10/5/2009 4:30 pm update: 'Payrolls NDX', NQ, 'BTD Index'

'Payrolls NDX':

• the 'Payrolls NDX' model booked a 0.79% profit today...the trading position (NQZ09) booked a 0.72% profit (including commissions)...the last two trades on this model were stops, so it is nice to see the model 1) not stop out; 2) generate a profit....
• in terms of NQ point, this trade generated +12.50 NQ points/contract, 3 contracts traded...

NQ discretionary swing trading:

• NQ showed rw compared to the ES today...SMH underperformed, while the XLF outperformed...
• early last week, i made a call that the NQ could take out its recent swing high by the end of the week...unfortunately, not only did we not take out the recent highs, but the NQ fell to new lows by friday...
• for my discretionary swing trading position in the NQZ09, i remain long 3 contracts at an average of 1685.17...
• i am currently offering 1 contract at the following levels: 1695.00, 1705.00, 1716.50...
• i am still bullish for the longer term, just riding out what i believe is a shorter term move down...

'BTD Index':

• the 'BTD Index' model remains long 1 NQZ09 at 1665.50...
• the low of this swing move down (10/2), came on the day after the first closing break of the lower bollinger band on the NDX daily chart (10/1)...this fits the previously discussed pattern of marking the last 3 swing lows before making a new swing high...

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**

'Payrolls NDX' Generated an Entry Signal for Friday's Close, 10/2/2009

• on friday's close, my 'payrolls ndx' model generated a long entry signal...i entered a 50% (3 contracts) position via the nqz09...
• the model is based on the behavior of the NDX on the day of the payrolls report...this model was recently rebuilt, which led to a reduction in the stop size...
• the position is due to be exited at today's close if its money management stop is not hit...

Here are some stats:

• Model Tracking Vehicle=NDX
• Start Date=11/1/1985
• Number of Trades=19
• Average Trade Return=0.76%
• Average Winning Trade Return=1.51%
• Average Losing Trade Return=-0.53%
• Win Rate=63%
• Average Win/Average Loss=2.83
• Profit Factor=4.85

Disclosure: Long the 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.

***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**

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***

'Payrolls NDX' is an Express Train with NO STOPS today! The trade is still a loss though and the model remains suspect.

'Payrolls NDX' is an Express Train with NO STOPS today! However the trade is a still a loss and the model remains suspect.

The Modeled position (NDX) posted a -0.36% loss, which is better than the Average Losing Trades return of -0.63%. The actual Trading position (NQU09) posted a -0.53% loss (including commissions), somewhat worse than the model.

The position was close to getting stopped out, down about 1.5% at 1030 am. However it then based into lunch, rallied up to its gap down opening level, hit a new high for the day in the afternoon, and closed just below that high of the day. Today's action saw the NDX carve out a nice bottoming tail on it's daily chart.

However, the trade is still a loss and the model remains suspect. I will have to re-evaluate the robustness of this model and make an adjustment to my trading plan:

• reduce the position size for future entry signals
• rebuild the model
• stop trading the model

'Payrolls NDX' Generated an Entry Signal for Thursday's Close, 7/2/2009; however its robustness in realtime trading is unproven.

'Payrolls NDX' Generated an Entry Signal for Thursday's Close, 7/2/2009. This model is based on the behavior of the NDX on the day the Payroll report is released. It is due to be exited at today's (Monday's) Close unless its Money Management Stop is hit intraday.

This model of market behavior is unproven in real time trading. Prior to Thursday's Entry Signal, the model has produced only 18 trades within a 24 year window. The first 17 were used to build the model and trade #18 was the first one that was executed in real time. It was subsequently stopped out, and that was the only stop out in the 18 trade history. At the time of writing this post, the current trade is down about 1.25%.

This is one of the risks of system trading. Even when building a model with in-sample data, testing it on out-of-sample data, and approving it for trading (because the model appears to be robust), there is no guarantee the model has correctly identified a type of predictive market behavior that will generate profits going forward. If the model gets stopped out today, then we will have a situation where the only two stops in the 19 trade history of the model, are when it began to trade in real time. This does not inspire confidence. In the case of a stop out today, I will have to re-evaluate the robustness of this model and make an adjustment to my trading plan:

• reduce the position size for future entry signals
• rebuild the model
• stop trading the model

Here are some of the model's Performance Statistics:

• Model Tracking Vehicle=NDX
• Start Date=11/1/1985
• Number of Trades=18
• Average Trade Return=0.94%
• Average Winning Trade Return=1.39%
• Average Losing Trade Return=-0.63%
• Win Rate=78%
• Average Win/Average Loss=2.23
• Profit Factor=7.80

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***