Thursday, January 20, 2011

Managed Futures Sector Report: "Caution Flag for Financials"

After several months of good returns in the managed futures and commodities arena, several futures market sectors are seeing "red" in early 2011. Many markets are seeing choppy market action and consolidation in January.

In particular, gold - which has been entrenched in a long-term bull market - has seen stiff resistance in the 1420 area and has seen a recent reversal. Today, the gold market took out recent lows and is sitting in the 1340 range.

Other related markets, such as the currencies and U.S. dollar have also seen reversals and whipsawing market action. In a nutshell, the financial and metals sectors of the futures markets have suffered losses. We have recently created a tradable Financials Program so that investors can track the performance of this managed futures sector, on third-party tracker Collective2. Note that the financials program includes metals.

On the other hand, the Commodities sector has held up relatively well during this volatile period. Various markets such as softs and cattle have yielded profits, which have offset losses in hogs and grains. The energy market has given up gains earned earlier in the month. Overall, however, the commodities sector remains slightly higher for the month. The performance of this sector can be tracked here, in our tradable Commodities Program.

Today's volatility has caused our systematic approaches to go into a slightly more "defensive mode." Risk management is one of the key elements to long-term investment success in the financial markets. The goal is to capture "profit opportunities" when they present themselves -- but to keep losses from accumulating when the markets are in a "whipsaw mode" -- and trying to "find" a "new equilibrium / price level."

Our trading models are currently signalling a "caution flag" for several markets -- and in particular, the financials sector. We do not believe that the long-term bull market in commodities is ending. However, we "try not to think" -- and instead -- follow our quantitative models that are based on many years of data and research. For now, if you are in these markets, please watch your risk levels and "stops," to prevent losses from accumulating.

The Financials Program and Commodities Program are good diversifiers to one another -- and combined, are a good proxy for a fully Diversified Managed Futures Program, which can also be tracked and traded. Please contact us for more information.



Sunday, January 16, 2011

Managed Futures Program and Risk

Our managed futures program, zFutures, has been appearing on the leaderboards at Collective2 for a while. There seems to be a glitch, but the program is still appearing on their System Finder filter:

zFutures averages more than 2 weeks per trade, which helps its "realism," "slippage" stats -- as well as longer-term performance with respect to commissions. zFutures' components (z-Trader Financials and z-Trader Commodities) will have similar results in the long-term -- although this month, commodities have been profitable while financials have been consolidating / reversing.

With the recent volatility in financials, there has been a lot of chatter about risk management. We like Collective2's analytical tools. We note that zFutures has "Low" (or na) risk in every single trade it has made - except one, which was "Normal." In addition, the less-diversified Commodities & Financial components have "Low" to "Normal" risk levels. These programs are slightly more aggressive to achieve lower account sizes, but use the same trading approach.

Risk management and preventing losses from accumulating are key parts of all of our programs -- and are key to "surviving volatility" and good long-term performance.



Friday, January 14, 2011

Intermediate Stock Indicators -- Flat

Our intermediate-term indicators went flat today, as mentioned in our blog post just before the market closed earlier today. Note that we will always post changes to our intermediate and long-term stock models to this blog. For faster access to this information, please subscribe to our blog and twitter (z_trader).

Normally, our intermediate-term indicators don't change this quickly. The last signal change was on Tuesday, January 11th. However, the rapid rise from Tuesday's close of 1274, to today's (Friday's) close of 1293 caused our overbought models to go neutral. The typical intermediate-term signal is more like 2 weeks or so.

Quick Blog Post -- Intermediate-Term Stock Signal

... is turning to flat. More later.

Tuesday, January 11, 2011

Intermediate Stock Indicators - Moderately Long

As the market nears the close, our intermediate-term stock market indicators are moving to an increasingly bullish position -- going from a slightly-long reading to a moderately-long position. Our long-term indicators remain strongly bullish.

We do not post indications from our short-term indicators, but our overall S&P positions are dictated by the combination of all time frames. Our S&P models are part of a z-Trader Short-Term System monitored at Collective2.

We also use Collective2 to track our Diversified Futures program, zFutures.

Wednesday, January 5, 2011

Trading Systems: Managing the Ebb & Flow of Futures Markets

Here are some excerpts from an article Carlton Chin of Adamah Capital wrote at SeekingAlpha on the recent sharp reversals in the futures markets -- and how trading systems need to find balance between profit opportunities, risk management, and potential losses (drawdown).

...The futures markets (both financials and commodities) -- and in particular, currencies, metals, energy, agriculture, and several softs -- have presented profit opportunities to futures traders. However, after a strong December, early January has seen some sharp reversals in the future markets.


Back in November, we wrote about the sharp reversal in the futures markets. At the time, we saw severe reversals even sharper than this week's moves... However, at the time (back in November), traders had to manage their risk -- and protect profits from potentially severe drops.

Managing the Ebb & Flow of Markets

There is a trade-off between "potential profit opportunities" versus losses -- and a "decline or drawdown" for any trading strategy. In a nutshell, traders must "surf" the waves of the markets -- and manage their positions and strategies through the inevitable "ebbs and flows" of the markets.

There are always risk and return trade-offs, but good research can help traders and investors capture profit opportunities in the financial markets. We have studied and developed trading methodologies that attempt to capture profits while managing risk. Please check out the results in this FX/Forex trading challenge (top few percent). In addition, several of our trading strategies can be tracked at this third-party tracker, Collective2.

We will follow our trading methodologies and continue to monitor and research the markets. Ongoing research and a systematic, disciplined, approach can help put the numbers -- and market action -- on your side.

Monday, January 3, 2011

Recent Market Action; Near Top in FX (Forex) Trading Challenge

This continues to be a good period for many markets. Stocks continue to reach recent highs. In addition, the markets we focus on -- futures and commodities -- continue to trend. In particular, the currencies, metals, energies, and agriculturals -- have led to profitable trades. Our trading approaches won't always work -- but we should capture the profit opportunities that present themselves in the futures markets.

We entered a Forex (FX) contest -- and currently rank # 46 out of well over 1000 entrants. The contest has an interesting slant -- and ranks traders by risk-adjusted performance (return / daily standard deviation).

Please click here for a look at the leaderboard:

In addition, several of our programs are tracked on Collective2 as a third-party tracker:

Happy New Year!