10/14/2009 4:15 pm update: FAS, NQ, ES

FAS discretionary swing trading:

• during the last dip down in the FAS from the end of september to the beginning of october, i was scaling into the FAS in the low 80's thru the high 60's (large green oval), with a final average entry of around 77.95...not an ideal average for the range...i was too aggressive in the low 80's...
• i started scaling out of this discretionary swing trade on monday (low 88's)...today another one of exit targets were hit (93.50)...the exits are displayed within the red oval...
• of the six FAS lots that i started with, only two remain...i am currently offering them at 95.00 and 96.50...

NQ discretionary swing trading:

• as per my post last night, i believed the odds were high for a gap fill this morning on the NQ...the NQ opened around 1750 and then sold off to the 1740 pivot, but didn't fill the gap down to the high 1720's...
• i was bidding in the 1730's but these levels were never reached...during lunch, i raised my bid to 1741.50, but it wasn't filled...the uptrend was very strong today...
• the NQ did break its previous swing high of 1753.25, reaching the 1754.50 today...a few weeks back, during the NQ/ES downdraft, i was calling for an eventual new swing high...
• this move up in the NQ has generally shown rw compared to the ES...i prefer market leadership from the NQ, however, i will gladly accept it from the ES when it is being led by the financials...
• the NQ appears pretty extended to me right now...i remain bullish on it through the end of year...
• right now, i will be more conservative with my discretionary swing trade entries in the NQ...
• i can see the NQ possibly falling to the high 1600's on the next swing move down...these levels may change if the NQ grinds up from these levels..
• i am currently bidding 1745.00 for 1 contract and 1726.50 for a 2nd contract...
• historical trades are not being shown correctly on the above NQ 15M chart...

ES:

• ES is beginning to trade above its upper trend line again...
• the last time this happened (in the latter half of september), the ES based for a week or so, and then dropped down to the lower trend line...
• who knows if this will happen again, but i will be watching this pattern...

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...trade at your own risk ***

'SHOE SPY' generated a Short Exit Signal

'SHOE SPY' generated a Short Exit Signal at the 4pm Close on Friday 6/19/2009. The tracking vehicle (SPY) took a 0.4% loss, though the trading vehicle (ESU09), took a larger % loss, perhaps due to the ESU09 trading above fair value or something, which obviously did not work in my favor. I imagine that over a large enough period of time, the periodic discrepancy between the SPY and the ES will even itself out.

So this questionable model booked another losing trade. I will have to revisit the following:

• stop trading the model


• rebuild the model


• reduce the position size even further for future entry signals

When my Portfolio is both Long and Short, what direction do I root for?

Right now, my System Trading portfolio is about 10% long the NQU09 (via 'BTD Index': http://stbsmb.blogspot.com/2009/06/btd-index-generates-entry-signal_16.html) and about 60% short the ESU09 (via 'SHOE SPY': http://stbsmb.blogspot.com/2009/06/shoe-spy-generates-short-entry-signal_18.html). I find myself rooting for the long and then rooting for the short and then rooting for the long and then.... Since the ES and NQ are highly correlated, I should expect them to pretty much move in tandem with each other. If I keep on rooting for both, then I will surely make myself crazy, yet I find that I am doing it anyway.

So if I am going to root, then which direction should I root for? On balance I am net short so I should root for the downside.

By why root at all? This is not professional baseball that has me rooting for the home team (Go Red Sox!). However, the very notion of rooting suggests I am too close to the trade emotionally, too involved in its outcome.

If my models are robust, then the winning trades and their profits will come over the next 12 months whether I root for them or not. While the rooting can be fun, perhaps it is a sign of being too tied up in the trades outcome, of too much ego involvement.

Perhaps this dynamic is also related to my tendency to exit winning trades too soon, specifically if they have not reached the price target or the time stop. Going back to the baseball analogy, if my team is winning, and I can call the game early, then I get to book the win and thus improve my record! But somehow I don't think the opposing team, the umpires and MLB would allow such a thing. Since I trade on my own, I am also my own coach, manager and umpire. Whenever I am inclined to exit a trade early, I should consult my coach, manager and umpire to see if it is an acceptable thing to do. Somehow I don't think they will!

This has been an informative post for me to write. I hadn't previously made the connection between rooting and exiting a wining trade early. Perhaps there really isn't a connection and I just went off on a tangent. But perhaps there is. Since it is a pretty human thing to do, I don't know if I can stop rooting for a particular direction (long/short) or a particular sports outcome (go Sox!), but at least I have brought this dynamic to my attention. This in itself is a win.

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Confession: As a boy growing up in New York during the 1970's, I was a New York Yankee's fan. I have been living in Massachusetts since 1986, and became a Red Sox fan in 2003. My wife is a huge Sox fan, and we have watched or listened to nearly every Sox game since 2004. It has been great fun being on both sides of one of the greatest rivalry in professional team sports. I have tremendous respect for the Yankees and their organization, but when it comes to rooting I am all about the Sox. Periodically, I like to remind my wife that I was a Yankee fan. She responds with the usual grimace when I express such blasphemy.

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Disclosure: Short the ESU09, Long the NQU09.

***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***

'SHOE SPY' generates a Short Entry Signal

'SHOE SPY' has generated an Entry Signal on the Short side for the Thursday Open of the SPY. 'SHOE SPY' stands for 'SHort Option Expiration SPY'. The trade is due to be Exited on Friday June 19 at the 4pm Close, unless the Money Management Stop is hit before hand.

This Strategy is based on the behavior of the SPYder's during Option Expiration week, and is built on data that goes back to 1993.

This Short biased strategy performed extremely well during the bear market of 2000-2002 (Trade #32-52 on the Equity Curve Chart above). Though it did hit an new Equity Curve high in January 2008 (Trade 78), it has since booked its largest drawdown, during a period when the S&P 500 dropped by nearly 50%! The model appears to be out of sync with the market behavior during Option Expiration week for the past 18 months. The model may be broken.

I used to trade this model with 100% of capital, but I reduced that to 60% of capital when I put the trade on this morning. As of about right now, the position is about 1% out of the money.

I may need to do one or more of the following:

• stop trading the model


• rebuild the model


• reduce the position size even further for future entry signals

Disclosure: Short the ESU09.

***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***