TaylorTree

Monday, January 10, 2005

Weak!

The market is looking weak. You feel good about the market when you wake up in the morning, the market is down, and then spends the rest of the day trending up. Day after day of this behavior and traders get bullish.

Not this market. Wake up every morning to witness the market up, sometimes nicely, then to watch it sell-off and finish the day lower. Weak!

You can almost feel the heavy-weights allowing the market to work higher in the morning and then begin their selling into the strength...working their positions off.

During these trading environments watch what is being sold. What's getting hit, experiencing a nice pop in the morning to then experience heavy selling pressure in the afternoon. These stocks can be a lot of fun once the heavy-weights work their positions off.

How did the Five Down system work out? Not good. If you would have taken the trade you would have lost -0.08%. There were 3 trades that occurred in the year 2004. Only 1 was a loser that occurred back in March. The loss was -0.82%. What's worse is the market lost another -2.52% within seven days of the close of the system. But, the good news is the market then rallied +7.48% from the opening of the Five Down system.

Not that any of that matters. Cause you know the saying...past results are not indicitive of future performance. Ha!

Be careful out there...traders are getting comfortable with the morning rally/afternoon sell-off. They might get more agressive in selling this market.

Daily Systems

Current Open Systems:

Symbol	System	Entry Date	Exit Date	Profit/Loss%
WAG	BreakUp	1/4/2005	open	+3.20%
QQQQ	Tii100Low	1/5/2005	open	-0.39%
QQQQ	BBLower	1/5/2005	open	-0.39%
QQQQ	ATRBreakBB	1/5/2005	open	-0.39%
QQQQ	TrueRVolume	1/5/2005	open	-0.39%
QQQQ	VolSurgeDown	1/6/2005	open	-0.23%
QQQQ	Harami	1/6/2005	open	-0.23%
ACV	BreakUp	1/7/2005	open	+0.89%
			Total	+0.30%

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Sunday, January 09, 2005

Weekend Update

Busy weekend. Need rest. Post more tomorrow.

Have a great week!

Daily System Updates

Current Open Positions:

WAG (BreakUp) long with current profit of +2.85%;
QQQQ (Tii100Low) long position with current loss of -0.34%;
QQQQ (BBLower) long position with current loss of -0.34%;
QQQQ (ATRBreakBB) long position with current loss of -0.34%;
QQQQ (TrueRVolume) long position with current loss of -0.34%;
QQQQ (VolSurgeDown) long position with current loss of -0.18%;
QQQQ (Harami) long position with current loss of -0.18%;
ACV (BreakUp) long with current profit of +0.40%.

Weekly System Updates

Closed system positions (sold at last Monday's market open):

SPDE (PennyLag) long with closed profit of +9.62%.

Current open system positions:

QQQQ (SimpleUp) long with current profit of +1.58%;
QQQQ (TurtleTrader) long with current loss of -3.91%;
AATK (PennyLag) long with current loss of -19.05%;
VNWK (PennyLag) long with current profit of +2.03%;
EGHT (PennyLag) long with current loss of -12.97%;
ZICA (PennyLag) long with current profit of +47.83%;
CARN (PennyLag) long with current loss of -2.68%.
HAUP (PennyLag) long with current loss of -6.17%.

Thursday, January 06, 2005

5 Consecutive Closes and a System

I've been staying away from system development ideas for approximately 3 weeks now. I must have been burned out. But, an idea has been ruminating in my mind thanks to the help of a few posts on Roger Nusbaum's site. So, most likely, I'll start backtesting the idea this weekend.

I basically would like to see if there's some substance in creating a covered call trading system. I'm afraid the major problem with a system like this is the fact that too much capital would be tied up to take advantage of the system. But, my curiousity with this idea is getting the best of me.

Truth be told, I've always stayed away from options. Delta, gamma...it's all greek to me. I just figured it's hard enough to do one thing well...so why add more complexity to the task at hand. But, much like pigeons, I gotta make it harder and harder on myself. :)

One more note. The DJ-30 and SP-500 broke their consecutive lower closes today. But, the Nasdaq Composite has now gone 5 consecutive days with lower closes. Doesn't really mean anything though...or does it?

If you would have traded this phenom you would have placed 56 trades since 1990 with a win ratio of 62.50%. And an eaked out an average profit/loss of 0.71%. This assumes of course, you bought at the market the following day the 5 lower closes occurred and sold at the close two days later. Not a great record.

If you would have traded the QQQQ instead of the Nasdaq Composite...your performance would have improved slightly. 42 trades would have been placed since 1990 with a win ratio of 66.67% with an average profit/loss of 1.12%. A little better.

Now, if you just add a little tweak and a little system magic and combine the two...your results improve tremendously. If you only take trades where both the Nasdaq Composite and QQQQ place 5 consecutive lower closes in synch and use the QQQQ as your trading vehicle...you get an average win ratio of 79.17% and an average profit/loss of 2.22%. And the number of trades are reduced to 24. You get better performance and less risk from the combination. Less risk because your in the market less than half the time as when trading the vehicles seperately.

Don't get too excited. This is just a quick test...not a full system.

Are the Nasdaq Composite and QQQQ in synch this time with the 5 lower closes. Yes. So, we can conclude based on backtested results, that the QQQQ will be higher at Monday's close than tomorrow's opening...at least 79.17% of the time.

Anyway, have a great Friday and an even better weekend!

Daily System Updates

Received ACV (BreakUp) long system trigger for Friday's market open.

Current Open Positions:

WAG (BreakUp) long with current profit of +1.96%;
QQQQ (Tii100Low) long position with current loss of -0.85%;
QQQQ (BBLower) long position with current loss of -0.85%;
QQQQ (ATRBreakBB) long position with current loss of -0.85%;
QQQQ (TrueRVolume) long position with current loss of -0.85%;
QQQQ (VolSurgeDown) long position with current loss of -0.70%;
QQQQ (Harami) long position with current loss of -0.70%.

Wednesday, January 05, 2005

Horse Races

The DJ-30 has closed lower than the prior close 6 days in a row.

The Nasdaq Composite and SP-500 have closed lower than the prior close 4 days in a row.

I have a few systems that trade these types of actions...one is kicking off on Thursday's open. But, I think this type of action is a blip. Not to mean it doesn't have some significance. Just mean to say, we need a few weeks to figure out what's going on in the longer term.

I read people everywhere rushing to form conclusions about this sell-off and what it means for 2005. It's too early to tell. This horse has just got out of the gate...and too many people are already picking winners and losers.

Last I checked, it took more than 3 trading days to make a year.

Daily System Updates

Received 2 more QQQQ long triggers for Thursday's market open from the following systems: VolSurgeDown & Harami. I've talked about the Harami system before. But, the VolSurgeDown system is a new one. It's based on three consecutive days where the close is lower than the prior close.

VolSurgeDown:
Win Ratio: 80.30%
Average Profit/Loss: +1.24%
Average Days Held: 3.30

Harami:
Win Ratio: 82.76%
Average Profit/Loss: +2.41%
Average Days Held: 6.72

Closed Positions at Wednesday's Market Open:

QQQQ (TrueRange) long position closed with a loss of -2.54%.

Current Open Positions:

WAG (BreakUp) long with current profit of +1.91%;
QQQQ (Tii100Low) long position with current loss of -0.36%;
QQQQ (BBLower) long position with current loss of -0.36%;
QQQQ (ATRBreakBB) long position with current loss of -0.36%;
QQQQ (TrueRVolume) long position with current loss of -0.36%.

Tuesday, January 04, 2005

Range Expansion Day

What a slaughter today. The market blew chunks as the heavyweights found the path of least resistance.

Gary B. Smith used to joke to his readers to sell the market whenever he made his way to New York for the Bulls & Bear show. Maybe I need to warn everyone to sell the market when I post my annual performance. Ha!

Looked at a house today. The house is a foreclosure. The house is nice but has an odd configuration. I guess, not really odd...evolved is a better word. The original house is your basic traditional style...but small. So, they added an office/playroom/bathroom onto the house and enclosed the deck. These are all nice additions...but are afterthoughts to the original house plan. As a result, the house doesn't flow as nicely as it should.

We'll probably put in a lowball offer hoping they'll come down a bit. For the right price and a little money...it could work. And hey, it would make a great rental someday.

Daily System Updates

The QQQQ (TrueRange) will have to be closed at Wednesday's market open due to the disaster stop being hit. But, then due to today's range expansion...I received 4 new QQQQ triggers at Wednesday's market open. So, the TrueRange system will be closed with a loss...but my actual QQQQ position will remain open due to the new system triggers.

The 4 new QQQQ system triggers are the Tii100Low, BBLower, ATRBreakBB, and the TrueRVolume. I've posted the backtested results on the Tii100Low and BBLower before. Here's a breakdown on the other two:

ATRBreakBB:
Win Ratio: 85.71%
Average Profit/Loss: +2.67%
Average Days Held: 6.79

TrueRVolume:
Win Ratio: 83.33%
Average Profit/Loss: +3.03%
Average Days Held: 8.38

Current Open Positions:

QQQQ (TrueRange) long with current loss of -2.29%;
WAG (BreakUp) long with current loss of -0.64%.

Blind Media and Studies

James Altucher beat me to it. I've been trying to clear space to test this same idea the media is bantering around all over the place. Blindly blabbering the study without really knowing it's validity.

So, kudos to James for demistifying the Five Days In January Effect. Read here.

You can see from his posting that the first five days in January are no different than any other five day period. But, there are some points to ponder for the month of January as James points out.

There are many studies, notions, and generalities about the market that when the pencil hits the pad are proven wrong, invalid, or just flat out stupid. Other studies might have been true at one time...but change as market participants take advantage of the inefficiency.

Take for instance the buying of the Dogs of the Dow. Typically you buy the first trading day in January. But, over time, people figured out you could buy the underperformers earlier...sometimes as far back as October to supercharge your gains. So, the strategy changes or shifts. And sometimes it comes back full circle.

That's the problem with date or time specific trading strategies.

Monday, January 03, 2005

2004 Annual Review

Time to tackle the annual performance review. Why, when I type that, do I picture me sitting in some obfuscated conference room undergoing a checklist of what I did and didn't accomplish for the prior year? Then receive my performance bonus or lack thereof. Ha!

Here we go. I posted a 26% gain for the year. This marks the 4th consecutive year of gaining 25% or more on the market. Most of the returns came from my systems. The account being measured does not use margin and does not trade options. All positions taken for the year were U.S. Stocks and the QQQQ. The overwhelming majority of those stocks are listed on the Nasdaq Stock Exchange.

Here's the breakdown:

Three losing months for the year. Two of those occurred back to back. The worst month was a -0.77% loss in July. Second worst month was a -0.68% loss in April.

Nine profitable months for the year. Five of those occurred back to back. My best month was a +6.14% gain in October. Second best month was a +3.79% gain in December.

Overall, a really good year. But, thanks to the big intuition mistake I made back in November...it cost me about 8% in overall equity gains. In other words, I posted a gain of +2.61% in November...if I wouldn't have liquidated my system positions and sat out that one week...my gain for November would have been 10% or more. What a difference a week makes.

On a lighter note...

My year was made when I found out my performance topped Rusty's. Maybe I will get that bonus after all. :)

Daily System Updates

One long trigger for QQQQ at Tuesday's market open. The TrueRange system generated this trade. This system has a 78.43% win ratio with an average profit of 3.67% and an average loss of -2.22%. This system is based on an expansion of the average true range. Not one of my favorites since the average profit isn't much larger than the average loss.

One long trigger for WAG at Tuesday's market open. The BreakUp system generated this trade. I'm sorry, but do not have the performance statistics available for this system tonight. Too tired...going to bed. :)

Closed the following positions today at market open:

Closed 1 QQQQ (BBLower) long with profit of +1.24%;
Closed 1 QQQQ (Tii100Low) long with profit of +1.73%.

Sorry, previous posts had the system's profit percentages reversed with each other.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Sunday, January 02, 2005

Weekend Update

Sorry, I've been lazy today. Snacking on all the X-mas candy and watching plenty of TV. I think I'm movie'd out and candy'd out. Actually, ready for the work week to begin. Ha!

If you're looking for a sweet movie to see with your significant other...check out Raising Helen. Pretty good...for a chick-flick. :)

I've installed the XM Satellite radio. Gotta say...it's another Tivo experience. Don't know if I can go back to normal radio again. It's that good. It will definitely improve the daily commute.

Trying to compile a list of the different trends that I believe will play out over the next few years. It's been harder than I thought to get my thoughts down into a semi-readable format.

It will be interesting to see how this market starts out trading for 2005. With everyone back...will the heavyweights start selling into this market? Or buying? I'm not smart enough to know. But, I'd be careful for the first couple of days until the market finds its new groove.

Have a great week!

Daily System Updates

Closing the QQQQ (BBLower & Tii100Low) positions at Monday's market open. These sell triggers are due to system time limits.

1 QQQQ (BBLower) long with current profit of +1.32%;
1 QQQQ (Tii100Low) long with current profit of +0.83%.

Weekly System Updates

Closing the SPDE (PennyLag) long position at Monday's market open. This sell trigger is due to the position not being profitable enough to warrant further holding.

Current open system positions:

1 QQQQ (SimpleUp) long with current profit of +5.16%;
1 QQQQ (TurtleTrader) long with current loss of -0.52%;
SPDE (PennyLag) long with current profit of +10.00%;
AATK (PennyLag) long with current loss of -12.70%;
VNWK (PennyLag) long with current profit of +0.87%;
EGHT (PennyLag) long with current loss of -4.01%;
ZICA (PennyLag) long with current profit of +65.90%;
CARN (PennyLag) long with current profit of +2.85%.
HAUP (PennyLag) long with current loss of -0.49%.

Saturday, January 01, 2005

Election Year Review

Wanted to post a close to the election rally effect posted back in November. You can read the first post on the study here. And a follow-up on the study here.

For those who don't remember, this study assumes you would have invested at the close of the last day in October and sold at the close on the last day of December of the same year within an election year. Here are the results of the study encompassing prior election years:

S&P 500
Time Period: 1964 - 2000
Total Elections: 10
Total Win%: 70.00%
Total Losing%: 30.00%
Average Profit: 3.85%
Average Loss: -2.74%
Largest Gain: 6.50%
Largest Loss: -7.63%

DJ-30
Time Period: 1916 - 2000
Total Elections: 22
Total Win%: 68.18%
Total Loss%: 31.82%
Average Profit: 5.63%
Average Loss: -5.44%
Largest Gain: 18.95%
Largest Loss: -15.29%

So, how did this election year compare?

The S&P 500 moved 3.86% from its October close and the DJ-30 has moved 3.99% accordingly.

The S&P 500 just about nailed its average profit of 3.85%. The DJ-30 missed its average profit of 5.63% by 1.64%. Overall, not a bad year for the study.

I hope all is well for everyone this New Year's Day. That you're home safe and recovering well from the New Year's Eve festivities. And hopefully, not too tired and stressed from the bowl games (especially if you're team lost!). What is up with my Aggies?!?

Friday, December 31, 2004

Happy New Year!

I'm busy with my research on the big trends for the upcoming years. It's taking longer than I thought with the research...so please forgive me for not getting it to you before this year is up. I hope to have the first part of the article posted this Sunday. Kinda open year 2005 with a bang. We'll see.

TraderMike posted his 2005 prediction for the market...here. But, I'm still waiting for his 2005 resolution(s). :)

My prediction? I tend to agree with Michael. How the heck can anybody know what's going to happen in a year? And if they did...would anybody believe them?

I think the best thing one can do in gearing up for a new year is determine what major trends took place in the prior year. Better yet...what major trends have been taking place for the past few years. Trends continue until they don't. The likelyhood of the start of a new year being the end of a major trend is very small. Large trends takes months and sometimes years to unwind. So, identify the major trends and gear yourself towards them.

The next best thing to do for a new year is evaluate what you did right and wrong in the previous year. And of course, do more of what you did right and less of what you did wrong.

Here's the major thing I did wrong in 2004. Second guess my systems. Selling out my system positions, letting my sidebet overcome my entire portfolio was a stroke of idiocy. But, it taught me a lesson. A lesson I've been needing to learn. Trust my systems.

The major thing I did right? Realizing I made a mistake in selling out my system positions and buying all of them back, at higher prices to boot. Did that hurt? Yes! But, it taught me something. Don't compound a mistake you made by sticking with that mistake to the bloody end. Cut your losses and move on.

So, enjoy the New Year everyone. I hope you have a Happy, Safe, and Prosperous One!

See ya in 2005!

Daily System Updates

Current open system positions:

1 QQQQ (BBLower) long with current profit of +1.52%;
1 QQQQ (Tii100Low) long with current profit of +1.04%.

Wednesday, December 29, 2004

Something about Nothing

Good news! I've purchased the Roady 2 XM Satellite Radio. I'll test it out and let you know the results in the coming weeks.

Stopped by Barnes & Noble...

Bought the latest copy of Active Trader magazine. Looks like there's an interview with James Altucher. Should be interesting.

Read the latest issue of Technical Analysis of Stocks & Commodities magazine showcases a mechanical penny stock system. My PennyLag system shares some of the core premises with their system. Especially, the part about volatility being a useful tool for the mechanical systems trader. Funny, how we use different tools to identify the same concepts.

Running Money looks like a good read. About a hedge fund manager's perils through Wall Street. Might have to add that to my reading wishlist.

Plans for New Year's Eve? Have any New Year's resolutions worthy of mentioning? What trends do you expect to continue or begin in 2005? Let me know.

Daily System Updates

Current open system positions:

1 QQQQ (BBLower) long with current profit of +1.60%;
1 QQQQ (Tii100Low) long with current profit of +1.11%.

Tuesday, December 28, 2004

The Variant Perception

Another fund manager after Bill Miller's record. I like the fact that Schier operates his fund from Topeka, Kansas. Read here.

The majority of my equity is in my mechanical systems. A small portion (5%) is reserved for what I call "side bets". These side bets are used to satisfy my trader side. Satisfying my trader side allows me to patiently ride my systems ups and downs. Well, at least sometimes. Ha! My current side bet was placed on GSH a few weeks ago.

I've been thinking that in addition to my side bets...further diversification is warranted. Except for the PennyLag system...most of my stock positions are in mid caps and small caps exhibiting the tight-riser effect. Tight-risers are stocks in extremely strong uptrends with low volatility. Part of this idea was obtained from Gary Smith in the book, "How I trade for a living". Granted Smith used mutual funds and I'm using stocks...but the idea is nevertheless the same.

So, the majority of my money is in the same type of stock and strategy. To combat this effect, I've been paying attention to mutual fund managers and newsletter authors with great records and strategies much different from my own. My hope is to allocate a small portion of my equity to a few of these investors...allowing me to participate in other opportunities in the marketplace...and at the same time smoothing out my equity curve a bit.

I'm still in the process of finding great funds and in particular great fund managers. As well, as newsletter authors similar to the post I wrote yesterday.

This is why Jim Schier interests me being from Topeka, Kansas. I like investors who are out of the so-called Wall Street grapevine. As Doug Kass often opines...I'm looking for the variant perception.

Daily System Updates

Current open system positions:

1 QQQQ (BBLower) long with current profit of +0.99%;
1 QQQQ (Tii100Low) long with current profit of +1.47%.

Monday, December 27, 2004

Late night Readings

Ed Yardeni's 2005 predictions. To put it simply, he's bullish on the US Markets. He's a believer in growth stocks and buzzword plays such as RFID and anti-virus companies. Also recommends coal companies...similar to Tobin Smith's mention on Bulls & Bears this past weekend. Check out his 2004 predictions...the recommendation to stay away from pharma was spot on.

Big Bonuses on Wall Street? How are the high-end retailers doing?

Silver is the new white? If so, could this bring more demand to the shiny metal?

Satellite radio? Yes, I'm seriously thinking about getting one. I live in a rural area and the lack of choice and quality on my commute to and from work is spurring this decision. It seems all the buzz is with Sirius. But, after my product research...it seems XM Satellite has the better product. Plus, it's cheaper. And I believe the XM Satellite Roady 2 is the only one offering customized stocks lists. Hey, after I saw that...I knew I had to have one.

Top performing newsletters of 2004 and their stock picks. The Turnaround Letter and BI Research are the ones sounding most interesting to me. Read here.

Alan Farley proposes his trader's resolutions for 2005. He's dead on with the weekly trading.

Interview with Darren Clifford. I like how he treats each trade as an independent business. The trading pairs strategy has given me some interesting system ideas to test.

Daily System Updates

Current open system positions:

1 QQQQ (BBLower) long with current profit of +0.03%;
1 QQQQ (Tii100Low) long with current profit of +0.51%.

Weekend Update

I've been taking it easy this weekend. Not much tinkering with the systems. Hope to get back to the normal routine this week.

Daily System Updates

Current open system positions:

1 QQQQ (BBLower) long with current profit of +0.45%;
1 QQQQ (Tii100Low) long with current profit of +0.94%.

Weekly System Updates
Long system trigger for HAUP at Monday's market open. The system that generated these trades is the same system that generated CARN, EGHT, ZICA, VNWK, SPDE, and AATK trades the previous weeks. So, as you know, system caters to penny-type stocks with high volatility. Holding periods are mid-term in length. This system is one of my riskiest systems. I trade very little size with trades from this system because losses can be extreme.

Current open system positions:

1 QQQQ (SimpleUp) long with current profit of +4.77%;
1 QQQQ (TurtleTrader) long with current loss of -0.90%;
SPDE (PennyLag) long with current loss of -10.38%;
AATK (PennyLag) long with current loss of -17.46%;
VNWK (PennyLag) long with current loss of -1.16%;
EGHT (PennyLag) long with current loss of -9.20%;
ZICA (PennyLag) long with current profit of +45.08%;
CARN (PennyLag) long with current profit of +9.90%.

Friday, December 24, 2004

Merry Christmas!

Hope everyone is enjoying the holidays. Be careful....between the cold and the crowds...it's dangerous out there. And it's getting weird. I had a friend call from Galveston...informing me that it's snowing. Can you believe that? Galveston?

Sorry for the lack of posts. But, I've been very busy at work. And really don't have time to post now. Just wanted to...

Wish everyone a Merry Christmas and Happy New Year!!!

Daily System Updates

Current open system positions:

1 QQQQ (BBLower) long with current profit of +0.45%;
1 QQQQ (Tii100Low) long with current profit of +0.94%.

Tuesday, December 21, 2004

Happy Holidays!

Busy day today...haven't had time to continue my seasonality studies. Hope to post one more time this week. If I miss you...have a happy and safe holiday season!

Daily System Updates

Current open system positions:

1 QQQQ (BBLower) long with current profit of +0.25%;
1 QQQQ (Tii100Low) long with current profit of +0.74%.

Monday, December 20, 2004

Seasonality of the Market II

Continuing on yesterday's post on best performing months...I figured I would post the worst performing months.

DJ-30:
Worst months of performance were September (14x. -8.91%), October (12x, -8.68%), March (11x, -7.25%), and August (11x, -6.04%).
Data included years 1915 - 2004.

S&P 500:
Worst months of performance were August (8x, -6.45%), October (7x, -7.00%), and February (6x, -4.33%).
Data included years 1962 - 2004.

Nasdaq Composite:
Worst months of performance were March (3x, -5.85%), February (2x, -15.54%), July (2x, -8.32%), and September (2x, -6.08%).
Data included years 1990 - 2004.

Now, we're heading somewhere. There's a slight pattern developing here. February, March, August, September, and October are months to watch out for. The next step is to test the scenario of exiting out of the market during these weak months. Another scenario to test is entering the market only during these months...in essence...buying seasonal weakness.

More tomorrow.

Daily System Updates
Received another QQQQ long system trigger. This one is for tomorrow's market open. The name of this system is Tii100low. Backtested win ratio is 92.50% and the average profit is 4.03%. The system holds the QQQQ for a max of 8 trading days. The system is based on a new 10 day low, above average volume on the decline, and a strong mid-term uptrend in place. Finally, a trigger from one of my better systems.

Closed 1 QQQQ (Harami) long position with +0.20% profit.

Current open system positions:

* 1 QQQQ (BBLower) long with current loss of -0.96%.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Sunday, December 19, 2004

Seasonality of the Market

I had a rather interesting conversation with my wife today about market timing. Specifically, the peculiar way markets tend to surge just a few days/weeks a year. The rest of the time...the market just churns.

We were trying to determine if there would be a way to reduce the number of days to have funds in the market. In a typical year you have approximately 250 trading days. If you could figure out a pattern when most surges occur...take steps to ensure you were 100% invested during that timeframe. And possibly step out of the market during the churn cycle. Similar to the Sell in May, walk away adage.

So, I started testing. Looking for the best months of each year in the DJ-30, S&P 500, and Nasdaq Composite. Here's some results from the study.

DJ-30:
Best months of performance were April (13), July (13), November (12), and October (10).
Data included years 1915 - 2004.

S&P 500:
Best months of performance were October (6), March (6), May (5), and January (5).
Data included years 1962 - 2004.

Nasdaq Composite:
Best months of performance were April (2), March (2), May (2), August (2), and December (2).
Data included years 1990 - 2004.

In the above examples, the DJ-30 April month acheived the best gain of the year 13 times during the years of 1915 - 2004. The S&P 500's best month was split between October and March. And the Nasdaq Composite split its best performing months between Spring months (March - May), a late summer month (August), and a winter month (December).

After just a quick review of this data...it looks like the old adage of Sell in May, walk away might not be as simple as it sounds. But, of course, more studies of the data needs to be done.

More to come in tomorrow's post.

Until then...

Daily System Updates
Received a close trigger for the QQQQ Harami long system at Monday's market open. But, this weekend received a long system trigger for the QQQQ from a different system (BBLower). As a result of this...I'll continue to hold the QQQQ position until the new BBLower system issues a closing trigger.

The BBLower system is based on the Bollinger Bands. Specifically, a pricebreak below the lower Bollinger Bands. This is not one of my favorite systems. It has an 80.10% win ratio and an average profit of 1.81%. I typically do not like to use such a low average profit on a system. As a result, this system is still under evaluation. There's a good chance this system could cycle into the "Not Ready for Primetime" folder. Unless I can find some way to improve it's performance.

1 QQQQ (Harami) long with current loss of -.05%.

Weekly System Updates
Long system trigger for CARN at Monday's market open. The system that generated these trades is the same system that generated EGHT, ZICA, VNWK, SPDE, and AATK trades the previous weeks. So, as you know, system caters to penny-type stocks with high volatility. Holding periods are mid-term in length. This system is one of my riskiest systems. I trade very little size with trades from this system because losses can be extreme.

Current open system positions:

1 QQQQ (SimpleUp) long with current profit of +4.03%;
1 QQQQ (TurtleTrader) long with current loss of -1.60%;
SPDE (PennyLag) long with current loss of -13.08%;
AATK (PennyLag) long with current loss of -18.25%.
VNWK (PennyLag) long with current profit of +8.12%;
EGHT (PennyLag) long with current loss of -4.10%;
ZICA (PennyLag) long with current loss of -1.00%.

Thursday, December 16, 2004

Late Night Readings

Congrats to Kelly for his win on The Apprentice. Kelly's a stiff...but he gets the job done.

Next season's Apprentice looks like a good one. The Book Smarts vs. the Street Smarts. Oh, the drama!

Well, the house deal didn't work out. Everything was great except for the school zone. So, had to cross that one off the list. Heck, after last month's 13.1% plummet in U.S. housing starts...maybe I need to wait.

A really great interview from SmartMoney.com with Ronald Muhlenkamp of The Muhlenkamp Fund (MUHLX). Interesting points made by Mr. Muhlenkamp:

I've now been through five or six recessions, and what I've learned is that every now and then the public shifts its spending. In the 80s, people were spending their money on BMWs and housing. In the first half of 90s, people bought financial stuff, like stocks. When they change their spending habits, it tends to occur across a recession. Now, it's anything related to the home.

When you get a shift, it takes a lot for people to change their patterns.

Back in the 60s and 70s, we expected a recession every three to five years. The first one is traumatic. The second one, you think, I've been through this before. We've only had two recessions in 20 years. We had a generation that had never been through a recession. I compare it to wintertime in Pennsylvania. You know it's going to be cold during certain months. We think of the business cycle the same way as we think of a seasonal cycle.

Later trades.

Daily System Updates
Current open system positions:

* 1 QQQQ long with current profit of +1.14%. - forgot to update this last night.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

Wednesday, December 15, 2004

Survivorship Bias

Survivorship Bias comes in all forms.

This time it came with a buy-out. One of my newest stock trading systems received a long trigger for MTCH at Thursday's market open. But, this little devil is getting acquired from AMAT.

Thus, the ticker symbol MTCH will soon cease to exist. And that's why I cannot take this trade. Because my system was built and backtested on stocks that are currently active. Any stocks it might have traded in the past that were bought out do not show up in my backtest.

So, you have a frustrating situation. A system trigger for a type of trade not tested by the system.

Trading just a few of these exceptions to the rule can really impact the expected outcome of your trading systems. That's why I do not automate my systems 100%. Human intervention is still needed from time to time.

Daily System Updates
Current open system positions:

* 1 QQQQ long with current profit of +2.10%.

Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.