Tuesday, September 02, 2008

Weekly Pivots

Here's a little pivot calculator that's part of a current study I've been playing with, although full code for the system probably won't be completed until October. The calculator is another component (like the 3 Fingers system) of my systems trading toolbox that may get deployed depending on whether markets are trending or in a trading range . . . a theme Cucca has been investigating recently using some of my earlier studies as baselines.
The goal of my current study is to produce a modest month to month risk-controlled revenue stream using straddle, strangle and/or butterfly positions. The system focuses on non-directional tactics and is as much concerned about risk management as profit potential. For comparison purposes I'll look at both the Qs and the IWM using weekly bars . . . with the pivots defined for the coming week based on the stated date. This two prong pivot approach will also be used for a future pairs trade study.
Basically, the study uses the weekly bars' fringe pivots to manage the risk of selling OTM puts and calls, and riding the positions to expiration. This is a risky trading strategy, as losses are theoretically unlimited, and you need specific broker approval to trade this way.
I'm not encouraging anyone to trade this way. I'm counting on you to develop your own trading variations to capitalize on market probabilities the system may present.
Over the next few weeks, I'll post portions of the system, as a "Kit of Parts". . . a concept I mentioned in the 3 Finger study. All components are exploratory, so they may or may not end up in the "final" version of the system.
You, gentle readers, are always encouraged to tweak the code, assumptions, parameters, time frames, etc. to accommodate your own trading focus and bias. Suggestions and comments are always welcome, and those that have come in over the past 2 weeks have been particularly insightful, reflecting a spirit of teamwork learning. And that's really what this blog is all about.
You can access a full version of the pivot calculator on line here, a site I have no affiliation with. I've changed the format a bit and saved as an EXCEL worksheet for use in other applications. There are several different ways to calculate the pivots, and you can view the calculations on the above site. The above values reflect the "Classic" model.


Red Hue said...


I use a somewhat similar theme in selling credit spreads each month...which helps to control risk somewhat...though your profit (premium) is decreased...but you also know just how much margin you'll use as opposed to selling naked which can be large and varied. My current system I am playing with takes a certain percentage away from current price of the RUT Index (like trading bands) depending on the "mode" of the 10MA of the daily CCI20. (slope and position) I have hit 19 out 19 months in real time use averaging about 2.1 percent per month. I have had to adjust my position just twice in those 19 months. (July 2007 and last month)

Anyway..will be interested in seeing your "kit of parts"! Fun Blog!!

bzbtrader said...

Red Hue,
Sounds like your system is a proven winner and reflects the type of return I'm shooting for. The "bands" concept also reflects the type of appraoch I'm suggesting.
Thanks for checking in and sharing your system.

Red Hue said...

The system has done well...but I do have to watch it when the market makes a run...otherwise babysitting it is simple enough and relaxed. Course when the market trends up and others are making 5 to 15 percent plus a month and I am stuck well under that...it takes discipline and wisdom to stick with it...not easy thing for most people.

Thanks for sharing such an informative and fun blog...I dont know if others realize how much time etc you probably put into it.

bzbtrader said...

Red Hue,
In the race between the turtle and the hare traders, I'm firmily with the turtles..slow and easy. That may appear inconsistent with my preference for daytrading, but its really a matter of perspective.
IMHO, 25% annual account return is fantastic, especially if coupled with a low drawdown. I have a friend who is a risk manager for one of the largest mangaged futures firms with 80 CTAs. Their average return to clients is 30% - 22% fees = 23.4%, (mostly using iron condors) and these are supposed to be the smartest guys in the room, so your little working system and my current research goals are not sub par by most standards.