My 'NDX Summer Rally' System Trading Model generated a Long Entry Signal on 6/25/2009 and I missed the original entry. How did this happen? This model can only generate 1 signal/year, and while I have fully automated the Entry Signals for models that may generate multiple entries/year, I have not done so with models that only generate one signal/year. I manually review the once/year models weekly and noticed my error yesterday afternoon.
However, the NDX traded back down to its original entry price yesterday, so I was able to enter it then.
The concept for this model is the NDX tends to put on a rally starting sometime towards the end of June and finishing somewhere in the middle of July. Why does this happen? Who knows. Perhaps it has something to do with EOM and EOQ window dressing and then perhaps a run up into Q2 earnings announcements. In any case I have modeled it.
One of the things I really like about this model is that its Money Management Stop is very tight, currently at 1.3% below the Entry Price. If the supposed summer rally fails to happen or peters out quickly after it begins, this stop protects me from the big loss.
The trade generated from this model in 2008 was stopped out, so the model is trading just below its all time high (see Equity Curve chart above).
Here are some of the model's Performance Statistics:
- Model Tracking Vehicle=NDX
- Start Date=11/1/1985
- Number of Trades=23
- Average Trade Return=2.50%
- Win Rate=48%
- RAWAL (Ratio of the Average Win/Average Loss)=4.7
- Profit Factor=4.34
Notice the Win Rate is less than 50%, currently at 48%. How can a Strategy that is profitable less than half the time make money? The RAWAL is huge at 4.7. This means the Average Win is 4.7x the Average Loss. Every loss the model generated is from the tight stop.
In addition to the Money Management Stop, this model also has a Trailing Stop, which has been hit once during the life of the model. JE (http://myestradingjournal.blogspot.com/) and I talked last week about using Trailing Stops. Two of my models utilize them and perhaps more would benefit from them. Testing the other 33 strategies to see if they would benefit from a Trailing Stop is a reasonable Research Project.
Disclosure: Long the NQU09.
Disclosure: The performance results shown above are for Model analysis purposes and do not include commission or slippage. The model is built on data from the NDX, but I trade the model with the NQ e-mini. Actual trading results from the NQ usually differ from the model results of the NDX, with the NQ showing somewhat weaker performance data. Nonetheless, I still trade this model with the NQ and when executed according to the plan, it has generated consistent profitability for me.
***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***
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