net time in trade: 10:48 - 11:28 = 40 minutes

Net trade gain: 17.67 - 17.42 = .25

As I've mentioned before, these trades typically generate about .01/minute of exposure, so this trade was a bit sub-par. Whether this marginal performance was the product of an upward biased market is subject to dispute, but I'm flat again and waiting for the next setup.

Also note that I've changed the MAs on the chart from 8/16 to 4/8, in order to confirm the parabolics a bit quicker. This is just something I'm working on. The downside of using the 4/8 in lieu of the 8/16 is that there are going to be a lot more whipsaws and false exit signals from otherwise good trend trades.

Do the Opposite

My favorite episode of Seinfeld involved George making a startling revelation. http://www.youtube.com/watch?v=cKUvKE3bQlY

So. . . as I'm fiddling around with the 3 finger lead system I realized that it might be interesting to test the short side of this concept for mean reversion to the NYAD. Since using the NYAD for these comparisons is a bit risky because of the characteristic skewed volatility, I used QQQQ, DIA and GE as Data 2,3 and 4. I could have chosen other candidates for data 2-4, and you are welcome to explore the possibilities of this lead/lag system that follows the pack.

Rereading the text accompanying the original 3 finger lead post should clarify the intent of the code.

While the short side doesn't trigger a lot of trades (less than 1 a month), the holding time of 12 days means you are actually exposed for about 37% of the time.

TS2000i code is shown below:

Inputs have been optimized for IWM (as usual) and must be re-optimized when using other data 1-4.

Blogger has again refused to let me post the open code due to the <> symbols. Sorry. I'll try and post the open code in the comments section later today for you copy and pasters.

Size matters

Above are results for the HLC Low system for IWM, Qs and SPY.

Optimimized inputs are as follows: IWM 7,14 ; Qs 4,13; SPY 2,13

Average % profitable is 70%.

I haven't explored the importance of volume in the systems I've previously profiled, but here's a quick look at what happens when we add a volume component to the HLC Low system.
TS2000i code for the 3 performance reports below now reads:

Inputs: Len1(2), Len2(9);
If Close=HighestFC(close, Len1) and low=highestFC(low, Len1) and high=highestFC(high, Len1) and Volume=highestFC(Volume,Len1)
Then Sell This Bar at Close;
If BarsSinceEntry=Len2
Then ExitShort this bar at Close

The code highlighted in blue is the sole addition to the previous HLC Low code.

We could tweak the system a little further by making the volume length a separate input variable (Len3), but I'll leave that testing to my more motivated readers.

Note that the Inputs for IWM have been optimized to 2,9. The top optimized value is actually 2,13, which yields an additional $1000, but from a risk management perspective I prefer this max consecutive win/loss ratio in lieu of the enhanced return.

Optimized Inputs for the Qs are 1,12.

Optimized Inputs for the SPY are 1,14.

The average % profitable for the 3 examples has now risen to 83% with a considerably improved max consecutive win/loss ratio.

This system is just something to play around with and should be regarded only as a jumping off point for further volume impact explorations. Nevertheless, the win/loss ratios and % profitable numbers are very impressive and may warrant the time and effort of additional testing.

Keep in mind these are all SHORT ONLY examples. The long side trades perform no where near as well, no doubt reflecting the downtrend momentum of most of the test period. This can also be noted in Monday equity curve profile, where the first dozen trades produced only marginal returns since the markets were still uptrending at that point.

GE system variations

One of the nice characteristics of GE is the way it reacts to the pivots. In some cases more reliable than the Qs or my all time favorite IWM, GE momentum can be gauged fairly accurately by looking at proximity to the pivots. Friday's intraday behavior - shown above in 2 minute bars - is an exceptional example of this behavior. By using the parabolics (white circles) and 8/16 MA crosses (white arrows) for trade triggers, it's relatively easy to scrape several profitable trades out of GE each day with a minimum of risk exposure.

Generally, the better the technical alignment of a stock or ETF, the better the performance of a benchmark testing system. That being said, here are the results of using the High Count Reverse (HCR) system (profiled Friday) as applied to GE

The HCR is, of course, a short side only system, but with a 13:1 consecutive win/loss ratio, this is a highly attractive risk/reward approach, especially when one examines the max intraday drawdown of $160.

Finally, here is a little variation of the HCR system that produces twice the return of the HCR, with twice the Max intradday drawdown and a 9:2 consecutive win/loss ratio. The focus of the system is selling strength as defined over "X" number of days as defined by optimizing the "HighestFC" function of TS signal builder.

TS200oi code for the 3 day HLC Low system:

Inputs: Len1(3), Len2(6);

If Close=HighestFC(close, Len1) and low=highestFC(low, Len1) and high=highestFC(high, Len1)

Then Sell This Bar at Close;

If BarsSinceEntry=Len2

Then ExitShort this bar at Close;

Since the code contains none of the dreaded <> symbols, Blogger has obliged me and allowed the post in open format.

2 High, 2 Low

Just fooling around with the RSI Lag setup and streamlined the code, minus the RSI component to produce this little ditty. This looks a lot like the High Count Reverse (HCR) system that's part of the dirty dozen BZB systems (side panel of blog), but with the slight variation that the entry doesn't necessarily immediately follow the consecutive 2 higher highs or 2 lower lows. The fixed exit on the shorts has been compressed to 6 days, instead of the 9 days for the HCR, but keep in mind that pyramiding was turned on for the HCR and is not enabled here. The practical implication of using pyramiding is that you make more, but you also risk more and deploy more capital with each successive signal. The dramatic skew between the 2H2L holding times for profitable longs (1) and profitable shorts (6) highlights the negative slope of the markets for the majority of the backtesting period.

Code below in TS 2000i format:

Once again I apologize for the Blogger's refusal to let me post the code in open format so you can just paste and copy to your platform. The <> symbols in the TS code seldom transpose to Blogger correctly and frankly I got better things to do than spend 30 frustrating minutes trying to get the thing to format correctly, even when I first copy the copy to word or excel and then repost and repost and repost . . .

GE scalps

Two nice GE/NYAD setups yesterday that illustrate GE's penchant for sticking to the pivots, as GE swung picture perfect between PP and R1.
The first trade kicked off at 10:30 with a parabolic confirmation with GE having diverged from a rapidly ascending NYAD for the preceding 30 minutes. With the NYAD turning positive again at 11:00 after a 30 minute pullback, I'm encouraged to stick with the GE trade until 11:20, when the parabolics fire a SELL signal and both GE and the NYAD turn down in tandem.
Net time in trade= 44 minutes. Trade gain = 17.86 - 18.15 = .29
The second setup fires a SELL at 12:20, again confirmed by the parabolics, although that first reversal bar to the downside is a whopper. The continued downslope NYAD then carries GE back to the PP pivot at 13:00, accompanied by a parabolic COVER signal as both GE and the NYAD reverse up.
Net time in trade = 40 minutes. Trade gain = 18.37 - 18.02 = .35
Total exposure of the 2 trades = 84 minutes for a total gain of .64. This is a little less that the typical .01/minute that these scalps have been averaging . . . but you can only get what the market offers and make the best of it.

Butterfly Details

For some reason the previous post Butterfly Excel picture will not expand when you click on it, so here are the files in a larger format so that you can actually read the cells and numbers.
Hope that helps.

Mid Week Update

Qs, IWM and XLF are showing almost identical chart patterns, having broken through the upper LR30 channel band for 2 days. Once again, these 3 ETFs are poised to kiss the channel good-bye to the upside. The mid panel technical are somewhat ambiguous, offering little guidance for the possibility of a sustained rally. Coupled with the weight of deteriorating fundamentals, an alternate scenario is a retracment back to the LR30 means, or if things get rolling , a retreat to the lower channel band with XLF and the Qs the most likely candidates as they approach overbought levels of the RSI.

XLE is an another story entirely and fits nicely into the Butterfly options model which I mentioned some time ago with 47 providing a nice mean reversion pivot for the spread.
Many brokerages allow 3 legged trades for one commission. The expanded butterfly with 2 focus strikes (47 and 45) reflects a bearish outlook for XLE. Coupling 47 and 49 as target strikes would reflect a more bullish outlet. (not shown)

More RSI Lag Trades

I ran a few more examples of the RSI Lag system profiled yesterday just to test the robustness of the concept. After testing over 20 ETFs and equities, I found the average return was just over 70%. Not bad for a simple system that seldom keeps you in the market for more than 6 days. Per the reference to Lentz/Graham article, the algorithm may also be useful in collecting short term option appreciation, rather than the focus of the article, which was premium decay. Keep in mind that this system reverses the buy and sell signals from the Lentz/Graham model.
Optimized inputs for GE are 13,14,2,1

Optimized setting for QQQQ are 14,14,6,4

Optimized settings for MSFT are 15,16,5,1

RSI Lag Trading

I've mentioned the concept of lag in previous posts and an article in the latest Futures and Options Trader e-magazine stimulated my otherwise semi-comatose brain to explore a relatively simple, but practical systems application. Subscriptions to the magazine are free and I always look forward to the unique market perspectives frequently found within. Go here to signup and download the current (December) issue. You don't have to be a futures or options trader to benefit from the frequent trading nuggets of wisdom that are profiled.
The article in question was by Steve Lentz and Jim Graham of OptionVue and they employed the RSI lag to time bear call spreads or bear put spreads. They don't mention the period of the RSI they used for their model, but I optimized the thing in TS and found RSI14 on the short side and RSI11 on the long side work best for the IWM. The system as they define it has a good track record, although the drawdowns are a bit onerous, and the average holding time for winners is 37 days, which, if you've followed me for a while, is about 35 days more than I'm comfortable with. So I reversed the signals and morphed the concept into a short term (2-5 day) equity trading system (no options). You, gentle readers, are welcome to pursue the original intent of the article, but the above system trades more frequently and manages risk a little better, IMHO.

TS 2000i code is shown below and is optimized for the IWM. I added a fixed bar exit which is variable for the longs and the shorts to accommodate the added market momentum of the down moves. That is, downside moves are typically of greater range than upside moves so what takes 5 days to go up may only take 2 days to go down. The optimization test for this system seems to support that notion. FYI: I use the "Then Begin" and "End" conditions to assure that the system doesn't fire until the initial Lower Low and Higher High non-conformation with the RSI has transpired.

Blogger has refused to let me post the code in open format as it won't recognize the > symbol without screwing up the entire code so no cut and paste today.

Mean reversions

The Qs, IWM and XLF have now reverted to the LR 30 mean. XLE has slid a bit as suggested in the previous post, although IWM has not followed suit. Interestingly, XLE has the most bullish looking LR30 channel, having now moved from downslope to barely upslope, while the LR11 is now clearly upslope. XLE also has the lowest RSI2 reading, further suggesting a poised position for an upthrust, although the MACD's position argues for some caution.
In an abrupt change of character, all 4 of the basket are looking moderately bullish. If the big 3 do get their handout, the expectation is for a rally of some substance. If not. . . welcome to the next leg down. With Fridays having a recent habit of being down days, voting on the handout may be delayed until the weekend for maximum effect.

Tuesday bounce

If you're underwater for the year, your're not alone. Of the 11,585 stock mutual funds tracked by Morningstar, 11.584 have lost money this year. The sole exception is APX MidcapGrowth Fund, which so far this year has returned a stellar return of 0 percent.
Why anybody would want to own a mutual fund, burdened by end of day selling/buying restrictions, load fees and documented manipulation is beyond me when there are over 800 ETFs covering almost every imaginable market and that allow intraday trading and price transparency.
Here's an update of the NDX A50 and A200. Just in case you thought the markets were gaining some traction, check back to my Nov. 15th post of the same charts.
A50 AROON is on a BUY, A200 AROON is on a SELL.

Monday Update

Today's decline was pretty well forecast by my little friend the RSI2 in all 4 of the ETF basket, as they all rolled over on Friday . Just a quick gander at these four charts should provide a compelling argument for following this indicator and justify its merit in several of the BZB dirty dozen systems.
The IWM and XLE appear to be most prone to further decline based on their distance from the lower LR30 channel already hit by the Qs and XLF. This doesn't mean that the Qs and XLF aren't subject to further decline, but rather that the IWM and XLE are probably more prone.
Coupled with the RSI, the LR30 has done of great job of providing tradable support and resistance levels for the past two months and deserves to be monitored seriously by swing traders.
With the LR11 now downslope in all 4 ETFs and a wave of selling expected in December as the commercials dump losers and rebalance portfolios, swing traders favoring the long side should be wary that once the lower LR30 channel gets crossed, the next decisive action may be kissing the channel good-bye to the downside. This prospect is supported by the fact that RSI2 has a ways to go before oversold conditions develop again.
All four of the basket are now in confirmed downtrend per the LR30 studies.

Thanks for the support

Thanks to all the nice folks who sent me comments or emails with your best wishes for my wife. They were appreciated. I'm back at the computer for a few minutes a day, but not trading again yet. Still sorting through those 262 emails I received while I was away. Bears look like they're winning the battle as the news gets more depressing each day so I'm glad to be in cash.
I pulled my wife out of the hospital after 2 and half days although she was supposed to be there 4-5 days. They had a MRSA outbreak in 2 of the rooms about 100' down the hall and were about to quarantine a quarter of the ward, when I called the doctor and told him we were escaping. Since his office is across the street from the hospital, he came over and after assessing the situation agreed with my plan and I then literally carried Carole out of the hospital and brought her home. If you ever want to be around a bunch of really sick people, just go to the hospital. And I'm not talking about the patients, I'm talking about the staff which, after this latest adventure, I will refer to as the staph. Since Carole's mobility is extremely limited, I'm still focused on her care and will be for the next week or so. Until then . . .

I'm Off for a While

My wife Carole is having surgery early Monday morning and will be hospitalized for a week. Thereafter the recovery process will require several weeks of close attention and my intensive participation. During this period I'll have little time to monitor or trade the markets and I am therefore suspending new posts to the blog, although I may manage a weekly update.
In the interim, for my loyal cadre of daytraders . . . I suggest you go back and study the GE /NYAD posts that began on October 23rd. This is, hands down, the most reliable, low risk and low stress scalping technique that I have found . . . and that's saying a lot. I hope you realize that the only reason this trade works so well lately is due to VIX60 conditions. Up until a few months ago this type of arbitrage trade against the NYAD could only make money for prop shops and commercial traders who could throw vast amounts of capital at these trades and scalp off a few pennies. With the current volatility, these trades are a whole new game, so squeeze out the juice while you can. The 816 cross updates that began on October 22nd are also worth a close review, both as a confirmation for the NYAD divergent trades and a stand alone trending indicator.
For you swing traders . . . good luck . . . and I really mean it!

Weekly Update

The 4 ETF pivot chart pretty much tells the story and although the ranges contracted a little bit, the momentum was clearly down, with 3 of the basket closing on the low pivot of the week and the Qs between S1 and S2.
Check out the pivots for the coming week on the right side panel of the blog, they are all at new low PPs.
Once again the NDX is bouncing off the 50MA and the A200 continues to ride the 20MA down.
While I find little technical evidence of an impending Santa Claus type rally, Peter Worden has a somewhat different (bullish) spin based his classification of Thursday's action as a one-day-reversal pattern. Keep in mind that the Worden video was released some 80 minutes prior to Friday's market close, so he missed that market min-collapse in his analysis.

Friday GE scalps

I managed to get 4 GE /NYAD divergence scalps off today. . .more than usual but when the signals pop up you've got to take em. In each case GE diverged positively off the NYAD slope actual and projection (orange and blue) and in each case the trades were of relatively short duration.
Trade 1 - 11:28, the parabolics fire a SELL after a little 12 minute runup.
I enter at $16.18 and ride the slope down to the parabolics COVER at 11:44 at $16.02.
Time in trade = 16 minutes, net gain = .16
Trade 2 - 12:48, the parabolics fire a SELL after a 24 minute runup.
I enter at 16.22 but 4 minutes later the parabolics are fire COVER, and I'm out at 16.15
Time in trade = 4 minutes, net gain = .07 (I'm a bit shaken by that last trade, as the reversal was unexpected, but I'm sticking with the plan.)
Trade 3 - 13:00, after only another 7 minutes the parabolics are again on a SELL and I enter ( a little late) at 16.23. This proves to be a good trade that carries for the next 15 minutes before the parabolics fire a COVER at 13:16 and I'm out at 16.08.
Time in trade = 15 minutes, net gain .15
Trade 4 - by 13:30 GE has retraced back up to the 12:56 high and forms a litle squat bar for the next 12 minutes, so we know a break in coming. I'm still bearish on the markets at this point and the NYAD is supporting my negative bias so with the parabolics on a SELL at 13:42 I sell at 16.28. We the get a big bar down, but don't break through the PP, which is actually bullish, so when the parabolics fire a COVER at 13:52, I'm happy to close the position at 16.18 and get flat.
Time in trade = 10 minutes, net gain .10
None of the trades were big winners, but I did manage to collect .16 + .07 + .15 + .10 = .48 with only 45 minutes of exposure.
I'm done for the day.

Qs / NYAD and the 816

I've mentioned the 8 and 16 MA cross in previous posts as a highly reliable trend indicator. Today certainly provided a great example of using the 816 with the NYAD to guide your trades in underlying securities. The 816 NYAD tell works best with the indices, especially ETFs like my sample basket. It was interesting today that virtually all the 816 crosses in the NYAD synced perfectly with the 816 crosses in the Qs. Where the 816 NYAD really earned its money today was in revealing the false cross in the Qs about 14:06. If you followed the lead of the NYAD you stayed in the trade and avoided being flushed out of the Qs bullish move and the subsequent impressive short term pop.
In my own experience, if I get stopped out of a daytrade with the 816 cross, I'm reluctant to re-enter the trade for at least 20 minutes, or until I'm confident that the trend has indeed resumed or reversed. That's just a little risk management tool I use because I'm old and my mind is easily confused. Watching the NYAD in lieu of the underlying and trading according to the NYAD 816 may cost you a few pennies in drawdown but it will typically keep you from being kicked out of trades prematurely as market makers run stops and play other head fake games.