Thursday, January 31, 2013

Comparatively Large Drops From 50-day Highs

While the SPX selloff yesterday was not terribly large (0.4%), it probably seemed it to most traders since we have not seen an SPX decline that large in a few weeks.  The drop from a 50-day high triggered the study below.

While the size of the move over the next few days is not overwhelming, the consistency is impressive. The stats certainly seem to suggest an upside edge.

Wednesday, January 30, 2013

2012 (and prior) Trade Ideas Results from the QE Subscriber Letter

I don't often discuss trade idea results from the subscriber letter here on the blog. The last time I did was in July. But 2012 was another solid year and I hope to help traders in 2013 as well.  I don’t post results regularly because while I've always tracked trade ideas in the subscriber letter, it isn't the main focus of the service. I don't consider Quantifiable Edges to be a stock picking service. I consider it one where traders can gain market and trading knowledge through the published research, systems, and tools. The objective is to provide tools and instruction to help traders improve their own trading and results.

But the published trade ideas have done quite well. In fact, during 2012 August was the only month where the trade ideas failed to add up to positive gains. I've had several letters from subscribers lately telling me they've done quite well following certain ideas and that is always nice to hear.

I don't suggest position sizes, and I would never suggest that the trade ideas represent any kind of complete portfolio strategy. They are what they are - ideas about certain stocks or ETFs that have historically provided a statistical edge.

It is important to note that all of the trade ideas are in either ETFs or in highly liquid large cap stocks (almost exclusively S&P 100 components). I do this so that executing trades and getting fills at reasonable prices is not an issue. I think traders feel the most frustrating aspect of following trade ideas offered by some services is not being able to get into or out of the trades that they suggest at a similar price. I’ve addressed this problem with limit prices and highly liquid securities.

Some of my goals with a gold subscription have always been to help people improve their trading through the use of quantified research, and while doing so to help them offset the costs of the subscription by offering easy-to-execute trade ideas with a long-term positive profit expectancy. To date I believe Quantifiable Edges has succeeded in doing this.

As I did 6 months ago, I have again broken down the results by year.  For tracking purposes I only count trades after they have been closed out. With most trades being of the swing variety this doesn’t normally skew results much. But it does occasionally when a big trade lasts over a month or year-end.

Below are the results by year.

2012 was a standout year in a number of ways.  I’ve become more selective over the years and that selectivity paid off nicely in 2012.  Despite being the year with the lowest number of trade ideas published (97), it was #2 in total gains.  It showed the highest win % at over 78%, the lowest average loss, and the highest profit factor by far, with gross gains over 9x the size of gross losses.

For those that are interested, the complete list of trade ideas from 2008 – Jan 2013 can be downloaded from the systems page of the members’ section of Quantifiable Edges. (Available to paid and trial subscribers.) And with the full archive of subscriber letters available on the site, gold subscribers can also go back and see what I wrote about any trade and my reasons for entry and exit when it happened.

With a subscription to Quantifiable Edges I try and provide traders with ideas and instruction to improve their trading. These ideas may come in the form of previously published studies identified by the Quantifinder, or they may be something I discuss in the current subscriber letter, or perhaps it's a webinar focused on a certain trading approach or indicator, or any other number of tools that I've designed and made available. (For a more complete list of tools, see the "Using Quantifiable Edges" series of posts.) The trade ideas found in the subscriber letter are examples of how I put these tools and ideas to work. While past performance is not necessarily indicative of future results, over the long run they’ve performed well enough that many subscribers have used them for their benefit.

For more information on a gold subscription, or to subscribe, click here.

Lastly, below is the explanations and disclaimer from the Trade Ideas Results Spreadsheet.

All trade ideas ever tracked in the Quantifiable Edges Subscriber Letter may be found on this spreadsheet. I don’t suggest position sizes. The primary reason for this is I’m not acting as a financial advisor. I don’t feel it is appropriate to suggest allocation sizes without understanding someone’s financial situation and risk tolerance. Even for my own trading I run different portfolios with different levels of aggressiveness. For instance, my most aggressive may use options to sometimes get 300-400% leveraged. Other portfolios on the other hand normally take much more conservative stances and some rarely reach or exceed 100% exposure.

Since I don’t suggest position sizes this is should not be considered a performance report, but rather a trade idea scorecard. Therefore, no matter how objective I try to be the reporting of the results is always going to be skewed depending on how you approach the trades. For instance, I always recommend scaling into the Catapult positions in 3 parts, whereas the “System” trades (whatever system I unveil other than Catapult) are normally one entry. The “Index” trades I normally recommend scaling into as well. For my own trading I trade much larger size with the index trades than any of the individuals. I also control my exposure by limiting the total amount invested per day. As I mentioned, this will vary depending on the account I’m trading. My most aggressive account I may put in up to 100%/day and get heavily leveraged using options. A more conservative account may max out at 15%-20% per day.

It’s unlikely anyone would have taken all of the trades with equal amounts, so personal results would vary greatly depending on the trader’s approach. Simply adding up the results of the individual triggers as I do is an admittedly poor representation of returns. A net positive or negative does not necessarily mean a person following the ideas would have made or lost money during the period measured. And the sum total is certainly not representative of what a portfolio would return. 

Feel free to contact me at support @ if you have any questions.

As required by the NFA: Except where otherwise specifically stated, all trades are based on hypothetical or simulated trading. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under-or-over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Commissions, fees, and slippage have not been included. This is neither a solicitation to buy/sell securities or listed options.

Monday, January 28, 2013

A Deeper Look At An Old Study Related To Friday's VIX Action

Even with the SPX rising on Friday, the VIX managed to close up a bit. The VIX will typically trade in a direction opposite the SPX, so it is unusual that they both close higher. On Fridays, the VIX has a natural tendency to dip in the afternoon, so it is most unusual to see them both close higher on Friday. In the 12/3/12 blog I showed a stats table that suggested a decent downside edge based on this action.  It examined instances of the VIX and SPX both closing higher on a Friday while the SPX is in an uptrending market. Rather than update those odds with just the 1 extra instance, I have provided below a picture of a profit curve.  I don’t often show profit curves on the blog, but almost always share them in the Subscriber Letter.

Considering the fact that the study utilizes a long-term uptrend filter, the persistent downslope is quite impressive. The last instance once again put the equity curve at new lows.

Heads-Up Investing pointed out this study and a few others on his blog over the weekend.

Traders should keep in mind that the above study represents just one bit of influence that could impact the market over the next few days.  There are always crosswinds.  And while the weight of the evidence that I am seeing is pointing towards a short-term dip, strong momentum and liquidity could continue to push the market higher.

Tuesday, January 22, 2013

MLK Week Historical Returns

Martin Luther King Jr. Day was Monday. The NYSE has only observed MLK Day as a holiday since 1998. But over that 15 year period the market has not done well during MLK week.  I discussed this last year in the 1/17/12 Subscriber Letter.  Below is an updated chart with stats showing performance for the whole (4-day) week over time.

MLK week has exhibited a bearish tendency over the last 15 years.  The market has been strong lately, but if it is going to pull back this upcoming week could be an opportune time for the bears.

Friday, January 18, 2013

An Opex Friday Daytrading Edge

Here's a little study for daytaders that we've discussed in some detail in the Overnight Edges trading room.

Over the long haul there has been a definite downside edge between open and close on Opex Friday.

Wednesday, January 16, 2013

Why Consistently Strong Closes May Not Be A Good Thing

The market has seen a lot of finishes near the top of its daily range lately.  When the market consistently closes near the high of the day it suggests optimism on the part of traders. This end-of-day optimism is now at a level that suggests it is overdone and there is a good chance of a pullback. The study below was last seen in the 8/21/12 blog and it exemplifies this concept. I have updated all of the statistics.

While the downside edge appears to remain in place for a full week, most of the edge has been realized over the 1st 2 days.

Note: To calculate the “8-day Average Closing % Range” I am simply measuring where in the daily range SPY closed each day. For instance if it traded at a low of $146.00 and a high of $147.00 and closed at $146.75, then it would have closed in the 75th percentile of the daily range. A close at $146.50 would have meant 50%.

I then take a simple moving average of the last 8 days. If that average goes from below 75% (where it usually is) to above 75%, the study is triggered.

Monday, January 14, 2013

January Opex Weak

As I discussed last month, opex week in December has historically been wonderful.  But January – not so much.  Below is a list of the last 14 January opex week returns.  While it is not the case this year, January opex week often occurs in conjunction with Martin Luther King Day. So some of these weeks contained four trading days and some contain five.

As you can see there has been a decided downside tendency over the last 14 years.  And despite last year’s strong performance the drawdown / run-up stats at the bottom remain especially compelling for the bears.

Tuesday, January 8, 2013

2012 Was Another Strong Year For The Quantifiable Edges Big Time Swing System

I’ve updated the Quantifiable Edges Big Time Swing System overview page with results through January 3rd, when the most recent trade closed out. There is not a trade currently open. Since the system only averages about 1 trade per month, I typically update the results bi-annually. Since the last update after July 2, 2012, through January 3, 2013, the signals produced a net return of 9.04% for SPY (including dividends, commissions of $0.01/share, and an assumed interest rate on cash of 0.1%).  This was achieved with 6 long-side trades and 0 short trades.  Five of the six trades made money.  The system is also again at new equity highs.  In total, 2012 posted a net gain of 9.12%, and 2013 is already up 2.51%.

The Big Time Swing System provides easy to follow mechanical rules. The standard parameters are not optimized and have performed quite well (they are the ones used for all performance metrics). There are only about 11 trades per year averaging 7 trading days per trade. All entries and exits are either at the open or the close. And to be sure you have everything set up properly traders may follow the private purchasers-only blog that tracks all SPY signals and possible entry/exit levels. This service is free for 12 months from the date of purchase.

For system developers looking for a system that they can use as a base to build their own system from, the Big Time Swing is an attractive option. It is all open-coded and comes complete with a substantial amount of background historical research. And since it is only in the market about ¼ of the time, it can easily be combined with other systems to provide greater efficiency of capital. Once you’re ready to try and improve the system yourself you can also refer to the system manual or the August 2010 purchaser-only webinar – both of which discuss numerous ideas for customization.

For more information and to see the updated overview sheet, click here.

If you’d like additional information about the system, or have questions, you may email BigTimeSwing @ Quantifiable (no spaces).

Monday, January 7, 2013

Why the Persistently Low VXO is an Uh-Oh

Both the VIX and VXO (which is the old calculation for the VIX) closed well below their 10-day average for the 3rd day in a row on Friday.  This action in VXO triggered a study that I last discussed here on the blog on July 5, 2011 (though I have discussed it in the subscriber letter a few times since).  It looks for stretches of 15% or more below the 10ma that persist for 3 days.

Based on the stats table there appears to be a downside inclination. I find the note at the bottom of the study to be especially interesting. Nearly every case has experienced an almost immediate pullback, but those that didn't went without pulling back for a long time.

Wednesday, January 2, 2013

1% Gaps Higher to Start the Month

Fiscal cliff news has the market set to gap up strongly this morning.  The 1st day of the month is often a strong one for stocks, but how has it done intraday when it gapped up big to begin with?  That is what I looked at this morning.

6 of the 9 instances since 2003 have closed above the open.  Gross gains have been about 2.2 times the size of gross losses, and the average trade rose a little over 0.4% from open to close.  But with instances low I wouldn’t put a lot of faith in these numbers.  Early indications favor more upside but it is certainly not a clear-cut edge.