So my results outperformed the pure system signals again, but this time it was by plain dumb luck.  This does not change the fact that the DESword group of currency systems reached a new equity peak last week.

Cable Glider — 1 win, 0 losses, 1 missed win

Euro Ranger — 1 win, 0 losses, 1 missed win

Darth Fader (ES) — 0 wins, 0 losses

Scalp — 3 wins, 0 losses

Last week, the systems were completely idle.  This week, I caught one nice short side move with the Cable Glider, and I nailed a top with a discretionary long side exit with Euro Ranger.  I shut the systems down prematurely for the week, but each system proceeded to have another winning trade that I missed.  It’s actually nice that the systems outperformed my discretion for once…as I’ve said in prior posts, almost all of my gains this year are from discretion, when in fact I’d prefer to trade systematically. 

I’m trying to learn how to scalp trade effectively, and I placed a few positive trades this week.  It’s not really my style at the moment, but it does feel like a solid way to expand my trading skill set. 

I’m at a new equity peak for the year (+30.9%), and thankfully, for the first time since January, so are the DESword systems.  Each new peak is an affirmation that the systems are still working.  I’m a little bit more skeptical about Darth Fader, but at least it has contributed positively to the overall actual (and walk forward) return this year.

Onward and (probably and eventually) upward.

Cable Glider — 2 wins, 0 losses

Euro Ranger — 2 wins, 1 loss

Darth Fader (ES) — 0 wins, 0 losses

More of the same over the last couple of weeks.  The systems’ win percentage is high, but the size of the wins is small.  Almost every trade is offering an opportunity to override the exit signal to improve the result.  Last week I did not override any exit signals, and I had a Cable Glider trade close with a tiny profit that I wanted to take sooner.  I also saw a Euro Ranger trade turn from a profit to a loss last Friday.

This week, I did override a Cable Glider system and took a profit instead of a loss.  I let Euro Ranger run without overrides, and it went 2 and 0, though the second win was quite small.

It’s another new equity peak for the year for me.  Year to date returns now stand at 26.9%…but again, the new peak is driven by these discretionary overrides.  These overrides have been the source of all of my profits this year, but a quick glance back to last August (in the chart below) shows that my discretion isn’t magical, and I’ve not yet been able to translate any of my discretionary exit rules into mechanical ones.

I picked up a copy of Larry Connor’s “Short Term Trading Strategies That Work”, because I keep hearing such good things about it.  Hopefully that will help to stimulate some new research ideas.

Today I have the opportunity to review my trading on the June 2009 contracts.  It just so happens that the last time I posted was in mid-March, right after I had rolled my positions to the June contracts.

First things first…the version of Darth Fader that I rolled out at the beginning of the year went SHORT the ES on 3/13/09 at 744…just 4 days after the 3/9/09 low, and it has not covered that position.  If I had simply followed the system, I would have been down almost 200 full S&P points.   Thankfully, that trade always looked and felt wrong to me.  I traded in and out from the short side and actually netted 9.75 points.  I have not traded the S&P since the end of April, and the market has continued to rally.  So that’s one bullet dodged.   I have since tweaked the system a bit and will begin to track the new version’s performance in my walk forward results.

Both the Euro Ranger and the Cable Glider were marginally profitable over the past three months.  There really hasn’t been anything remarkable occurring, except for the fact that both systems’ win percentage has been very high lately, but the size of those wins have been relatively small.  These systems continue to work well together.

I’m now up 25.3% year to date, and 54.3% since the launch of DESword last August.  This is a new equity peak for these systems.  The gains this year are almost entirely due to my discretion in not following the bad Darth Fader signal.  The walk forward year to date results are a paltry 0.8% !

I’m itching to do some new system development, but I haven’t had a lot of spare time lately.  Maybe I need to systematize my life a bit more so that I have more time for development

Cable Glider — 2 wins, 0 losses

Euro Ranger — 5 wins, 0 losses

Darth Fader (ES) — 0 wins, 0 losses, 1 open short (currently showing a loss)

Darth Fader Discretionary (EC) - 2 wins, 0 losses

The last two weeks were filled with good system trades, good luck, and profitable discretion.  Let’s look at the details, system by system.

Cable Glider, with its weekly range and economic event filters, rarely takes more than one trade per week these days.  In each of the last two weeks, the system was able to take a profitable short entry on Sunday or Monday, then the filters kept it out for the rest of the week.  The first trade’s profit was in the neighborhood of 40 points, and the second one was around 170 points.  I exited the second trade early, at my discretion, and that resulted in approximately 30 pips additional profit on the trade.  This system is still showing the biggest drawdown among the Troika systems, though not by much. 

I’m currently working to see if adding a long term filter from Darth Fader will improve Cable Glider’s results.  I don’t trust the results that I get from Tradestation when I try to mix intraday and daily data, so I may need to do this manually.  If I had applied the Darth Fader directional filter, I would have only been taking short trades since last August.  Since that time, long trades in Cable Glider have returned a net negative 2 percent…nothing eye-popping, but it’s certainly worth applying the filter if it shows itself to have been effective over the past several years, not just the past several months.

Euro Ranger has been plugging along quite nicely, logging 5 wins and 0 losses over the past two weeks.  The fifth and final win comes with an asterisk attached, and it is something that I can attribute only to good luck.  The March Euro futures contracts expire next week, so I was faced with the decision of whether to trade the March contract or roll to the June contract.  This decision doesn’t really come up that often for me, since the system spends more time out of the market than in it.  In any event, I have been using the convention of rolling to the next contract 4 days prior to expiration of the nearest contract.  Since I was holding an open short position this week, I got an email message from Tradestation alerting me that I held a deliverable position, and that I should roll to the next contract by March 11th to avoid liquidation.  So, on March 10th, I switched over to the June contract…it just so happens that the last trade of the week closed profitably when traded on the June contract (which was were I was trading), but didn’t quite hit the profit target on the March contract, and eventually would have been closed out at a loss.  Further testing indicates that rolling 5 days prior to expiration performs slightly better than rolling 4 days prior, so that’s what I will do going forward, both on Cable Glider and Euro Ranger.  It turns out that rolling 5 days prior to expiration is supposedly the convention on the floor as well, according to the CME.

So, the walk forward results for the DESword (CG + ER) will show a net loss for this week because of the one Euro loss that I not only dodged, but booked as a gain on the June contract.  The walk forward shows DESword in an 8% drawdown, but in reality, I’m doing much better.

Darth Fader opened a short on the S&P 500 futures on Friday morning.  There was a powerful rally this week, and in truth it felt like the system was getting short too soon…however, I took the signal, and I’m currently showing an open loss of less than 1%, as the equity market continued the rally on Friday.

In a prior post, I said that I needed to do some more work with Darth Fader on the Euro and natural gas futures.  I put on a couple of short trades in the E7 (CME Euro E-Mini) this week for the first time, just to reduce the risk and to avoid conflicts with Euro Ranger, which is trading the full Euro (EC) contract.  I managed to close a couple of small gains, but I’m really unhappy with the lack of liquidity in the Euro E-Mini.  Darth Fader says to be short the Euro right now, but so far the Euro is showing continued strength.  I have no open positions in the Euro right now, though I may look to trade in and out in the direction that Darth Fader recommends going forward.

Overall I’m showing a 19.5% year to date return with Troika and a 47.1% return since the launch of DESword last August.  I’m at a new equity peak with Troika, though the walk forward results are showing a 3% drawdown (from a lower peak). 

That’s enough detail for one week.  I’ll continue to work on refining Darth Fader and applying it to other markets.  Happy trading to all!

“…

He was in the process of boiling wheat in 1894 in an attempt to create an easily digestible bread substitute when he came across a discovery that would lead to Kellogg’s Corn Flakes.

He had boiled some wheat with the intention of making dough with it and accidentally let it stand for several hours. The wheat became softened, tempered. He decided to put it through the regular rolling process anyway for baking. When he rolled it out, however, he noticed that the individual wheat berries in the mash would roll out into flat, wide flakes. He figured he’d bake them and see what happened. The result was a crisp, tasty, easy-to-eat cereal product.

”

I always like to think that if I tinker around long enough with trading systems, I”ll make a mistake that will prove to be a gold mine.

 Cable Glider is the result of adapting the Turtle System for an intraday market.  I accidentally discovered that by shifting the price channel and anticipating breakouts, the returns were massively improved.  I guess that this wasn’t an accident, but it was the result of testing some “out of bounds” parameters.

Euro Ranger has a MACD filter in it that, to this day, I have no blessed idea how I came up with it.  These types of things are usually the result of trying to fix code that doesn’t work the way that I envisioned it…meaning that I’m kind of lazy like W.K. Kellogg.

Darth Fader works very well in the natural gas market.  It’s only after I tested it there that I realized I was testing a parameter set that was taking the first available profit, and not holding for a longer period as I had originally intended.  It turns out that both methods work, but the accidental one works better.

Now surely trading systems are not rocket science, and they are nowhere near as important as antibiotics or Coca - Cola, but it sure is nice to think that if you just keep tinkering, you might one day be the one shouting “Eureka!”.

So I set out to create a simple system with a trend component and a trigger.  That system, which is so simple, it’s almost shameful, seemed to return positive results for a variety of trading instruments, including individual stocks.  So I purchased more data…NYMEX, COMEX, CBOT, and S&P Indices.  The system seemed to work well in most liquid markets even without optimization. 

The problem is that in some of the markets, almost all of the gains had been made in 2008, which was a banner year for trend followers.  After a conversation with a friend, I realized that I should be testing the long run trend follower alongside a short term “dip buyer” type of system.  So I coded a simple system up. 

After I put 2 and 2 together, I realized that the short term “dip buyer” was really trading from the same principles as my production system for the S&P, Darth Fader.  So then I started testing DF on my new data feeds.  It turns out that DF performs well for stock indices, energy futures, treasury notes, currencies, metals, etc…

Next I took a look at my actual trading results for the week.  3 wins, 0 losses trading Cable Glider and Euro Ranger, which are both intraday systems.  I’m up 12.4% year to date by the way…however, Cable Glider and Euro Ranger do not perform as well as optimized versions of Darth Fader work on the Euro and the Pound.

So I’m at a decision point.  On one hand, it is nice to trade systems with different methodologies to guard against a wholesale failure of Darth Fader’s approach.  On the other hand, I really would love to trade systems on the daily charts only.  This way, I wouldn’t have to worry about keeping my computers on all night long and possibly getting booted off the network at 3AM when CG and ER want to enter trades.

So I have a little bit of work ahead of me to determine the best course going forward.  Without the benefit of hard data just yet, I’m leaning toward trading Darth Fader on the S&P (or the Nikkei–to reduce correlation with my 401k), the Euro, and on Natural Gas Futures.  I’ll need to compare the risk profile of that approach to the current Troika of DF on S&P, Euro Ranger, and Cable Glider.  I also need to remember that CG and ER have proven themselves to be profitable in real trading, while DF has not…I mean, it has shown me a profit, but I’ve only been trading with it since the beginning of 2009.

Cable Glider — 0 wins , 1 loss, 1 scratch (partial loss)

Euro Ranger — 2 wins, 0 losses

Darth Fader — 0 wins, 0 losses

Cable Glider is now the system with the deepest current drawdown.  I took a loss early last week, and scratched another loser before it could reach my stop loss.  Cable Glider is a filtered trend following system, and it had an extremely hard time.  In fact, this month’s loss was the system’s worst ever.  I managed to dodge a good portion of those losses with manual overrides though.  This month’s loss in the Cable Glider snaps a 5 month winning streak for this iteration of the system.

The Euro Ranger system went 2 and 0 in the last two weeks and showed a profit for the month.  In January, the system showed a net loss for the first time since December 2006.

Darth Fader was idle.  It would look to sell strength in the stock futures, and there’s been almost no strength whatsover in the last couple of weeks, as the market has fallen to fresh 11 year lows.

My actual results trading the Troika systems in February was a positive 2.1%.  My actual trading return year to date is positive 9.0%

I don’t have much to report on the systems development front.  Although the Darth Fader system has done well for me so far in the S&P futures, I keep tinkering with alternative ideas.  It seems I’m leaving a lot of opportunity untapped…

Cable Glider — 0 wins , 1 loss, 1 scratch

Euro Ranger — 0 wins, 1 loss

Darth Fader — 1 win, 0 losses

The currency systems are both continuing to struggle. I scratched a trade last night in the Cable Glider and pretended to be a scalper there for an hour or so, netting a total of 14 pips on 5 scalp trades…going 4 wins and 1 loss. The loss came last and nearly wiped out my gains. Maybe someday I can add scalping to the mix, but I was really just playing around last night. It’s funny just how much it got my adrenaline going. I should probably stick to systematic position trading if I want more profits than adrenaline.

This is a short month, and the currency systems have only 3 more trading days this month where they will be active.

Darth Fader netted 40+ S&P points on the short side from yesterday to today. But in fact, I completely missed a chance to get short last week at 871, then I got another chance to enter at that price yesterday. An updated backtest shows that I should be setting my take profit points tighter on the S&P trades, and if I had had that in place, I think I would have netted another 5% or so last week as the market swooned downward, completely recovered, and then re-swooned.

So then, that one actual S&P gain, combined with a couple of dodged currency trade losses, have landed me in a position of being up 1.1% for the month of February, and up 8.0% year to date, at a new high for the year.

The tracking error between my actual equity curve and the walk-forward equity curve is pretty large. The systems are showing a 4.6% year to date gain, with a lot more weekly volatility than I’ve actually experienced. I”m sitting at a new high with Troika, but my walk-forward numbers are showing the DESword currency system in roughly a 12% drawdown, with Troika in a 6% drawdown altogether.

It feels like I should be very careful now; DESword hasn’t seen this kind of drawdown since 2005…if it weren’t for all of bullets I’ve dodged, I’d be right there with it.

Cable Glider — 1 win , 0 losses — net positive

Euro Ranger — 3 wins, 2 losses, 1 scratch –net positive

Darth Fader — 1 win, 0 losses — net positive

Okay, in the last 3 weeks, Cable Glider has largely been kept out of the market by volatility filters.  The one trade that was triggered was a very tiny gain of 12 pips.  There have been some huge directional moves to the downside, with the Cable now trading solidly below 1.40, but the system has been unable to capture them.

Euro Ranger has been struggling as well.  The system is showing a net loss for the month, but I did a manual override and scratched the last trade at break even, since it just didn’t seem to set up correctly on the chart.  I’ve had very mixed results when trying to apply my intuition, but in this case my discretion saved me from suffering a relatively large loss.  The Euro Ranger can be a very sensitive system; it was just 3 pips away from triggering a short trade, but then just a few hours later it triggered on the long side.  That’s what prompted me to scratch the trade.  Indeed, if the short trade had triggered, it would have been nicely profitable.  Of course, overall, I’m glad to have dodged the bullet.

I formally launched a two-in-one system for the S&P futures on December 28, 2008, which I have dubbed Darth Fader.  Unlike my FX systems, which are traded on intraday data, Darth Fader is an end-of-day system.  It has a subcomponent that fades extreme moves and another one that relies on seasonal forces.  Darth Fader took one short trade early this month at 921, when there was a lot of New Year’s optimism in the air.  The trade closed out nicely profitable, but I did cut the profit short.  Much like when I launched the Euro Ranger last year, I’m finding that there is a period where I have to get comfortable with the specific risk that a new system takes and the emotions that come with it.  Although I was telling myself not to override the signal practically the whole time that the trade was open, I still did cut the trade short by a day and missed out on an additional 17 full points of profit.

Since I now have more than two systems trading live, I posted a final chart of the DESword (Cable Glider + Euro Ranger) in the sidebar.  The system returned 26.0% in 18 weeks, which comes out to 95% annualized. 

Since the formal addition Darth Fader to my stable of systems on December 28th, 2008, I am up by 6.9%  I am dubbing this combination of systems Troika, since I love to use the first thing that pops into my mind.  I suppose that there are better uses of time than thinking of catchy names, but they are fun.

It seems to me that the conditions in the market are still absolutely treacherous.  Small position sizes and multiple strategies on multiple instruments have allowed me to realize some respectable profits.  I’ve written before about the low correlation (about 0.05) between the weekly returns of the Cable Glider and Euro Ranger…that’s one reason why they work so well together as DESword. 

Well, it gets even better.  The two sub-systems that make up Darth Fader have a weekly correlation of -0.03, and the combined correlation between DESword and Darth Fader is also relatively low, at 0.17 since 1/1/2004, though the correlation has been higher over the past year, at 0.28.  The backtest page has been updated to reflect the combined results posted by Troika from 1/1/2004 to 1/23/2009.