Friday, August 30, 2013

E-mini S&P 500 futures (ES) - Anyone Trade This?

I doubt many of my readers trade the E-mini S&P 500 futures contract (ES), but the outcome of this TSI-vector strategy sure has me thinking. 

Imagine a trade that lasts, on average, 9 trading days and then does not trade, on average, for another 9 trading days. Sounds like a trade a month, more or less. Maybe sometimes even 2 trades per month. 

But for the 9 days you are "in", the average net profit is $640. Twice in one month is $1,280 net profit, on average of course.

If you are skeptical, let me tell you I am the most skeptical. I will not believe it until I see real-time

The bad news is that if it looks too good to be true, it probably is not true.

The good news is that you can come back once and awhile this fall and see what actually happens. I make no promises, but I do have an expectation that things will either turn out great, or I will learn more from my failures, and then they will turn out great!

Enjoy your long weekend and see you in September when it will be 'game-on'.


Thursday, August 29, 2013

TSI-Vector Strategy Applied to 13 Ticker Symbols

In the left panel of the homepage you will now find links to 13 ticker symbols that have received my best 'TradeStation Walk-Forward Optimization' effort. Clicking on one of the links will take you to an overview of how relatively successful my TSI-Vector Strategy was with that particular security on a daily trading basis, and includes links to all of the other ticker symbols studied. 

My expectation is that by this weekend I will have completed the next phase of my work, which is to prepare for the public communication of the real-time trading signals generated for each ticker symbol and to provide a mechanism for their recording.

An unusual feature of the strategy is that all trades - both entry and exit - are conducted at the opening bell of the NYSE at 9:30 am EST with a simple market order. Another feature is that the computer will give me the signals on the preceding day at 4:01 pm EST - and from there I will be able to post the details soon thereafter. These features, should the strategy prove worthwhile, will be really convenient and easy for everyone's use.

Once I got a ways into my work with the TradeStation WFO (Walk-Forward Optimizer) I discovered that the reliability of its output is contingent on the strategy delivering a minimum of 400 trades for analysis. This was extremely disheartening to me, as nothing I was testing would deliver that many trades. My concluding run of the S&P 500 ETF (SPY) covered the daily price movement of 20 years, yet amounted to only 235 trades. The gold ETF (GLD) only goes back 9 years and my long only strategy generated just 41 trades.

So what I am trying to say is that these strategies may not work. It is entirely possible that their sample size (ie number of trades) is insufficient for reliability. But to be fair, it is possible that they will work, just the same. At this point we really don't know.

I'll post the trades daily, update a spreadsheet that records the signals, prices, etc., then we'll just watch and see what happens. It'll be another adventure - and hopefully an adventure with a beautiful rainbow or pot of gold at the end. 

By the way, if you find a link or picture or whatever that does not seem to be working properly, please let me know. No doubt I have juggled so many balls for 16 hours a day to produce this that I have overlooked something. I will appreciate your input. Thanks.


Friday, August 16, 2013

Now that Gold's Bull is Charging, Where is the Easy Money?

This evening I was musing over a question posed by a reader about whether this or that mining stock looked to offer the biggest bang in the near term, as it appears the gold bull and its related mining stocks have declared war on being repressed another single day.

I decided to write a little computer program to help me get to some answers and this post will share with you today's assessment of 105 mining related issues in modest detail.

It didn't take me long to figure out which metric to use for my query. The path of least resistance, in the short run anyway, is for miners to achieve the price level of this past March 22nd. This was a high point followed by a huge gap lower and price should have no problem retracing that level as the bull charges ahead.

A quick look at several stocks revealed a clear similarity with my observation of the Market Vectors Gold Miner ETF (GDX - see chart above). Now the only question was how do I code something that will tell me something potentially useful?

I counted the number of bars since March 22nd and determined the number (surprise, surprise) to be 100. From there I thought it would be interesting to see which stocks had held up the best over the past 100 trading session, and which ones were crucified without mercy.

So that gave me the computer code:

((close[100] - close) / close[100]) * 100

In English it means subtract today's closing price from the closing price 100 trading days ago, divide that result by the price 100 bars ago, then multiply the whole thing by 100. The result is the percentage that price has fallen over the past 100 trading sessions.

I've made two charts detailing the results of this calculation for 105 mining related securities. First is a chart that alphabetizes the ticker symbols with the % change in price, and second is a chart that lists the same ticker symbols arranged first by those that have been corrected the least and the data continues to those miners that have been corrected the most severely.

So I guess the obvious question is, what does this tell us and which stocks offer the best bang for the buck?

Hummmm.... I was afraid you were going to ask that.

Well, it depends.

OK, that answer didn't help much, did it?

Here is the thing: the stocks with the highest relative strength probably have something very obvious going for them in the way of fundamentals that is understood by the market participants. If true, this likely explains, generally, why they are outperforming the rest. For whatever reason, investors in the past 100 trading days have been reluctant to lose their long positions in these securities as the selling hysteria capitulated. Investors viewed these securities as somewhat "safe", I guess.

But will these same currently outperforming stocks be ahead of the pack a year from now?

Maybe, but I doubt it.

What tends to happen is the market wrings the potential gain out of one set of stocks then looks for a new set of stocks that are comparatively undervalued. So, what is hot now is not hot later.

Another thing that happens is that stocks leading now are doing so in the context of the current price of gold and silver. When the price of gold and silver begin to rocket the stocks at the bottom of today's pile, which are more severely dependent on the price of gold and silver and therefore extremely out of favor when metal price is low, will totally rocket past the others in terms of price appreciation should/when precious metal prices make a substantial advance.

The 'safest' trade in the short term may well be the group of miners showing the most relative strength presently. And there may well be horror stories underlying the price performance of those stocks that appear presently as comparative dogs. 

I guess my encouragement is to recognize that in that pile of dogs there are incredible winners that have been misplaced in the chaos. 

I encourage you to do your research, read the company quarterly reports and consider how the profit margin of some of today's dogs will change astronomically if/when precious metal price rocket higher. If in the rubble you find a few promising candidates and hold on tight, you will vastly outperform today's leaders (in my opinion).

Have a great weekend and keep in touch,


Thursday, August 15, 2013

Claude Resources (CGR) - 10 Bagger on the Way(?)

This brief post is for those unfortunate souls who followed me right into the Claude Resources (CGR) muck and have persevered the nightmare of holding a huge draw-down for quite a long period of time. I commend you for your courage, your faith in the gold bull market and your ability to be the very quality required this time around, which of course, is the quality known as patience.

I made a simple chart of CGR to share with you. On the left side of the chart is the daily price action, and on the right side is the weekly.

The earnings and estimated earnings on both charts are from 2009 forward, and are current. 

Here is the chart:

The company recently announced their earnings for Q2 and you can read the transcript of the conference call (I have) if interested. I didn't receive any lightening bolts of inspiration from the discussion, but that's OK. The company is cutting way back on expenditures, targeting the mining locations with the higher grades of gold ore, and basically making what appear to be reasonable decisions that will help them weather the storm.

Probably the one tidbit of some interest to me was the discussion about taking a $10 million hit this quarter. They decided that as gold valuation has sharply declined recently, the valuation of the gold in their mines has declined so they recognized this by declaring an adjustment (loss) to their tangible book value. 

OK. I guess that makes sense. So now their tangible book value, I read, is $1.00 per share. But as the stock sells for only 23 cents per share, I guess that means their stock sells for 23% of tangible book value. (I could have been a math teacher, right?)

But getting back to the chart above, and my comment about the potential for CGR to become a 10 bagger in the not so distant future, you may recall an article I wrote about my trading experiences during the 2008 'similar hell'. And whether you recall the article or not, my reminder relevant to now is that the stock I owned did finally bottom at literally 2.5 cents, and within hardly more than 2 years thereafter, the stock soared what amounted to 2766%. 

These things happen. And when the mining sector is taken down, it is taken way down. But the gold bull, by any measure I am aware of, is alive and well. In fact, I really think Fibonacci nailed the exact bottom in late June and 'we ain't' going there again. 

So fellow martyrs, we have a True Strength Index indicator (TSI) trend line break on both charts - one using the slower and trend following TSI (25,13) and the other using the speedy TSI (7,4).

We also have a positive divergence BUY signal on both charts. About the only BUY signal missing for the full tamale meal is the ZERO crossover. With readings of just -0.05 and -0.18 we are just about there.

Smile - you deserve it!


Saturday, August 10, 2013

Walk-Forward? More like Crawl Forward

I've been vacationing in Bar Harbor, Maine this week and driving to Quebec today for some sight-seeing. Around the edges I have been cutting my teeth on using the TradeStation Walk-Forward Optimizer on the strategies of which I have recently written. It's a humbling experience, be sure of that, but I like a good challenge - the more impossible, the better.

But for what its worth, I have had some modest success - both in terms of figuring out how it works and getting something to pass the seemingly impossible test.

Here is a graphic of my first conquest using the SPY-1 strategy.

I am finding there is a particular mind set or skill to writing strategies and I seem to have mastered this challenge, at least for the most part. But the skill to 'think' like the walk-forward optimizer, to correctly anticipate what will work, what will fail and know how to get the desired outcome is new to me and will take time to figure out. Lots of time.

I've also been trying to keep an eye on those rascals on Wall Street and made a couple of charts to share with you.

First we'll look at the Gold Miners ETF (GDX) followed by Gold Futures (GC).

The bottom in the gold miners came on Wednesday June 29 (as Fibonacci himself told us) and was confirmed with the gap opening of Monday July 22 which leaped the miners into freedom. It turns out that this important trend line emancipation was successfully retested Tuesday and Wednesday of this past week and the miners should now be ready to rock 'n roll.

Speaking of trend lines, several posts ago in the comment section I noted that gold could well have concluded its daily cycle but the nagging thing was that the price was going to leave the angle of this first daily/intermediate cycle noticeably steeper than the comparable at the 2008 bottom.

I drew a trend line on my chart at home and mused in my comments that gold would have to trade down to about $1250 to reach an equivalent trend line angle. The next chart shows you the trend line I drew in blue and as I was 5 or so days early with thinking gold had bottomed, look where price did bottom.

Yup, right on that trend line I made weeks earlier. Actually, this recent trend line is .1% steeper than the 2008 specimen. Close enough for me.

Symmetry. There is always a way to find symmetry and balance in the way gold price moves - both in terms of price and time. This daily cycle peaked on day 18 of a 28 day cycle - practically nailing the 62.8% measurement in terms of time (days, not price).

We've had a couple of longish daily cycles at 28 and 29 days. Perhaps this current new daily cycle (Monday will be day 3 of the average 24 day duration) will be a shorter cycle and pack a powerful punch, too.

I made it to Quebec - off to find some crepes, coqauvin, croissants and whatever else.

Keep the faith,


Sunday, August 4, 2013

10 New Back Tests: TSI Vector Strategy

In the past day I was able to knock out 10 new back tests using the True Strength Index (TSI) vector strategy. The results are promising and in this post we'll take a look at them in some detail, and also take a peek at their respective equity curves.

I am finding that as I have several ticker symbols that respond well to the strategy it is getting a bit quicker to add new promising candidates. Ultimately I would like to have around 50 of these in play, then do the 'bring me down to reality' process of using the TradeStation Walk-Forward analyzer and, assuming there is anything left to look at, begin posting the trades in real-time and see what happens.

The area in the left side panel of the home page will be used to record the real-time trades. I will replace the existing 'Stock Quotes' gizmo (just below 'Subscribe to my blog') with a list of (hopefully) 50 stocks/strategies. Each stock listed will include the signal indicated for the open market order of the next day's trade. The signal will either be BUY, SELL, HOLD or NO TRADE. Also, each ticker symbol will link to its own separate page with the data I have regarding its back test results and a recording of its performance in real-time. 

I purposely devised the strategy so that it is entirely based on where the stock ends at the close each day. That is, at 4:01 pm est I will know the market order signal for the following morning's NYSE open at 9:30 am est. It will be nothing complicated to use because one either buys, sells or holds at the open each morning. No limit orders, no stop orders, etc. Just market order to BUY or SELL. My strategy is written this way and that is precisely what it back tests.

Let's look now at a graphic that details the 10 new back test candidates. A number of these are mining companies but from here on out I will be expanding more broadly into the stocks that are members of the S&P 500 index.

One of the understandings being brought into clearer focus as I do this back testing stuff has to do with the general topic of risk and pain. Each strategy gives me an opportunity to control both concepts quite well. But the interesting thing is that if one has a decent tolerance for pain, tempered by an accurate understanding of risk, over time that person will, by far, make the most money.

The two S&P 500 ETF (SPY) strategies offer good examples of this observation. Both have extremely high win/loss ratios (88.6% - 86.5%) with modest $Avg Net per Trade ($150 - $160). However, both also have a large losing trade in excess of $1,000

As I am able to adjust the value for the stop loss variable, the results shown above have the stop loss for SPY-1 set to 15% and SPY-2 is set to 11%. If I try to avoid the large losing trade in SPY-1 by ratcheting down the stop loss from 15% to 4%, the largest losing trade shrinks from $1,055 to $815. And an even tighter stop of just 2% yields an even smaller largest losing trade of $690.

But the rub is that the 15% stop loss shown above for SPY-1 yields,  over 10 years, a Total Net Profit (including commission expenses - $7 to buy, $7 to sell) of $13,221. The 4% stop loss yields a much smaller Total Net Profit - $8,063. 

By taking less risk with the 4% vs. 15% stop, the largest loser shrunk by $240 ($1055 - $815). But the Total Net Profit yielded when using the 4% stop loss also shrunk - by a whopping $5,158 ($13,221 - $8,063).

My question: is reducing the largest loss by $240 worth giving up $5,158?

If one really cannot take much pain, dropping the stop loss from 15% to 2% brings the worst trade down from a loss of $1055 to $690, but also drops the Total Net Profit to $7,248. This strategy would allow one to sleep better at night, I suppose, but in the end one may consider it expensive sleep - to the tune of $5,973.

Here is a graphic of the first 4 ticker symbols' Equity Curves: AEM, AU, COST and GG

The Costco (COST) and Goldcorp (GG) strategies were a little slow to get in gear - kinda spinning their wheels for the first 8 - 10 trades. The Agnico Eagle Mines (AEM) equity curve is just about textbook perfect.

Here are the next 4: JCP, NCMGY, NEM and SA

On first blush the equity curve of JC Penny looks questionable after trade 20. The data that is not seen is that JC Penny topped at the same time as trade 20 - February 2007 ....... at $87.18. 

Any idea where JCP closed this past Friday? If not, the answer is $14.28. Over the past 6+ years, shares of JCP have lost 83.62%. Meanwhile, the strategy (bless its heart) kept trying to make money and really did not get anywhere, but it did not lose much either. Very little, in fact..... just a few hundred bucks.

And finally for the 2 equity curves of SPY.

If you followed the dialog above about risk tolerance and stop loss settings, you will understand why each strategy exhibited a vicious knife stab or two in their otherwise 'perfect' equity curves.

I hope you have a good week and keep in touch, OK?


Friday, August 2, 2013

TSI Vector Strategy Working in TradeStation Now - Early Results

I am delighted to report that I have finally and successfully written the computer code to run my True Strength Index (TSI) indicator Vector driven strategy on the TradeStation platform. 

If you have a good education in programming this may have been an easy task. But for me, it was the most difficult programming challenge I have undertaken in a long long time. I cannot tell you how many hours I stared at my screen trying to figure out how to write one single line of code for this platform, because my 'now native' Think or Swim platform does things so much differently. It was like learning to walk all over again. I fell down so many times I began to wonder why even bother to get back up. At this point I'm really pleased I did not quit.

Anyway, that's behind me now. Thank heavens. The results I get using the TradeStation platform are the same as the code I wrote for Think or Swim. But the advantage is that TradeStation has an infinitely more powerful capability to test input values.....and even better (which I have not gotten to yet) it has the ability to do blind simulations of the code on the price chart, then optimize, so that eventually one should have a real good idea just how well the strategy is likely to really work in real-time trading.

So far - all of 24 hours - I have tinkered with several ticker symbols using TradeStation and I'd like to give you a look at the results. The outcomes include a $7 buy and $7 sell commission expense.

First we'll look at a chart of 5 ticker symbols which include various measurements of the strategy's effectiveness on past price performance. And second, we'll take a look at the Equity Curves for each ticker symbol.

I want to tell you right up front that while what I am showing you is 100% true, I doubt the 'real-time' performance (which we will begin watching soon) will look this good. The walk-forward testing I have yet to begin will let some air out of the tires and give me a way to know what values to use for the various inputs so they are not overly optimized (read curve-fitted) while offering a statistically sound likelihood of being dependable. 

After I conclude that process then we will begin watching this in real-time and see how it works, OK?

Here are the Equity Curves for each ticker symbol. A little explanation on what to look for is offered in the lower left section of the picture.

Have a great weekend,