Thursday, January 06, 2005

5 Consecutive Closes and a System

I've been staying away from system development ideas for approximately 3 weeks now. I must have been burned out. But, an idea has been ruminating in my mind thanks to the help of a few posts on Roger Nusbaum's site. So, most likely, I'll start backtesting the idea this weekend.

I basically would like to see if there's some substance in creating a covered call trading system. I'm afraid the major problem with a system like this is the fact that too much capital would be tied up to take advantage of the system. But, my curiousity with this idea is getting the best of me.

Truth be told, I've always stayed away from options. Delta,'s all greek to me. I just figured it's hard enough to do one thing why add more complexity to the task at hand. But, much like pigeons, I gotta make it harder and harder on myself. :)

One more note. The DJ-30 and SP-500 broke their consecutive lower closes today. But, the Nasdaq Composite has now gone 5 consecutive days with lower closes. Doesn't really mean anything though...or does it?

If you would have traded this phenom you would have placed 56 trades since 1990 with a win ratio of 62.50%. And an eaked out an average profit/loss of 0.71%. This assumes of course, you bought at the market the following day the 5 lower closes occurred and sold at the close two days later. Not a great record.

If you would have traded the QQQQ instead of the Nasdaq Composite...your performance would have improved slightly. 42 trades would have been placed since 1990 with a win ratio of 66.67% with an average profit/loss of 1.12%. A little better.

Now, if you just add a little tweak and a little system magic and combine the two...your results improve tremendously. If you only take trades where both the Nasdaq Composite and QQQQ place 5 consecutive lower closes in synch and use the QQQQ as your trading get an average win ratio of 79.17% and an average profit/loss of 2.22%. And the number of trades are reduced to 24. You get better performance and less risk from the combination. Less risk because your in the market less than half the time as when trading the vehicles seperately.

Don't get too excited. This is just a quick test...not a full system.

Are the Nasdaq Composite and QQQQ in synch this time with the 5 lower closes. Yes. So, we can conclude based on backtested results, that the QQQQ will be higher at Monday's close than tomorrow's least 79.17% of the time.

Anyway, have a great Friday and an even better weekend!

Daily System Updates

Received ACV (BreakUp) long system trigger for Friday's market open.

Current Open Positions:
  • WAG (BreakUp) long with current profit of +1.96%;
  • QQQQ (Tii100Low) long position with current loss of -0.85%;
  • QQQQ (BBLower) long position with current loss of -0.85%;
  • QQQQ (ATRBreakBB) long position with current loss of -0.85%;
  • QQQQ (TrueRVolume) long position with current loss of -0.85%;
  • QQQQ (VolSurgeDown) long position with current loss of -0.70%;
  • QQQQ (Harami) long position with current loss of -0.70%.
Please read the disclaimer on the website. This is not a recommendation to buy, sell, or trade securities. Just a journal of my travels through Wall Street. I can buy, sell, or hold any positions mentioned on this website at anytime. So, be warned.

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