Wednesday, April 11, 2018

Exited First Model Based Trade

The futures market started crashing when the People's Daily said that Xi Jinping's comments on openness to trade did not apply to the US. I exited my trade when the S&P 500 was down 1% on the day, based on a 1% stop loss. I made USD 245 on the trade, which was roughly equivalent to 1/3 of an S&P 500 futures contract. So it's about 1/2% on the underlying stock. I was up about USD 650 at the close of Tuesday's regular market.

I am continuing to fine tune my model strategy. It's different to how I traded a decade ago but following similar principles. When I deem the market is overbought I remain long (with a 1% stop) unless one model says that we will exit the overbought situation. Another indicator shows when we enter overbought. The mirror image applies to oversold - remain short with a stop. When neither overbought or oversold, I use the average of 4 predictors. This combination, if executed perfectly would have returned 37% since January 1st. It would have returned far less in the generally bullish market in 2017.

Despite this, I have some further research ideas to test out to see if they can provide a more theoretically satisfying signal. One of the 4 signals in the composite makes no sense whatsoever, but it has done really well since the beginning of this year.

The inverted head and shoulders formation still remains in play unless the market falls below the right hand shoulder:

Notice the higher volume on the left shoulder than the right, which is a classic sign of a head and shoulders formation. The alignment of the recent highs perfectly along the white line is also a classic sign. P.S. 12 April Long again for 0.75 cents slippage.


Financial Independence said...

With such volatile market speculation could be prooven to be very profitable.

However this is not for heart fainted. A friend of mine lost $30K in less than a week, couple of years back. My personal problem with the trading is you are loosing actual money, it is not like stock is temporarily down. You have actually lost money and own nothing. Mentaly it is hard to swallow with my own money.

How do you record your model strategy? Is it in a document, is it formullas you are applying for buy and sell, or is it in your head?

mOOm said...

To trade successfully you must use stop losses or bought options where you can only lose what you put down and then take an appropriate amount of risk relative to your account size. Back in 2008 I only had $10-15k in my trading account and I was trading S&P500 and Nasdaq futures contract, which was too much risk relative to the account.

The model is in a spreadsheet with an additional econometric program that produces predictions. I am writing down notes on how to combine the indicators optimally as I take some small trades now. The small trades focus me on looking at which indicators are more profitable when etc. So, after this development phase I will have a clearly documented model in writing and in the spreadsheet. Then it shouldn't take too much each time to update the model and implement new trades at the end of each regular US trading session, which ends at 6:00am currently in Eastern Australia or 8:00am during the the Australian Summer.

mOOm said...

Long again on 12 April - maybe I need to set up a Twitter feed for these updates.