I started using Tradestation to trade British Pound futures just two months ago.  The power and flexibility of Tradestation has really impressed me and allowed me to improve my trading model.

Today, I begin trading the 3rd generation of the Cable Glider system.  A summary of changes follows.

1) I will be trading British Pound futures at the CME alongside British Pound spot.  I started this side by side testing in August with the idea that I would like to have the systems synchronized and measure the relative costs of slippage and commission in each market.  One of the main things that drove me to the futures market in the first place was the idea that my trading costs might be reduced.  My current opinion is that this seems to be true at my current trading size, which to date has not exceeded 20 contracts on any single trade.

2) I will be using a different parameter set for each market, as determined by the ongoing optimization in both markets.  I’m currently using a genetic optimizer to periodically re-optimize the systems with a fitness function that uses net profit, gross profit, gross loss, and maximum intraday drawdown. 

3) Entry signals for both markets will be driven from the futures price chart.  Since the futures market is a true transparent market, I believe it gives me a cleaner picture to set up entries.  I never liked the fact that in the cash market, I’m getting a stream of bid prices rather than a stream of actual transaction prices.

4) Cross-market MACD confirmation will be used in both markets.  That is, I will require that a price breakout be confirmed by MACD in both markets.  This little tweak has already saved me from entering what would have been a losing trade in the futures market on the very first day of trading.

5) Exits will be managed by the optimized exit parameters in each respective market.  Once I’m in a trade, I don’t want to fool around with setting exits that rely on more than one data stream.

6) I will not attempt to synchronize trades in both markets.  The expectation of synchronized trades drove me crazy in the month of September.  By trading two different parameter sets, I gain a measure of diversification that is not possible otherwise.  This system diversification gives me a second level of equity curve buffering in addition to the smoothing effect of keeping a living expense capital reserve account.

Cable Glider II had a lifespan of only 4 months.  All months showed a profit, and the total compounded return on risk capital was just above 125%.  No, that is not an annualized figure.  It is a 125% return in four months.  I’m much happier putting CG II to rest this way;  the first Cable Glider system was suspended at the end of May after a large drawdown.

I’m still on the lookout for improved execution and reduced trading costs.  My next move on that front will be to investigate API trading with Interactive Brokers.  Their commissions appear to be identical to Tradestation, but the cash forex spreads look tighter, they pay interest on cash balances, and their unique umbrella account allows for cash balances to be SIPC insured.  The programming involved to trade at IB is a whole new ballgame, so I don’t expect I’ll be making the move anytime soon.

 # closed winning trades : 4

# closed losing trades : 1

 Net monthly profit % :  +41.6%

Current drawdown : 0.6%

This was a relatively uneventful week for the Cable Glider.  It entered long on Wednesday, got stopped out at a loss early Thursday morning, went short on Thursday afternoon, and closed out with a gain on Friday afternoon that nearly reversed the loss that it suffered earlier in the week.

Since Monday is a holiday, I’ll be spending some time this weekend trying to determine whether any special precautions should be taken in shortened trading weeks; the two shortened trading weeks in January could have produced large gains, but at the time, the Cable Glider did not enter due to it’s economic / calendar filters.

I’d like to make note of a change to the Cable Glider as of February 9th, 2006.  It had been using MACD as an entry filter only, but I’ve found evidence that MACD can be used as an exit tool as well on Friday afternoons only.  Before discovering this, I had a simple rule in place to exit all trades on Friday afternoon, because I do not want to be exposed to the illiquidity risk of holding a position over the weekend.  It is a risk mitigation factor that I presumed would lower the system’s overall profitability, but in fact, it seems to have improved my back test results.  So it’s a win – win.  I get to take it easy every weekend, and in doing so, the system’s returns are improved.   The more recent change to use a MACD cross as an exit filter on Fridays netted me an extra $2000 compared to the predecessor system which would have exited at a predefined time rather than as a result of a technical signal.

So I’ve closed the lazy coding gap, and I re-did the backtest for 2006, and no fooling, the results went up by 40%.  Live and learn.  I’ll have a new version of the system active on Sunday night then, and a new backtest result posted in the sidebar.

 On another note, the Employment Report on Friday caused a short lived flash of volatility in both directions, but neither move resulted in an entry signal, so for February, I am still 0 for 0 with a 0% return.   So much for predictions.

The spike up followed by the spike down on the chart above may not look like much, but I’m sure it was enough to clean a lot of short term traders’ clocks.