Wednesday, February 29, 2012

Buy signal confirmed.

The buy signal was confirmed (not a strong buy signal though). I took a 50% position in AH trading. I have posted the stop loss for the trade directly to the left. It lists the SPY "number to watch". With the weakness of the RUT lately, TNA is already below the low of 2/14 so it doesn't relate at all. So with this in mind, I will focus solely on SPY for the half stop. If it happens to break 134.25 to the downside, I will sell half my long position on the close that day.

A buy signal for TNA was also produced using my CCI rules.

Confidence is quite high that this will be a profitable trade. Could be tomorrow, could be 10 days from now, but it should close higher than the current value.

Good night.


We need a poor finish today to generate a buy signal. If SPY closes 137.13 or lower, the system initiates a 50% long position in TNA. If we finish above 137.13 it will be a hold signal and we'll stay all cash. Let's hope it's not another nail-biter. It's currently 137.14... :)

3:45pm update: Bonus if SPY closes below 136.97, that's a strong buy signal.


Feb signals

Jan 30
Feb 1
Feb 2
Feb 3
Feb 6
Feb 7
Feb 8
Feb 9
Feb 10
Feb 13
Feb 14
Feb 15Buy59.11
Feb 16
Feb 17
Feb 20

Feb 21
Feb 22
Feb 23
Feb 24
Feb 27
Feb 28
Feb 29 Buy58.47

Tuesday, February 28, 2012

Another hold signal.

There is no discernible edge in either direction right now according to my model, so we remain in cash for at least another 24 hours. Have a good one.

Monday, February 27, 2012

Hold confirmed.

Nothing new today, the system will remain on the sidelines. Thanks for all the participation and constructive comments this weekend.

Saturday, February 25, 2012

Goodbye partial positions.

Starting in March the system will be either all in or all out. No longer will there be 50% positions and/or opportunities to improve the dollar cost average of a position. (There will be 1 exception which I will discuss later).

What this means is more risk but also more reward. Bad months will probably be even worse, but winning months will, in theory, outweigh the bad simply because for every losing month there are nearly 3 winning months. Assuming the model continues to perform well, and I have high confidence that it will, the system returns should have no problem hitting 100% on an annual basis. This month alone is up 29% using a 100%, all-in strategy. January would've resulted in a 5.07% loss rather than a 2.79% loss.

Why do I have this much confidence? In my 2011 Stats post (link in upper right corner of page), I discussed results using an all in/all out strategy and they were phenomenal. Even with the killer loss in August, the system was up 268% for the year. Had the stop loss rules been in place to prevent such a disaster, it would've been up 387%. Obviously I do not expect these kinds of returns, but I do believe 100% is possible and reasonable.

I said in that post also that I would give the 50% strategy a few more months before I reassess. That time has come. We are up ~13% this year, but would be up 22.50% with a 100% strategy. I see no reason to continue the current strategy. We are continuing to leave gains on the table which bothers me.

The downside of course is more risk, more stress on us as traders, and for me, a bit more pressure since I am responsible for this system. There will be bigger account swings in both directions and when times are good everyone will be merry, but when the system is getting kicked around I'm sure there will be moaning on here. I am prepared for that. I have been doing really well this year being a "robot" trader. Making the trade on the close and forgetting about stocks until the close the next day. My research has dwindled to almost nil (besides messing around with the CCI signals). It's been really great. I highly recommend it.

Might I also suggest since risk is increased that you only trade a comfortable amount of your account. Designate a certain amount with which you will follow my system to the letter and DO NOT EVER deviate or increase the amount of capital to average down on a position. You will definitely want to use any gains toward future trades, so hopefully the amount of capital you're using will increase naturally over time. Don't just take $10K (for example) and keep making $10K worth of trades over and over. If we make 10% on a trade, use exactly $11K for the next trade and so on.

Another way to deal with the increased risk of 100% positions is decreasing your leverage. The 1x leveraged ETFs IWM and RWM are great choices for decreasing risk. We've all witnessed how large, continuous moves in 1 direction have caused dramatic decay in TNA/TZA. Exhibit A is TNA in 2011. While the RUT has recovered all of the losses from the summer, TNA is not even close. TZA suffers from even more decay issues. 2x leveraged ETF's may provide a nice compromise such as UWM and TWM. There are others as well.

As I mentioned earlier, there will be 1 scenario where we will carry a partial (50%) position. That will only occur after hitting a half stop loss. The stop loss rules I follow dictate that half the position is closed at 4pm on the day in which the market flips modes, and that flip is against our position. (We are long and the market flips to "unhealthy" or vice versa). The other half of the position will ride, as there are many times when the market will move in our favor immediately after modes have flipped.

Sorry for the length, but I have 1 more thing to show just for fun/FYI. Below is a quick monthly breakdown of returns since Jan 2011. In the middle column are actual returns with 50% positions. On the right are the hypothetical returns had we been using 100% positions.

Jan11 | +4.33% | +15.78%
Feb11 | +6.60% | +4.67%
Mar11 | +8.75% | + 6.76%
Apr11 | -3.83% | -1.67%
May11 | +12.89% | +14.30%
Jun11 | +2.89% | +5.88%
Jul11 | +11.83% | +25.84%
Aug11 | -29.44% | -11.82%
Sep11 | -0.81% | -1.62%
Oct11 | +19.67% | +50.01%
Nov11 | +7.35% | +16.27%
Dec11 | +11.40% | +25.58%
Jan12 | -2.79% | -5.07%
Feb12 | +17.06% | +29.09%

One thing that stands out is August. There were so many awesome trades after the one that cost -45% that the month finished down only -11.82%. If stop losses were in place, that number increases to a gain of +16.70% for August. The system thrived on the volatility with 100% positions making huge gain after huge gain. Another stand-out month was October at 50%! Of the 14 months listed, 4 of them returned over 20%. If this trend continues we should have another 2 or 3 months this year return over 20%, not counting Feb. That is encouraging.

Last but not least, I will say I'm excited to start this new strategy if for no other reason than it's simplicity. Not only will it eliminate all math of having to calculate 50% positions, but also I won't have to worry about 2nd signals for averaging down. I will fall into an even deeper mental state of "trade it and forget it".

Ok, thanks for sticking with me. I'm usually not this long winded... Comments are always welcome. Remember, all-in trades start in March. If we get a signal these last few days of Feb, they will still be 50%. Alright, take care!

Friday, February 24, 2012

Another short attempt...

3:50pm: Nothing has changed this afternoon. A close above 137 generates a short signal, otherwise the system remains sidelined. I've got a post planned for the weekend which will detail a strategy change in March. I'll send out a tweet when complete. Have a good one!


The system will try to short again if SPY closes above 137.00.

I just took a small short position this morning as I believe this early strength will not last. This is not a system trade, just a hunch. More later... Happy trading.

Thursday, February 23, 2012

Short signal if...

System sells longs and takes a short position in TNA if SPY closes 136.65 or higher.

SPY 136.54 to 136.64 is just a plain sell signal. No Short.

136.53 or lower, hold longs.


Wednesday, February 22, 2012

Buy confirmed.

Buy confirmed. Notice the unusually, extremely tight stop on TNA. Technically I won't be using that because the system uses SPY to determine market health. It will only flip to unhealthy mode if SPY 133.64 is broken. If it is broken, it will signal a higher probability of a correction in the near future (finally). If we stay above, obviously all is well and this long position should be fine.

If SPY closes 135.89 or higher, the system goes 50% long TNA. Not a strong buy signal, FWIW. If we dip to 135.88 or lower, the system will remain sidelined.

Take it easy.

Tuesday, February 21, 2012

Cover confirmed.

So the system covered on strength today as it believes tomorrow will probably be an up day. However, there is a bit too much risk at this level to go long. If we happen to see a big up day tomorrow, I would put money on the system generating another short signal. Stay tuned and we'll see ya tomorrow.


Weird day today. Here are the final numbers.

Cover shorts and go to sidelines if SPY closes at 136.23 or higher.

Cover shorts and go long if SPY closes 136.08 to 136.22.

If below 136.08, hold shorts.

Friday, February 17, 2012

Hold confirmed.

Holding shorts over the extended weekend. Enjoy.

Thursday, February 16, 2012

Short confirmed.

1015am 2/17: The CCI rules are in fact giving a sell signal for stocks. That's another winning trade to boost its unbelievable 90%+ winning percentage for long trades. TNA gained over 6% for the trade. The average gain was 4% as I had mentioned last weekend.

My simple CCI rules don't allow for short trades in this type of up-trending environment, so it heads to the sidelines and waits for the next set-up. Just a little FYI. Take care.


Short was confirmed. Nice profit on the 100% long position. My CCI rules (which produced a buy last Friday) did not produce a sell signal today, but probably will do so tomorrow. Regardless, I am now ~50% long TZA. Good night.


The system sells longs and goes short (50%) TNA if SPY closes at 136.03 or higher. Otherwise, hold longs.

Wednesday, February 15, 2012

Buy #2. Stop tightened.

With SPY hitting a higher high today intraday, that brings the stop loss up to the low of Feb 1, which is 1312 on the SPX, and a not too distant 55.62 on TNA.

Today will be the 2nd buy signal if SPY closes 134.72 or lower. This will put the system all in long TNA. If we close above that value, it will remain just 50% invested.

Until tomorrow...

Tuesday, February 14, 2012

Hold longs...

Not sure what happened 10 mins ago, but now it's a solid hold signal.

Currently, if SPY closes at 134.38 or lower we'll get a 2nd buy signal. However, this number could change if SPY breaks below the current LOD. Will update later...

Monday, February 13, 2012

Hold expected.

Last minute strength could generate a sell or short signal, but a hold is expected.

If SPY closes 135.63 or higher, sell longs and go 50% short.
If SPY closes 135.50-135.62, sell longs and head to sidelines.
If SPY closes below 135.50, hold long position.

Saturday, February 11, 2012

Weekend Update

Now that the system is long, we have to hope the top was not in, or at the very least that we revisit the highs before turning down again, thus providing us an opportunity to profit from the long position. The stop loss has been set for the swing low of Jan 30 which was around SPX 1300. Anything below 1300 and we'll have a clear expanding megaphone pattern on the daily chart, which will be our first warning sign that a swift move downward could be approaching. (As long as we remain above 1300, the odds are in favor of the bulls.) Personally, it is my opinion that this rally is not over yet. I believe it has another month or 2 to go. I think we may pause here for a few weeks, but ultimately I see us climbing higher to suck in more bears. There is still too much bearishness out there, don't you agree? Thinking back to April 2010 after several months of rallying, there was nary a bear to be found. I know I sure wasn't feeling bearish. We all know what happened May 6th that year. I think that's what's in store for the market IF we don't see a decent (healthy) pullback soon.

Now some more important news...

I've recently started doing some exciting research with one of my favorite indicators, the CCI. According to the rules I've developed (which are very simple, btw), it also happened to give a buy signal on Friday. I made up these simple rules based on the last few months worth of data and when I back tested it using 3 years of data, buy signals had a winning rate of over 90% with an average gain of over 4% per trade. (using TNA) I was shocked, understandably. It offers about 15 long trades per year and only about 8 short trades per year. I'm seriously considering incorporating it somehow into my current system. That is what I'll be working on and testing over the next few weeks. I will post more info in the near future should the testing prove successful. That said, I'm hesitant to make changes to something that's not broken. At the very least, I'm thinking I could use the CCI system to possibly verify or confirm my signals, so to speak.

Finally, a quick update on stats... we are almost 1.5 months into the year and my system is doing a respectable job. Not great, just ok. I'd give it a C+ or B-. Obviously, I would've liked to capture more of the rally (TNA is up 31% since Dec 30!) but it's not perfect and definitely performs better when volatility is elevated. It is currently up 4.11% for the year after a rocky January and a pretty solid February. And remember, this buy signal yesterday has a 90% chance of making us another 4% this week!!! Hehe, I jest (sort of). :)
Take care and Gold Bless!

Friday, February 10, 2012

Cover and buy...

The buy signal was confirmed. For the record, it was a strong buy signal.


Today's key number is SPY 134.63. As long as we remain below that value, the system will cover the short position and go 50% long TNA. Based on indicators, this may or may not be 1 day early so I will be sticking to the system and going with a 50% position, leaving half in cash in case we go lower Monday. Should we power above 134.63, the system remains short. Have a good weekend!

Thursday, February 9, 2012

Hold confirmed.

Very close to a buy and/or cover signal, but not quite. System remains short.

Wednesday, February 8, 2012

Hold confirmed.

The system maintains its 50% short position. Good evening!


Tuesday, February 7, 2012

Hold confirmed.

My system remains short. Fortunately TNA has been under-performing keeping this trade in the black. See ya tomorrow!

Monday, February 6, 2012

Hold confirmed.

No new signal today. Remaining short. Have a good evening.

Friday, February 3, 2012

Short signal confirmed.

530pm: Short signal was confirmed. I moved to 75% short, 25% cash. Enjoy the weekend!


Ugh, sad to have missed this big up day! We got the sell signal 1 day too early. Looking forward to today, I am getting a strong short signal right now. We are overextended and due for a pullback. Today may or may not be the top, but my system is offering a strong warning here.

If SPY closes 133.75 or higher, the system goes short. If 133.74 or lower, it remains on the sidelines. I will only need to update if we have a huge sell-off this afternoon.

Thursday, February 2, 2012

Sell signal confirmed.

3:50pm: Sell signal confirmed. Apologies to my bear friends, no short signal today. :)


I'm getting a sell signal today. It could morph into a short signal if TNA continues to soar higher into the 59.75 area or higher. That's not an exact number, so I'll have to update later. But as long as nothing odd happens this afternoon we'll be watching TNA to determine whether we go short.

Wednesday, February 1, 2012

Short if...

10:30am Update: Obviously the hold signal was confirmed yesterday as SPY fell well short of the critical number. TNA continues to look good this morning. Probably going to see a sell signal today.


Here is the trading set-up for today: If SPY closes 132.98 or higher, my system exits the long position and goes short again. If 132.97 or lower, hold longs. It's that simple.

Should we get the short signal, I'd have very high confidence that it would be a winning trade. Looking at the internals of my system, rarely do I see such excellent shorting opportunities. The last one this strong was 10/27/11 and before that 1/12/11. Both times TNA lost ~10% within 5 days.

Now to address some comments the past few days. Like most of you, I was bummed the last short trade didn't work out. The frustration here was obvious and I could definitely relate. I was also unsure of going long at these lofty levels. But this market just doesn't want to correct. It, a year ago.

One thing I wasn't worried about was being trapped in a short trade while the market goes up forever. Yes we were trapped for a little while, but with the way my system is designed, it's almost impossible not to get a buy or cover signal eventually. That's the beauty of my system. It just works. You can have confidence in it. You don't even have to take my word for it, just review the 2011 stats if you need a confidence boost.

Good day trading!