Systematic Day Trading

I figured out a way to adapt the turtle trading method to systematic day-trading. I plan to apply it to markets which tend to move strongly after the release of US economic news at 8:30am Eastern Time on many days and which have elevated volume when US cash markets are open. The idea is to put buy and sell orders in for these markets at around 8:00am (currently 10pm here in Australia) based on the movement of the futures markets over the day up to that point. If there is a breakout of that range you go long or short automatically. Then you close the positions at the end of the trading day. This is a day trading method where you don't look at the market all day.

I don't have access to historic hourly data at the moment but I have backtested the idea for a couple of months by looking at charts for the NASDAQ 100 futures. It seems that the approach wins more times than it loses, though average wins and losses are about equal in size. Once the market starts moving in a given direction intraday it tends to keep moving in that direction. It looks like it would work well for stocks, bonds, gold, Australian Dollars... It doesn't look like it would work for oil, soybeans etc. These commodities typically expand their trading range in both directions when the market gets more active. As a result trades would tend to get stopped out.

I'll start trading it using the new micro-futures that are a 10th of the size of the e-mini NASDAQ and S&P contracts as well as with CFDs for gold (trading 10 ounces say) and Australian Dollars (starting with AUD 10k) and see how we go.

Trading Bitcoin Futures over the Weekend or Not

Because recently Bitcoin rallied strongly over weekends, I decided to close any Bitcoin futures short position at the end of trading on Friday. That means that this weekend I closed my short on Friday at the worst possible point and missed a more than 1000 points decline over the weekend. However, I've resolved not to get into this trade now and just wait for the next long trade.

Not including this weekend's action the average return over the weekend in the last 15 months when my model was short was -0.2%, i.e. a loss. But this is a small loss and is statistically insignificant. The t-statistic to test that this mean is different to zero is -0.31 (p = 0.74). On the other hand, the average return over the weekend when long was 1.5%. And this return is highly statistically significant. The t-statistic is 2.33 (p = 0.026).

This explains why I was reluctant to be short over the weekend but not to be long over the weekend. On the other hand, the expected loss isn't much, so avoiding trading over the weekend when short is due to risk aversion. Especially as I can place an effective stop in our Plus 500 CFD account. If we go long there and are short futures we are effectively out of the market. But it's expensive to do so due to their spread and overnight financing charges, and they only allow me to trade a maximum of 6 Bitcoin. On the other hand, I am only shorting one futures contract (5 Bitcoin) at a time at the moment.

So, how did this weekend affect these results? The gain to being short over the weekend was 9.5%. The mean weekend short return is now 0.07% with a t-statistic of 0.11 (p = 0.91). So, that is even closer to zero. Someone who is risk averse would still stay out of the market as the expected return is insignificantly different to zero.

To deal with the frustration, I am just telling myself that there will be a better opportunity to go long the further the price falls :) In the longer term, I think I would be less concerned about this if I diversify trading to multiple markets.

Individual Investment Returns for June 2019

I finally got around to doing this analysis for June:

It's not as straightforward as my other reporting and probably takes 20 minutes or so to prepare. International stocks, gold, and Australian real estate did really well. Australian small cap did really badly. The Unisuper superannuation fund also performed very well. Bitcoin trading was the real star though. It's not looking good this month so far... USD corporate bond performance continues to improve as the portfolio matures.