Tuesday, May 29, 2012

CCI update...

There are several members who are eagerly awaiting a thorough CCI post, complete with stats and strategies. This post will be the first in a series of CCI updates over the next several days... I just wanted to bring you up to speed with what I've been working on these past few weeks. I want the CCI system to kick serious butt, however as I've been pouring over these stats, all I see is a system that is heavily biased toward mean reversion and can get absolutely crushed in an irrational, trending market. It doesn't happen often, but once or twice a year (each and every year like clockwork) the system will take a major beat-down and it spends the rest of the time booking solid gains to get back to even or better. So while it's true the winning rate is just under 90%, the 10% worth of losing trades were capital killers. I've been wresting with how to manage those scenarios and minimize losses. The short signals were particularly risky. I've looked at several different techniques. The first one I considered was averaging in on a position. Not bad... The second technique involved stop losses. (For those that don't know, I hate stop losses.) This method definitely minimized losses, but left way too much profit on the table. After more testing and deliberating, I think I've come up with the perfect solution with no need for stop losses and no need to average into a position. The best part is that it incorporates the trend into the equation.

Here is how it will work. I will use a CCI moving average (currently set at 21, but it may change depending on current testing) to determine whether the market is uptrending or downtrending, depending of course whether the 21ma line is above or below zero respectively. The day it flips from positive to negative or vice versa, the system will initiate a 50% position in the direction of the flip and hold that position until it flips the other way. The other 50% will follow the signals generated by the system, which again tends toward mean reversion. This will minimize risk and maximize profits, particularly in a trending market. I hope to have this finished prior to June 1st, at which time we will switch to the new methodology. I'm still in testing mode, so I don't have too much else to report today. More tomorrow, hopefully. Thanks for you continued patience with this new system. Feel free to post your thoughts.

1 comment:

  1. This sounds like a great approach. I hope it has a stop rule. I used to hate stops but when I started tracking them I noticed I saved my account of ton of pain.