The next bit I am laying with is to trade with the trend.
There are various timeframes as well as various frames of reference to apply this idea. My spread trading has little to do with trend trading and now that I have a trend neutral plan in place that is proving to be profitable, easy to execute and track I am moving into trading with the trend to boost potential profits in other areas.
Timeframes are going to be daily weekly and monthly even though I do not plan on using weekly or monthly charts. I will be running longer time frames just to be sure of established trends and possible trend reversals.
Other frames of reference include using the S&P 500 as an overall gauge of market sentiment while drilling down to the sector level to look for the various sector trends that are driving the overall market. In an SPX down trend the best thing to do is short the poorest performing sector and in an up trend long on the best performing sector.
Within this frame of reference the next step is to drill down one more level, or two if you have that inclination, to the ETFs. Same rules apply as in an SPX downtrend, pick the poorest sector and the poorest ETF within the sector and, perhaps, pick the poorest stocks that make up the ETF. In an up trend of the SPX pick the best sector, the best ETF within the sector and perhaps again the best stock within that ETF.
How to determine which is the best and poorest is not rocket science either and there are many ways to manage this. Dual linear regression applied to the respective charts could be used, Oscillators to look for over sold/bought conditions under varied timeframes, P&F charted performance.
The Investors Intelligence site is a good cue to work from though. The Bullish Percent Index comparison for the sectors works as seen by the correlation with the BP and SPX charts. This is the CTP part as this represents the over sold/bought indication. There is no identical comparative setup for ETFs but going over to Stockcharts.com and looking at the Performance Charting (this is still free and works exactly the same as if I had a paid subscription). I used this when playing with the Pankin method to compare ETFs in sectors before. I can place 10 symbols onto the chart and it compares the relative performance of all 10. I can look at the line chart of a bar chart, there is a cool tool to slide to change the timeframe and period. Esignal can point me to the top ten performers in the last 12 month period and Stockcharts can apply those top ten against each other in the various timeframes to choose which one might be best to trade at the time.
Mentioning Pankin reminds me that this is really just a modification of his strategy that worked for him for many years. While the idea was unique then it is much easier to see and apply now as the online charting and data available is far far superior to what was available to traders back in the day.
Jeff.
Questrade, My direct access discount broker.
Saturday, December 5, 2009
New service trial and the Bullish Percent Index
I signed up for an information service yesterday, Investors Intelligence. This was one of the gems that was mentioned in the program that I mentioned in the last post.
While it does not replace a decent charting package, too bad, it gives great information on ETFs and stocks with regard to some of the things that I am likely to need for my CTP-O plan.
I had hoped that they might have free access to some of this but they really don't. I could generate my own studies as long as I could find the index charts that I would need. I can do a relative performance comparison on a list of ETFs through Esignal to find performers based on MTD, QTD and YTD as well as last 12 months within the sectors to determine which one has been a best performer for those periods. Running the sectors against each other for the same comparison would point to the one that should be looked at.
Using the CTP approach (Counter Trend Positioning) I could just enter the best performing ETF for the sector in the most over sold position... but that would be too simple.
Some time ago I was looking at the Bullish Percent Index for the overall market and comparing that against the performance of the market. It was not hard to notice the correlation between the two.
The S&P500 chart for the last 3 years:
While it does not replace a decent charting package, too bad, it gives great information on ETFs and stocks with regard to some of the things that I am likely to need for my CTP-O plan.
I had hoped that they might have free access to some of this but they really don't. I could generate my own studies as long as I could find the index charts that I would need. I can do a relative performance comparison on a list of ETFs through Esignal to find performers based on MTD, QTD and YTD as well as last 12 months within the sectors to determine which one has been a best performer for those periods. Running the sectors against each other for the same comparison would point to the one that should be looked at.
Using the CTP approach (Counter Trend Positioning) I could just enter the best performing ETF for the sector in the most over sold position... but that would be too simple.
Some time ago I was looking at the Bullish Percent Index for the overall market and comparing that against the performance of the market. It was not hard to notice the correlation between the two.
The S&P500 chart for the last 3 years:
The Bullish Percent Index for the S&P 500 for the past three years:
Looking at the correlations I noted that during the downtrend the BP index peaks closely matched the rally peaks in the SPX. The meltdown in latter 2008 is out of synch and can hardly be used for any meaningful study as everything went out the window for a couple of months.
Even before the uptrend was established the BP index troughs were corresponding to the pullbacks in the SPX. These COULD have been traded profitably based solely on this and using the SPY as a proxy for the index but I tried to tie it into trading sector stocks and it got too complicated...that was one reason why I dropped the study and never got to really trying it out.
The reason I go over this is due to a very useful tool at Investors Intelligence which is a sector bell curve of Bullish Percent Indices. This shows where each is with respect to the index percent value so it is easy to tell where the sector is with respect to the underlying stocks.
I should mention that the index is made up of the percentage of stocks assigned to the sector that are in a bullish phase based solely upon the P&F charting. This is dead simple and ties the P&F charts into the plan nicely and makes a good point to end this post...in the interest of trying to keep these a little shorter for easier back referencing for me.
Jeff.
Friday, December 4, 2009
CTP-O, Breathing new life into an old plan and some self justifications.
My investigation into just one more training program has spurred me on in my new and improved CTP plan. I may not necessarily use options as quite a few ETFs do not offer options but I can certainly take advantage of margin in my account.
I think I will forego trying to get maximum profits out of my TFSA for now as it is chock full of long option trades right now. I actually sold off two today for some modest gains, both over the recommended sell price due to timing and limit orders and not worrying if the price dropped off of my order.
Anyway, nothing in the program was new, nothing was proprietary other than the written or video recording and nothing was rocket science. In fact, nothing was any different than many of the little things that I have been postulating at some point over the last two years.
OK, enough of what looks sort of like me blowing my own horn. My intention is to point out, for my own justification, the many reasons why I should not continue with the program and therefore ask for my money back. If it teaches nothing new to me than it is not worth anything to me.
Following is a list of topics that the program touched upon:
- P&F charting
Been there, done that. Lots of validity and use.
- Bullish Percent indices
This I never wrote about that I can recall as I never nailed down a solid use for them outside of general market sentiment indication. High values indicate an overbought index or market and low values oversold. Overbought is a good time to be selling and over sold is a good time to be buying...like I said, it's not rocket science. I let my Stockcharts.com subscription expire and left it long enough that my chart lists are gone but I even had a percent bullish list of indicators.
- Use of options touched upon
Well, options are my new stocks anyway and the instructor (developer) admitted to not being an option pro.
- relative strength studies
I could find no easy way to print these so they never made it to my blog, they were mentioned though. One study that I worked on for the 20 week sma envelope relied on these to compare stocks and ETFs within a sector or across sectors to determine which one to actively trade long. This program uses then in the same fashion.
- sector targeting through ETF trading
Using ETFs instead of stocks is a basic premise for diversification, nothing new here either.
- stochastics (I use Williams %R but it amounts to the same thing)
This is a rehash of an older oscillating indicator, almost any price relative indicator would work here. I like Williams %R as it is one line and on Esignal it is nicely coloured red and green to indicate the overbought and oversold points. This is used as a trigger during certain trending periods to optimise entries...sounds familiar.
- risk management
No brainer here, that is one of the topics that I beat to death the most. Mine has worked very well for two years and it is similar to almost any decent risk management setup out there.
- position sizing, scaling in and out
Obviously I have worked out position sizing to suit my account, that is what is talked about in the program and it follows very close to what I use for both options and stock. The scaling is a 1/3, 1/3, 1/3 system that is particular to the method used for trade entry and exit.
The scaling is a bit unique, or I have not tried it in exactly the same manner but it is supposed to be used by many pros, so, again, not a proprietary system.
In fact the only thing that can be considered proprietary in any trading plan is one of two things:
1) an algorithm designed to give signals and triggers
2) anything that can be kept secret
Any signal is based on a formula and is likely subject to some sort of idea copy writing but there are so many ways of producing a similar signal that are already in the public domain that it hardly matters.
I think I will forego trying to get maximum profits out of my TFSA for now as it is chock full of long option trades right now. I actually sold off two today for some modest gains, both over the recommended sell price due to timing and limit orders and not worrying if the price dropped off of my order.
Anyway, nothing in the program was new, nothing was proprietary other than the written or video recording and nothing was rocket science. In fact, nothing was any different than many of the little things that I have been postulating at some point over the last two years.
OK, enough of what looks sort of like me blowing my own horn. My intention is to point out, for my own justification, the many reasons why I should not continue with the program and therefore ask for my money back. If it teaches nothing new to me than it is not worth anything to me.
Following is a list of topics that the program touched upon:
- P&F charting
Been there, done that. Lots of validity and use.
- Bullish Percent indices
This I never wrote about that I can recall as I never nailed down a solid use for them outside of general market sentiment indication. High values indicate an overbought index or market and low values oversold. Overbought is a good time to be selling and over sold is a good time to be buying...like I said, it's not rocket science. I let my Stockcharts.com subscription expire and left it long enough that my chart lists are gone but I even had a percent bullish list of indicators.
- Use of options touched upon
Well, options are my new stocks anyway and the instructor (developer) admitted to not being an option pro.
- relative strength studies
I could find no easy way to print these so they never made it to my blog, they were mentioned though. One study that I worked on for the 20 week sma envelope relied on these to compare stocks and ETFs within a sector or across sectors to determine which one to actively trade long. This program uses then in the same fashion.
- sector targeting through ETF trading
Using ETFs instead of stocks is a basic premise for diversification, nothing new here either.
- stochastics (I use Williams %R but it amounts to the same thing)
This is a rehash of an older oscillating indicator, almost any price relative indicator would work here. I like Williams %R as it is one line and on Esignal it is nicely coloured red and green to indicate the overbought and oversold points. This is used as a trigger during certain trending periods to optimise entries...sounds familiar.
- risk management
No brainer here, that is one of the topics that I beat to death the most. Mine has worked very well for two years and it is similar to almost any decent risk management setup out there.
- position sizing, scaling in and out
Obviously I have worked out position sizing to suit my account, that is what is talked about in the program and it follows very close to what I use for both options and stock. The scaling is a 1/3, 1/3, 1/3 system that is particular to the method used for trade entry and exit.
The scaling is a bit unique, or I have not tried it in exactly the same manner but it is supposed to be used by many pros, so, again, not a proprietary system.
In fact the only thing that can be considered proprietary in any trading plan is one of two things:
1) an algorithm designed to give signals and triggers
2) anything that can be kept secret
Any signal is based on a formula and is likely subject to some sort of idea copy writing but there are so many ways of producing a similar signal that are already in the public domain that it hardly matters.
Thursday, December 3, 2009
Redirection of energy today
I decided to take advantage of a training course that is priced better than some of the ones that I have been trying out lately. It is all online video and all available immediately upon signing up... with the typical 30 day money back guarantee, so why not?
I passed on almost every other one that I have seen as there has been nothing new in any of them, or if there was it was only new to me and I have since found a free or very inexpensive resource that has provided the very same information. I will grant that some of the training packages would have bee great had I not had the inclination to do lots of research so they would have been a faster method to have a structured training plan that I could follow.... but at $2500 a pop they certain give some drive to do some self teaching.
This one is straight down my line of thinking about sector rotation. So I am finding a few tidbits mixed in with the general stuff but nothing groundbreaking. In fact, so far I have written, even if not specifically posted, something on each facet of the program and I am 70 % through it now. I will admit that they have put the various pieces together nicely but I might have taken a month more to do the same. So I need to decide if the support after the fact is worth anything to me as that is possibly the only advantage.
I find this plan very similar to a plan formulated by a fellow by the name of Pankin many years ago. He developed a medium term strategy that took advantage of mutual funds with a particular broker that accommodated the delayed service charges, or back end loads, that decreased after a certain time. He compared the relative performance of the 26 or so funds in such a way that he was only ever in the two or three top performers based on 3 and five week performance and only stayed in those same trades past the commission expiry if they remained in the top 50% of the group.
I was working on modifying his work to suit the sector ETF field. I stopped when I hit in to options and have still been using some of the charts that I set up for that as I recognised the potential as a plan to return to in future.
More later.
Jeff.
I passed on almost every other one that I have seen as there has been nothing new in any of them, or if there was it was only new to me and I have since found a free or very inexpensive resource that has provided the very same information. I will grant that some of the training packages would have bee great had I not had the inclination to do lots of research so they would have been a faster method to have a structured training plan that I could follow.... but at $2500 a pop they certain give some drive to do some self teaching.
This one is straight down my line of thinking about sector rotation. So I am finding a few tidbits mixed in with the general stuff but nothing groundbreaking. In fact, so far I have written, even if not specifically posted, something on each facet of the program and I am 70 % through it now. I will admit that they have put the various pieces together nicely but I might have taken a month more to do the same. So I need to decide if the support after the fact is worth anything to me as that is possibly the only advantage.
I find this plan very similar to a plan formulated by a fellow by the name of Pankin many years ago. He developed a medium term strategy that took advantage of mutual funds with a particular broker that accommodated the delayed service charges, or back end loads, that decreased after a certain time. He compared the relative performance of the 26 or so funds in such a way that he was only ever in the two or three top performers based on 3 and five week performance and only stayed in those same trades past the commission expiry if they remained in the top 50% of the group.
I was working on modifying his work to suit the sector ETF field. I stopped when I hit in to options and have still been using some of the charts that I set up for that as I recognised the potential as a plan to return to in future.
More later.
Jeff.
Wednesday, December 2, 2009
So much for sector spreads....
I checked the various SPDR ETFs for suitability for applying the spread trades that I am looking at using and only one, Energy, works. It has penny option pricing and enough interest and volume OTM to be able to produce some credit in the spreads, not a lot though.
All the rest, the primaries anyway (utilities, financial, consumer, materials etc) have very little OTM interest.
Time to review the options playbook and see if another strategy might be suitable for these types of options. I am thinking along the lines of a straddle perhaps, something non-directional that can use ATM or slightly OTM options for short to medium term trades...I prefer credit trades but I will not discount other styles either.
Jeff.
All the rest, the primaries anyway (utilities, financial, consumer, materials etc) have very little OTM interest.
Time to review the options playbook and see if another strategy might be suitable for these types of options. I am thinking along the lines of a straddle perhaps, something non-directional that can use ATM or slightly OTM options for short to medium term trades...I prefer credit trades but I will not discount other styles either.
Jeff.
Long term gap fill in SPY, corresponding SPX reference
In September, October and November SPY, (and the underlying S&P 500), have ratcheted up in waves. No, I am not going to even think about getting in to Elliot wave theory... I don't much care for that as it is VERY subjective. Each wave has peaked mid month and pulled back to bottom out at the end or beginning of each month. Of course a pattern like this can be taken advantage of but there are a number of factors that preclude even trying to place such a wager.
Going back in time a bit, October 3rd 2008, the market was in a downturn and as the market tested the SPY $110 mark on the Friday as it hit $109.68 and closed on $110.34.
It opened on Monday the 6th down at $107.15, a $3.19 gap or 2.89% and continued down more than $30 into March of 2009 to a low of $67.10... almost $40 on the money.
This gap is important as September past tested the bottom of the gap and pulled back. October tested the top of the gap and pulled back. November passed the top, basically closing the gap over one year later, and may see this $110 level as support for now.
If the pattern holds I see the $115 being tested by mid December, which puts my $115-$118 spread in serious jeopardy as it is a Dec 31st expiry. If it does not make it to $115 then I think that it may hit $113, pullback to the $110 support level again before taking off to the $116 level and may do so near the end of December...BAH! I may have to close the spread early in either case.
Of course we may see this level be a further test and a correction take place too.
Either way I will not likely set another spread trade right away in SPY as I wait for a bit while this shakes out. I could place a $1 or $2 higher spread, wait for the first trade to atrophy somewhat and close it to keep some credit and just step the spreads up to the EOM.
Hmmm... step spread trading in the same month to capture premiums in an uptrend situation...has some merit for future thought.
Here is the SPX chart for the S&P500 index. I noted that there is no gap on that Oct 6th morning BUT the level on the Friday closed at 1099.23...say 1100 for now and opened on Monday at 1097.56. The S&P dropped from there and returned the next day to test 1073 and dropped never to look back until testing 1073 in September...basically the exact same range as if it had gapped. Same pattern as the SPY, which it should be, just the lack of gap was noted.
The red lines are the Friday Oct 3rd 2008 close and the following Tuesday test of 1073 with the current correspondence
I like how the price is hovering about the 1100 mark after testing and crossing it, nice consolidation... begs the use of a directionless spread trade to capture the move which ever way it ends up going, as long as it goes quickly. The short Linear Regression channel is showing signs of a slowing down of the uptrend which is remaining within the longer term LR channel so far. Target moves, like in the SPY, are 1080 on the bottom and 1150 on the top.
Jeff.
Going back in time a bit, October 3rd 2008, the market was in a downturn and as the market tested the SPY $110 mark on the Friday as it hit $109.68 and closed on $110.34.
It opened on Monday the 6th down at $107.15, a $3.19 gap or 2.89% and continued down more than $30 into March of 2009 to a low of $67.10... almost $40 on the money.
This gap is important as September past tested the bottom of the gap and pulled back. October tested the top of the gap and pulled back. November passed the top, basically closing the gap over one year later, and may see this $110 level as support for now.
If the pattern holds I see the $115 being tested by mid December, which puts my $115-$118 spread in serious jeopardy as it is a Dec 31st expiry. If it does not make it to $115 then I think that it may hit $113, pullback to the $110 support level again before taking off to the $116 level and may do so near the end of December...BAH! I may have to close the spread early in either case.
Of course we may see this level be a further test and a correction take place too.
Either way I will not likely set another spread trade right away in SPY as I wait for a bit while this shakes out. I could place a $1 or $2 higher spread, wait for the first trade to atrophy somewhat and close it to keep some credit and just step the spreads up to the EOM.
Hmmm... step spread trading in the same month to capture premiums in an uptrend situation...has some merit for future thought.
Here is the SPX chart for the S&P500 index. I noted that there is no gap on that Oct 6th morning BUT the level on the Friday closed at 1099.23...say 1100 for now and opened on Monday at 1097.56. The S&P dropped from there and returned the next day to test 1073 and dropped never to look back until testing 1073 in September...basically the exact same range as if it had gapped. Same pattern as the SPY, which it should be, just the lack of gap was noted.
The red lines are the Friday Oct 3rd 2008 close and the following Tuesday test of 1073 with the current correspondence
I like how the price is hovering about the 1100 mark after testing and crossing it, nice consolidation... begs the use of a directionless spread trade to capture the move which ever way it ends up going, as long as it goes quickly. The short Linear Regression channel is showing signs of a slowing down of the uptrend which is remaining within the longer term LR channel so far. Target moves, like in the SPY, are 1080 on the bottom and 1150 on the top.Jeff.
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