Friday 27th July Trading

Finally we had some good downside on Friday with the NQ futures falling 126 points to 7299.75 – each point is $20 per contract. I had a strategic short from 7411.75 and a tactical short put on in the morning at 7429.5. My only regret is that I closed the tactical short at 7380 for only a $986 profit rather than setting a wider stop and letting it ride down for another $1600 in profit :) The strategic short is of course still in place as the model remains short. I am now up $885 for the month. Hopefully, I will stay up for the last couple of days of the month. I expect the market will go down further, both the model signals and looking at previous declines this year suggest that there is a lot further to go down before bottoming. All the previous declines went below the 34 day moving average and two went to the lower 34 day Bollinger Band:

If the latter happens, we would be at 6950 or so, $7,000 a contract from where we are now. Of course, given the strong trend it is more likely to be like the declines in April and June, which didn't reach the lower Bollinger Band.

Indications at the moment are that we don't want to do a tactical short during the US overnight on Sunday-Monday. A short near the US market open looks more likely to pay off.

Trading in 2018 is Objectively Better

I computed my average gain per NQ contract traded in 2006-2008 compared to in 2018. In 2006-08, on average I gained 0.46 points per contract traded or $9.31. Commissions on a roundtrip were $4.80 then. In 2018 so far, I made 3.69 points per contract or $73.74. Commissions are now $4.10 on a roundtrip. So, my trading now is almost an order of magnitude better. The average is brought down by lots of small daytrades I've done. As I plan to do fewer of those, the average should improve, I hope. On the other hand, the level of the index is now nearly 4 times higher than it was in 2006-8 and so a given percentage price move translates to more points.

This graph shows the equity curve on NQ trades - the actual number of trades is half this as there is one data point for each opening or closing of a position. Initially in 2006-7 I had a reasonably good increase in profits, peaking around $10k cumulative profit. Then there was a long slow decline into 2008 of a series of small wins, punctuated with larger losses. The big jump is the start of trading in 2018,  when I had a series of big wins. Since then, things have gone sideways, with losses equal to gains.

Tactical and Strategic Trading

After seeing a big profit disappear again a few times, I think I am going to adopt a combination of strategic and tactical trades now that I am trying to trade two contracts. One contract is always held in the direction of the model for as long as the model is long or short. This is the strategic trade. The other contract is in the same direction but can be closed out for the day when there is a big profit already. That is the tactical trade. Yes, day trading but the kind of daytrading where you put a trade on at the beginning of the overnight futures session and close it at the market open or vice versa. I had planned to do this but deferred it to stage 4 or 5 of the experiment. But I think I need the psychological boost now. I will make trading decisions using a chart with 2 to 3 hour candles. On a chart at that frequency most days break down into a rising and a falling period or a weak (when the market goes sideways) and strong period. I will close the tactical trade if it has made a profit and the next half of the day looks like being weak or going in the opposite direction to the model. Anyway, let's see if this works.

It probably was necessary to suffer through the pain of seeing a big profit on two contracts disappear a couple of times to be willing to have two contracts on overnight Australian time.... I tried adding one contract tactically before but was too nervous about it to set a wide enough stop.

Today the strong period was during the overnight (the market went down, in the model direction) and the weak period was during the US daytime when the market went up in the opposite direction to the model.

P.S.
I was just stopped out by the Google earnings report... Even more wishing I had closed one contract at the market open... This was a "tactical" rather than model stop. So, I got short again (tactically and strategically) at 7425.5 with the stop at 7441. This is very close, but was the second pivot resistance level when the model originally went short and so with the current model stop rules, that's where the stop stays.

Actually, the model is bit ambiguous today, but following the rules for these situations, we should still be short...

P.P.S.
I was just stopped out at the model stop. That means I'm out for today. Tomorrow morning I will re-evaluate the model direction. This is definitely looking like a losing month, similar to April, which was the initial model development month.

This model trade that was initiated on Friday lost 0.86%.

I researched the previous cases of similar ambiguous model signals so far this year.  There were only two previous cases, which were where the signal said to switch to short but was ignored because the turning point was from a value of the indicator that was close to zero. Both those times, staying long was the right thing to do. Maybe, in the absence of getting stopped out, staying short will turn out to be the right thing to do today. We will see. Either way, it is a very small sample to base any conclusions on.