'NDX 1st DOM' stops out on the Open.

• 'NDX 1st DOM' got stopped out right at the open, primarily related to a worse than expected payrolls report that was treated negatively by the market (NDX)...
• the modeled position (NDX), took a 0.58% loss, slightly more than the theoretical 0.50% stop...this can happen when the vehicle gaps below the stop level...
• the trading position (NQZ09), took a 0.71% loss, moderately bigger than the modeled position...
• this is the fourth stop in a row for this model...the model is built on the premise that if the NDX is in an uptrend, and its the 1st calendar day of the month (not the first trading day of the month), then buy the NDX on the close of the 1st calendar day of the month and then sell it on the close of the following trading day...the tight stop assures that if the underlying uptrend does not kick in, then the loss is small...as can be seen from the equity curve above, this concept has proven to be robust since 1986...the key is defining the uptrend and using a tight stop...
• yesterday i was concerned that with current bearish short term sentiment, and the possibility of a worse than expected payrolls report being released pre-market, that the NDX could gap down much more than the 0.50% modeled stop loss...so instead of entering with a full size position (6 NQZ09), i only went in with a 50% position (3 NQZ09)...an analysis of market sentiment and the fear of losing more than the theoretical stop, led to reducing my position size...my concerns did play out, and i wound up losing less than the model, not because i got better fills but because my position size was smaller...
• the NQZ09 based stop was at 1657.00...the NQZ09 opened below that level, and i was filled at 1653.75...it quickly ran up and traded over 1657.00...i considered entering the second half the full position just above the stop of 1657.00...i did get back in around 1658.00 and used a tight stop of 1657...unfortunately the stop was hit, but the NQ went right back up and is now trading around 1665.00...
  

Disclosure: Long NQZ09 (via 'BTD Index' and a discretionary swing trade).

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

Fishing for a bottom

• i re-initiated a discretionary swing long in the NQZ09 on wednesday at 1713.50 and this morning at 1677.25, for an average entry price of 1695.38...
• i am holding off on adding more due to 'BTD Index' and 'NDX 1st DOM' generating long entry signals for the NQ this evening...
• the NQ has carved out a series of lower highs and lower lows on the 15M chart shown above, as well as the 60M chart (not shown)....
• however, the 'BTD Index' chart of the NDX shows what i believe could be bottoming behavior:

• the 8 period ATR Volatility for the NDX is displayed in the lower pane of the above chart...it closed at 3.16% today...i placed a yellow circle at that 3.16% ATR Volatility level...
• i placed a green circle on each daily ATR Volatility bar that was also around 3.16% and saw the NDX close at or below the lower bollinger band (lower red line)...
• notice the last 3 instances (7/7, 8/17, 9/1) all bottomed that day or the next day, and then went on to make new swing highs...
• going back to the 4th (6/22) and the 5th instance (6/15), the NDX displayed different behavior: taking more days to bottom and not making a new swing high...
• we are only looking at 5 instances, so there isn't enough data to give us enough confidence to support a bullish, neutral or bearish view solely based on this behavior...however, i am open to the possibility that the NQ may find a swing bottom in this area...
• if this view is correct, then i have some NQ inventory to ride up...
• if this view is incorrect, i still have some more buying power to add to my long position as the NQ heads down...
• in any case, i am still bullish over the coming weeks and months...

Disclosure: Long NQZ09.

***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...trade at your own risk***

'NDX 1st DOM' generated a Long Entry Signal for Thursday's Close, 10/1/2009

'NDX 1st DOM' generated a Long Entry Signal for Thursday's Close, 10/1/2009. This model is based on the behavior of the NDX on the 1st calendar Day of the Month (DOM). It is due to be exited at Friday's Close unless its Money Management Stop is hit intraday.

As can be seen from the Equity Curve shown above, the model is currently trading a few ticks below its all time high. However the three most recent trades were stops.The model uses a very tight Money Management Stop, currently 0.50% below the Entry Price. I only took a 50% position (3 NQZ09 @ 1665.50) instead of a full position (6 NQZ09) for this model tonight. I am already long some NQ based on tonight's 'BTD Index' (1 NQZ09 at 1665.00) long entry signal, as well as a re-initiated NQ discretionary swing trade (2 NQZ09 at 1695.38). Additionally, with all of the volatility this week and the Payroll report due pre-market, I don't want to take the chance of getting stopped out for more than the model theoretically calls for (0.50%). Again, like many times this week, I am being influenced somewhat by fear. So far, I say this influence has benefited me this week. However this can't continue, I will under perform one of the systemic models sometime soon.

Here are some of the model's Performance Statistics:

• Model Tracking Vehicle=NDX
• Start Date=11/1/1985
• Number of Trades=116
• Average Trade Return=0.39%
• Average Winning Trade Return=1.24%
• Average Losing Trade Return=-0.47%
• Win Rate=50%
• Ratio of Average Win/Average Loss (RAWAL)=2.63
• Profit Factor=2.68

The win rate is only 50%, but the average winning trade (+1.24%) is 2.63 times as big as the average losing trade (-0.47%).

Disclosure: Long NQZ09.

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...trade at your own risk***

9/30/2009 9:45 am update

• my systemic 'NDX 30th DoM' may generate a long entry signal for today's close...i say the odds are 50/50...my systemic 'NDX 1st DoM' may generate a long entry signal for tomorrow's close...i say the probability for this is about 98%...since at least one, if not two models, are probably going to give me a full NQ position in the market by end of today or tomorrow, i am inclined to book some gains in my discretionary swing trade of the NQ...
• during the overnight session, i lowered my offer on the 1 NQZ09 contract i am holding from 1736.50 to 1726.50...the morning economic data releases caused some volatility, and the NQ traded as high as 1726.25, 1 tick below my offer...upon returning from my morning errands, i noticed this missed offer, and sold my last NQZ09 contract at market (1722.00)...
• +7.92 NQ points/contract, 1 contract traded...
• currently flat the NQZ09...
• having said all that, i am interested in picking up some NQ if we trade down to the lower portion of the recent daily range...i am bidding for 1 contract at 1708.50, and 1 contract at 1693.50...
• i am still long a full position in the ES via my 'SPY Gopher' systemic trading model, which is due to be exited on thursday's close...since i am long the ES and it is highly co-related to the NQ, i would rather not see the NQ trade down to 1708.50 or 1693.50, but if it does, i will get back in it...
• so over the past 3 days, i have sold the 3 NQZ09 contracts picked up during late last week's downdraft, for a total of about +8.33NQ points/contract, 3 contracts held...at the worst level last week, the NQZ09 traded down to 1688.75...i was averaged in at 1714.08...at that worst level, i was down about 25 points/contract...so my return on these 3 contracts relative to my max intraday drawdown was not good...if i was not holding a full position in the ES or about to get a systemic signal to get long a full position in the NQ, i would have held these 3 contracts for a longer period of time, and ideally exited them at higher prices...this would have increased my profit relative to my drawdown...trading multiple styles on multiple time frames with limited capital sometimes leads to non-ideal entries and/or exits for my discretionary trading...
• trading with oliver at vcm today and tomorrow...

Disclosure: Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

'NDX 1st DOM' generated a Long Exit Signal for Wednesday's Close, 9/2/2009

• 'NDX 1st DOM' generated a Long Exit Signal for Wednesday's Close, 9/2/2009...
• the position was stopped out shortly after the market open last wednesday morning...this is the 3rd stop in a row for this model...the equity curve high was hit on 5/4/2009...
• one of the great things about this model is its stop...it is only 0.50% below the entryprice, so being wrong is not that expensive...
• this stop puts the systemic swing trading portfolio about 13% below its all time high hit in the beginning of july 2009...

'NDX 1st DOM' generated a Long Entry Signal for Tuesday's Close, 9/1/2009

'NDX 1st DOM' generated a Long Entry Signal for Wednesday's Close, 9/1/2009. This model is based on the behavior of the NDX on the 1st calendar Day of the Month (DOM). It is due to be exited at Wednesday's Close unless its Money Management Stop is hit intraday.

Here are some of the model's Performance Statistics:

• Model Tracking Vehicle=NDX
• Start Date=11/1/1985
• Number of Trades=114
• Average Trade Return=0.40%
• Average Winning Trade Return=1.24%
• Average Losing Trade Return=-0.47%
• Win Rate=51%
• Ratio of Average Win/Average Loss (RAWAL)=2.63
• Profit Factor=2.73

The win rate is only 51%, but the average winning trade (+1.24%)  is 2.63 times as big as the average losing trade (-0.47%).

The model uses a very tight Money Management Stop, currently 0.50% below the Entry Price.

As can be seen from the Equity Curve shown above, the model is currently trading a few ticks below its all time high. However the two most recent trades were stops, with the last trade stopping out on the following day's Open with a loss of about 1.1%. This loss was the largest single trade loss for the model.

Disclosure: Long 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***

9/1/2009 1145 am update

• wow, big ramp by the bulls into the 10 am news, then the news beats expectations, and then a huge sell off which is still underway...
• since i was already long the ES via '1 Ct Spyder' and there is a looming EOD entry signal for the 'NDX 1st DoM', and since i have been slightly off with my exit targets in the NQ lately, i decided to change the previous limit orders of 1635.00 and 1646.00...
• i sold one contract at 1626 (just below the 1627.50 pivot) and one contract at 1640.25 (just above the midpoint of the 1627.50 - 1648 range), netting +7.25 total (3.625 pts/contract)...
• i would have loved to have been able to hold on for the initial targets, but my analysis and risk management would not let me...if i had to do it all over again, i would do it the same way...
• an additional concern was the major indices are seeing some short term topping action and there are lots of bears looking to front run the typical september weakness, that we might see some strong selling pressure on worse than expected econ data and that would lead to a sell off like we are currently witnessing...i did not imagine that this intense sell off would come on the back of better than expected econ data!
• the '1 Ct Spyder' stop is set on the ES at 994.00...after the strong rally into 10 am which saw the ESU09 trade as high as 1027.75, and the seemingly never ending losses for my systemic swing trading models, i will be quite disappointed if it stops out...however if it does, i will just wait for the next entry signal and take it when it comes...trading is all about standing up after falling down...
• being that i am expecting a long entry signal from the 'NDX 1st DoM' systemic swing model at the close today, i am not looking to enter a discretionary swing trade for the NQ for the rest of the day...

Disclosure: Long ESU09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...***

Extreme Frustration, but keeping my chin up.

For the past few days I have been in the process of culling out models that have not been performing well over the past few years. On the surface this is the right thing to do. However 3 of the 4 recently discontinued/suspended models have performed very well over the past few weeks:

Narrow Bar #1 NDX: generated a trade a few days ago that made about 0.5%. I have suspended the Narrow Bar models due to a flaw in the logic.

NDX OU: This morning, I closed the NDX OU trade pre-market for a 0.22% loss. The model has performed poorly over the past few years and for all intents and purposes is declared dead. The after hours futures have gapped up 25 points, so that model would be sitting on a 2.0% gain due to be closed at 4pm Wednesday.

NDX 14th DOM: I discontinued this model 15 minutes before the close of today's markets. The initial concept was sound, but the logic filters no longer made sense to me and the model has been performing poorly over the past few years, so I discontinued it. This model would have generated an entry signal at 4pm today. Right now, with the gap up in the NQ futures, that model is up about 1.85%.

Oh, the models that I am keeping, and that have generated positions over the past few weeks have either been scratches for small gains, or have gotten stopped out:

BTBT NDX
BTBT RUT
Payrolls NDX
NDX 1st DOM
NDX Summer Rally
NDX 30th DOM

Right now I am very frustrated. My cognitive side still believes in the models that have performed poorly over the past few weeks, and still believes the models that I have discontinued should stay offline. However, my emotional side is very frustrated. This reminds me of the challenging dynamic I experienced from the summer of 2007 to the summer of 2008. Nearly everything I did was wrong. The entry signals I took often turned into losers, and the entry signals I ignored ofter turned into winners. The basis for ignoring those profitable signals was disbelief in robust models. This happened so often, that I became too scared to trade.

This current environment appears to be different. A string of poor timing where good models produce losers and bad/suspect models produce actual/potential winners. I am not going to change how I trade. Except tonight and tomorrow will probably be rooting for the gap up to be sold! Emotionally, I want to be right, cognitively I won't be changing a thing.

Chin up!


p.s. the gap up may not be all that bad...i have been building a longer term investment position in the FAS for my IRA and some custodial accounts...the FAS may be held for another 3-15 months, depending on how it performs...ideally i want it to go down more so i can build up my position...alas i cant control what it does, so if it decides to put in a run, i will have a partial position, which is better than nothing...

Disclosure: Long FAS.

***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***

The Crusher: Market dislikes the June Payroll report, 'NDX 1st DOM' and 'NDX Summer Rally' get stopped out

Wow, that was an ugly Open. I was dropping my son off at daycare, so I wasn't in front of my screens to watch it. My stop orders were in place and they were hit:

'NDX 1st DOM':

The Modeled position (NDX) posted a 1.12% loss, worse than the Average Losing Trades return of -0.47%. The actual Trading position (NQU09) posted a -0.90% loss (including commissions), somewhat better than the model.

'NDX Summer Rally':

The Modeled position (NDX) posted a 1.29% loss, slightly better than the Average Losing Trades return of -1.45%. The actual Trading position (NQU09) posted a -1.53% loss (including commissions), somewhat worse than the model.

Dusted myself off and I have moved on. Another model may generate an Entry Signal for today's close. If it triggers I will post about it later.

'NDX 1st DOM' generated a Long Entry Signal for Wednesday's Close, 7/1/2009

'NDX 1st DOM' generated a Long Entry Signal for Wednesday's Close, 7/1/2009. This model is based on the behavior of the NDX on the 1st calendar Day of the Month (DOM). It is due to be exited at today's (Thursday's) Close unless its Money Management Stop is hit intraday. Due to the July 4th holiday, I believe the market closes early today (1pm NY time). I have to double check on this though. If anyone can confirm this, please let me know.

The model uses a very tight Money Management Stop, currently 0.50% below the Entry Price. The pre-market futures are trading down about 0.4% right now, so we are going to need to see a positive market response to the closely watched Payroll report due to be released at 830am. A negative response to the report will probably stop this position out at the open, and quite possibly for more than then modeled 0.50%.

As we can see from the Equity Curve chart shown above, the model is currently trading just below it's all time high.

Here are some of the model's Performance Statistics:

• Model Tracking Vehicle=NDX
• Start Date=11/1/1985
• Number of Trades=113
• Average Trade Return=0.40%
• Average Winning Trade Return=1.24%
• Average Losing Trade Return=-0.46%
• Win Rate=51%
• Average Win/Average Loss=2.7
• Profit Factor=2.85

The win rate is only 51%, but the average winning trade (1.24%) is nearly 3x as large as the average losing trade (-0.46%).

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***