Friday, February 25, 2011

Stock Signals Turn Long 2/25/11

Our intermediate-term stock market indicators have flipped to long from a neutral position that it has held for a while.  We had anticipated that this indicator might turn bullish -- but the stock market's steady rise had delayed the long signal for a while.

The intermediate-term model is currently strongly bullish, as is the long-term model.  The z-Trader Short-Term system, tracked on Collective2, focuses on liquid markets such as the S&P, and will reflect these models -- as well as the z-Trader's short-term models.

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Saturday, February 19, 2011

z-Trader Quant Systems & Collective2

We have used a system developer name of "z-Trader" to post the results of quant trading strategies on Collective2 (C2), a third-party tracker.  We have created four programs on C2 as follows:

In addition, note that we have a track record and/or hypothetical results that go back to 1996.  Performance on C2 must be considered hypothetical, with all of the risk disclosures associated with futures trading and hypothetical results.  


zFutures Diversified Program (Adamah Capital): is a fully-diversified program that trades both Commodities & Financials.  The Diversified Program was posted on C2 about 8 months ago and appears on C2's leaderboard.

In order to achieve lower account sizes (as requested by several C2 users), we recently created the z-Trader Commodities and z-Trader Financials Program.  On average, these two programs will combine to be a good proxy for zFutures Diversified (although with more leverage to achieve the lower account sizes).  Commodities have had a few good months, while Financials (currencies in particular) have struggled the past 1-2 months.  Over the long-term, we expect the two programs to have similar levels of performance.  The programs offer good diversification to one another.   

z-Trader Short-Term applies similar approaches as our other programs -- but with a shorter-term outlook that can be applied to large markets (and markets that exhibit volatility).  The program trades markets such as the S&P, energy & metals, with a focus on the E-Mini S&P.  

Please contact us for more information.

Monday, February 14, 2011

Stock Indicators Update 2/14/11

Our stock market indicators remain the same as our last blog post.  Our long-term model remains strongly bullish (as it has been for a while).

With the stock market's continued rise, our intermediate models have remained mostly neutral.  They have had slight shifts from slightly bearish to neutral -- but with no notable or material change.  A few weeks ago, we said that our intermediate models looked like they would turn bullish -- but the market's slow rise has kept that in check.  We'll keep our readers posted on material changes to our long-term or intermediate-term indicators.

Our short-term models, along with the long-term models, have kept us on the right side of the stock market's rise, so that our Short-Term System has had a good run in February.   

Friday, February 11, 2011

Newsletter on Trading Systems (from C2)

In case you missed this newsletter from Collective2 (C2), we thought it was an interesting look at why some trading systems ultimately fail. The recent volatility in the futures and currency markets in January and early February caused some losses for trading systems, and we recently wrote a related article. I use Collective2 as a third-party tracker for trading systems.

Here is an excerpt from the Collective2 newsletter. Please click here for the entire article.

Three trading systems that failed

and what we can learn from them

A lot of trading-system sites like to brag about how people made money on their site.

... Every now and then we review bad trading systems on our site.

Why our obsession with failure?

Because failure, more than success, is interesting. Not just in a snarky, let's-kick-people-when-they're-down kind of way. When trading systems fail, it gives investors a chance to ask questions. Were there warning signs that should have been heeded? Is there anything that these failed systems have in common?



The point of reviewing these three systems is to learn from mistakes. The best kind of mistakes to learn from are the ones that other people make. (Learning from your own mistakes, while a powerful pedagogical method, hurts like hell.)

So what did we learn today?

  1. Trading systems that engage in Martingale strategies can look good for a long time. But they always end the same way, and it's never pretty.
  2. System developers that talk about golden harmonics and astrology and bird entrails should be treated with skepticism.
  3. Even supposedly "low-risk" strategies have risk. There is no such thing as a free lunch.

Monday, February 7, 2011

Risk / Return, Profit Stats & Trading Systems

Investors often talk about Trading System X vs. Trading System Y -- and how a certain approach has a steadier pattern of returns versus another.  Note, however, that even long-term performance can disguise or hide the potential pitfalls of some trading systems.  For instance, a trading approach can have a great 100% return over 12-months, but individual trades can possess some scary drawdowns.

Many of us have seen these types of systems, and they eventually have a bad decline that forces a "closed trade" and/or marked-to-market recognition of the risk that was always there.  There have been many stories like this over the years.  Some of these traders use a martingale-type of approach (letting losses accumulate or even increasing exposure and/or doubling losing trades).  These methods can "hide" risk in the short-term -- but if overused -- will lead to large losses at some point. 

Many analysts study the risk / return figures on individual trades -- as well as the percentage of profitable trades -- to get a handle on overall risk.  These statistics can yield information about a trader's overall risk management approach.  In addition, hopefully, there is a real edge to the trading system's approach.

I have been a trader for over 15 years, and recently started to post trades on third-party tracker, Collective2.  Our most-established program, zFutures, is a diversified futures program -- and now has almost 200 trades tracked and more than 6-months worth of history on Collective2.  It is notable that this has been a good period for the futures markets, but we are pleased that potential investors are happy with the program's trade statistics.  In particular:
  • The ratio of Average Profit from (Winning Trades) / (Losing Trades) is close to 2.
  • The percentage of winning trades is currently over 50%.   
We recently started publishing our z-Trader Short-Term System on Collective2 as well.  This program focuses on the S&P (e-mini) -- and we note that the trade statistics are similar to zFutures (profitable trades almost 2x losers; and winning trades around 50%).

We don't claim to have a magic formula, but we do believe that we have an edge in the futures markets.  Our programs are based on robust research methods, including machine learning, on many years of historical data.  We use a systematic and computerized approach to managing trades and managing risk.  The financial markets are a competitive arena -- and a disciplined approach, combined with constant diligence - and constant research - are all necessary to earn excess returns from the financial markets.

Friday, February 4, 2011

Super Bowl Quant Facts & Square Pools (NY Times)

Here is an excerpt from my article, published in the NY Times, where we try to quantify key concepts of sports psychology to study methods of building and developing winning teams and champions.

In our book, “Who Will Win the Big Game?,” we studied factors related to sports psychology that might help predict the winner of the Super Bowl. The results are based on every Super Bowl starting in January 1967, or forty-four games. With an eye towards key concepts of sport psychology, as well as statistical analysis that attempts to identify factors that are as independent from one another as possible, five key statistical factors were identified. These statistics are related to principles of sport psychology like experience, leadership, error control and consistency. So important are these concepts to winning championships that they have proven to be common themes across all major sports. Last year these factors accurately predicted a Saints’ victory over the Colts.

The entire article can be found at (entire link below)

Super Bowl Square Pool Probabilities

Separately, if you are in a Square Pool, the NY Times published our Square Pool Probabilities last year (both online and "in print" on Super Bowl Sunday).  The charts show the probability of winning a Square Pool by quarter, based on the underdog and favorite.  To use the probability charts this season, replace last year's underdog, the Saints with the Steelers -- and the favorite, the Colts, with the Packers.  Then, look up the numbers you received to view your chances of winning that quarter.

Special thanks to Don LaFronz, a financial advisor, who originated the idea and helped devise the methodology.  

Carlton Chin, a fund manager and MIT graduate, and Jay Granat, psychotherapist, are authors of “Who Will Win the Big Game? A Psychological & Mathematical Method.”  

Jay Granat and Carlton Chin study and quantify championship characteristics related to sport psychology.  They are particularly interested in qualities that are more readily coached, taught, and practiced.

Tuesday, February 1, 2011

A Look-Ahead at Stock Signals 2/1/11

Our stock market indicators last changed signals on January 14th.  In that blog post, our intermediate stock indicators went flat (at S&P 1293) from a moderately-long position.  Since that time, the stock market had grudgingly moved higher, until Friday's steep decline.  With the market's bounceback yesterday -- and rise early in today's trading (S&P currently at 1301.5), our intermediate indicators have changed to very slightly bearish (not a huge signal change, but notable).

Interestingly, a look-ahead at the model's signals points to a bullish call in a few days, but that is dependent on stock market action.  Keep an eye on our blog for updated information.  Our long-term model remains strongly bullish.  In addition, short-term market direction will help dictate our overall stock index futures position.

The stock market has been relatively quiet -- especially to the upside -- in recent weeks.  The market has generally moved steadily higher, although it has hit some resistance at the 1300 level on the S&P 500.  Our z-Trader Short-Term System, tracked at Collective2, applies the results of these stock market models to the S&P and/or E-Mini contracts.  Because the market has had this "grudging" rise with resistance near 1300, the system has also been flattish.

The Short-Term System trades larger, more volatile, markets such as the S&P, energy, metals, and financials.