1/7/2010 12:30 pm update: CERN, NBR, NQ

• numerous studies i follow, including this one by quantifiable edges, suggests that seasonal weakness for january may begin tomorrow and last through friday the 26th...
• i am looking to reduce my longside exposure: when CERN and NBR broke out of their daily base on tuesday, i picked up some cheap out of the money calls on each of them...i just sold them for about a triple on CERN and a double on NBR...
• if the typical mid january weakness manifests, i will look to buy some NQ for a discretionary swing trade...
• i will also scan the charts and look for strong stocks that put in controlled pullbacks...once i sense the move down is over, i will get long some strong stocks via cheap out of the money calls...

***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 ***

QuantifiableEdges Best of 2009

QuantifiableEdges Best of 2009

12/22/2009: 10:45 am update: 'XMany', NQ, ES, EMD, TF

• some of the major indices have finally broken out (to the upside) of the recent ranges: NQ and EMD...
• though some are still banging their heads at resistance: ES and TF...
• i believe ES and TF will follow the NQ and the EMD to the upside...
• this run could last until the first few days of january...

• my 'XMany' model gave a long entry signal last night for the NDX...this model is based on the seasonal bullish tendency surrounding the christmas and new year holidays...
• rob hanna over at quantifiable edges, posted a study based on bullish behavior surrounding the xmas holiday....
• based on my 'XMany' signal, yesterday i went long the NQ at 1826.25...there is a money management stop (currently around 1773.00) and a trailing stop (much lower)...if neither of these stops are hit, the position is due to be exited on the close of tuesday january 5, 2010...
• here is the equity curve (each trade is made with a theoretical $100,000 worth of capital):

'XMany' Model Performance Stats

• Model Tracking Vehicle=NDX
• Start Date=11/1/1985
• Profit Factor=5.74
• Number of Trades=24
• Win Rate=71%
• Average Trade Return=2.70%
• Average Winning Trade Return=4.62%
• Average Losing Trade Return=-1.95%
• Ratio of Average Win/Average Loss (RAWAL)=2.37

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 slightly weaker performance data.

Disclosure: Long NQH10.

***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 ***

interesting studies for me to research

• quantifiable edges 2 days up in chop...
• woodshedder's Varadi’s DV2 vs. Wilder’s RSI2: Trading the Divergence...

9/29/2009 945 am update

• just before the market opened, i changed a NQZ09 order from limit 1726.50 to market, and was filled at 1723.00...
• +8.92 NQ points/contract, 1 contract traded...
• i am well positioned for the current rally, and am just looking to book some gains, reduce some of my exposure and free up some capital...
• i will be looking to buy some more NQ at a lower price or after a certain period of time has gone by...what that lower price is or how long of a period of time, has yet to be determined...
• quantifiable edges put out another study, this time regarding low volume during SPX rallies, and concluded that there is a slight bearish edge to this behavior...check the link for the details....i will do some further modeling on this concept...

Disclosure: Long NQZ09, 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***

was friday's low volume selloff in the spy bullish?

• quantifiable edges studies on low volume during consecutive day selloffs in the spy tends to be bullish...check the link for specifics...
• this is something i will do some further modeling on...
• lots of studies to model and so little time!
• time for a bit of a nap...

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***

ES / SPY / SPX behavior on FOMC announcement days: tends towards bullishness.

• yesterday, i referenced a setup (S5) by Trading the Odds, which suggested that the day before the FOMC announces their latest interest rate targets, tended to be bullish during the 1990-present time frame...
• in an attempt to potentially build a systemic trading model based on this bullish behavior, i modeled the behavior of the SPY on the day before the FOMC announcement for the 1996-present time frame...
• i too came to the conclusion that since 1996, the SPY has shown an overall bullish bias...however that bullish bias peaked in 11/2001 and since then, the SPY has traded bearishly on the day before the FOMC announcement...i did not build a systemic trading model based on this behavior...
• today, Trading the Odds posted another FOMC related study...this setup (S2), from 1990-present, goes long the ES at the close of the day before the FOMC announcement, and then exits the trade at the close of the day of the FOMC announcement...this simple strategy generated 156 trades, with a Profit Factor=2.13...
• this study peaked my curiosity, so i attempted to build a trading model based on the bullish behavior of the SPY on the day of the FOMC announcement...my study runs from 1996-present, and at the close of the day before the FOMC announcement, buys $100,000 worth of the SPY and upon the close of the next day, which is the FOMC announcement day, sells the entire position...there are no additional filters and there are no stops...
• my study, generated 107 trades, a Profit Factor=2.17, and an average trade return of +0.36%:

• a Profit Factor above 2.00 is pretty good...the next thing i want to see is what the trend of model has been over the life of the model, so i looked at the Equity Curve:

• the equity curve has shown extremely good performance lately...
• Quantifiable Edges also performed a similar study on this behavior, using SPX data from 1982-present...their equity curve chart shows similar performance...
• the next step for me was to see if i could build a systemic trading model based on this behavior...i divided up the SPY datastream into two slices: an in-sample slice from 1/1/1996-8/30/2006, and an out-of-sample slice from 9/1/2006-present...on the in-sample slice, i tested a simple moving average filter, a RSI filter and a stop...when i found a filter level that met my criteria, i would then run the model on the out of sample data...prior to adding any filters or a stop, i knew the Profit Factor was already 2.17...i like my models to have a Profit Factor of at 3.00...however in this case, neither a moving average filter nor a RSI filter combined with a money management stop yielded a model with a PF over 3.00...i was hard pressed to find something a model that yielded more than the baseline Profit Factor of 2.17...
• i was not able to build a systemic trading model based on the bullish bias that the SPY/ES/SPX tends to have on the day of the FOMC announcement...however, this bullish bias is good data in and of itself, and it has already factored into my thinking for my discretionary swing trading of the NQ...
• thanks again to Trading the Odds and to Quantifiable Edges for posting very relevant and useful studies of stock market index behavior....
• prior to the next FOMC announcement (11/4/2009 i believe), i will model the NDX and see how it performed on the day before the FOMC announcement and the day of the FOMC announcement...if there is a bullish bias, then i will attempt to build a systemic trading model...

'Trading the Odds' Blog: Pre-FOMC Day shows enough of a positive bias, that I might be able to build a trading model based on it.

Trading the Odds Blog:

• Pre-FOMC day with strong upward bias on the SPY...
• i should model this to see if i can build a trading system based on this setup...
• i will continue to follow this blog for additional setups that may lead to viable systemic trading models...
• i am also following Quantifiable Edges blog for additional setups that may lead to viable systemic trading models... the SPY Rising While SPY Volume Declines study (selected from the 8/25/2009 - 9/22/2009 QE posts) is another candidate for me to model...

Quantifiable Edges: Studies from Rob Hanna that I should do further modeling on

The following links are to studies that Rob Hanna posted on his Quantifiable Edges blog from 5/22/2008-8/24/2009 that I should do some further modeling on:

• CBOE Equity Put/Call finishes more than 25% below its 200 day moving average
• From a High to a Low in 1 Day
• Large Gaps up from a 1 Month High
• NYSE New Highs Contract While SPX Makes a 50-day High
• Slowing Rate of Decline Potentially Short term bullish
• Volume Low and Price High Often Leads to a pullback
• SPY closes in the bottom 10% of its daily range but still above yesterday's close
• S&P is oversold going into a Fed Day

I will continue to review Rob's blog for additional market behavior research.