Week of 2011 SE 30

SPY fell by 0.3% this week, while my account rose 1.6% to its highest value in six weeks.  I am very pleased with this result, especially since this was a week of travel for me so I couldn’t sit around all day watching the market.

This week was the end of the third quarter of 2011 (and the last quarter of many fiscal years), so professional traders were motivated to trade stock amongst themselves at artificially-inflated prices to make their final books look better.  Yet the market fell anyway!  I expect that SPY will fall even more next week and perhaps quite a bit the week after that.

Euro news: The deputy prime minister of Greece said his people are tapped out and cannot raise taxes any further.  A Hungarian bankster working at an Italian bank said that the Greek default is only days away and the Euro is “practically dead”.

US news: Mainstream media outlets are starting to cover the protests on Wall St.  The focus of protest is morphing from “bankster greed” to “police brutality”.  Some people are calling it the American Spring (in comparison with Arab Spring), while others are comparing it to the race riots in the 60’s when police aimed firehoses at black children on live TV.

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	4.5	22 50	3.5	21 50	2.3	21 50	4.2	22 50	3.4	21 50	5.0	22 50	│			│
old puts		│	-2.6	0 0	-2.6	0 0	-2.6	0 0	-2.6	0 0	-2.6	0 0	-2.6	0 0	│			│
RPRX	JL25	│	-31.7	2	-30.7	2	-31.4	2	-34.1	2	-36.2	2	-40.2	2	│	+15.5	+15.5	│
NOp7½	JL25	│	21.0	1.5	19.5	1.4	19.7	1.4	21.5	1.5	24.5	1.6	27.9	1.6	│	−23.2	−23.2	│
TZA#1	SE12	│	9.1	26	3.0	25	-3.5	25	7.6	25	1.6	0			│	+0.9	+0.9	│	+7.8%
TNA#1	SE21	│	-13.8	5	-8.9	0									│			│	−0.5%
TNA#2	SE26	│			3.7	9	10.5	10	-1.7	9	2.6	9	-6.8	9	│	−15.1	+0.2	│	+7.0%
TZA#2	SE29	│									0.6	12	9.7	13	│	−15.1	−6.3	│
SPY		│	0.0		2.4		3.5		1.4		2.2		-0.3		│			│
me		│	0.0		-0.4		-0.3		0.2		-0.1		1.6		│			│

RWM: Doing okay.  I am glad to say I am still holding some of these shares since July 1st, but allocating 20% of my account to this unleveraged holding means my maximum gain from the (imminent?) crash will be only about 2.5× the market’s loss, rather than the 3.0× I could get if I went all-in with TZA.  Still, I think I’ll keep it until November as it gives my account a bearish bias even on days when I’m not holding TZA.  The gains shown above are only half what they could be because I bought more shares and then sold them, so only 50% of total purchased shares are still live and affecting the gain.

RPRX: Not going anywhere.  Once again the put-option has red underlines every day, indicating that it is underpriced and I could get more from exercising the option than from selling the shares & option separately.  This time the problem steps from end-of-quarter manipulation; last time it was Options Expiration Week manipulations.  What they have in common is that the Big Boys are motivated to artifically inflate prices for one week.  Hopefully things will settle down next week.  I guess I’ll wait until after the crash before selling.

TZA: Sold on Monday and bought back on Thursday, which helped to reduce anxiety during my road trip, but now I have only half as many shares and my gain is 1% lower than it could have been.  The trailing stop would have triggered on Tuesday at +0.9% but I sold Monday for lots more than that!  If next Monday is a bad day for the market then I should buy some more.

TNA: The oopsie from last week settled on Monday, which happened to be the same day I bought it back (deliberately this time).  Sold on Wednesday because PPO went negative.  Win!  I made lots of money on both TNA and TZA the same week, buying and selling them alternately.  That’s the way to do it!  Money for nothing and your cheque’s for free.

Week of 2011 SE 23

SPY fell by 6.6% this week, while my account rose 5.3% to its highest value in a month.  This was accomplished via a hefty bet on TZA and a considerable quantity of luck.

Euro news: The words ”inevitable” and ”default” are starting to be uttered by European leaders.  Things look grim.

US news: On Wednesday, the Fed announced that they would not print more money to prop up the stock market, which immediately tanked.  Adding insult to injury, the Republicans decided to start threatening to shut down the government again.  One has to wonder whether the Republican Party would behave any differently if it were being secretly controlled by foreign enemies of the USA.  Of course, sometimes the Democrats seem like that also, but less often.
      There were protests on Wall St that were treated as riots.  Protesters were beaten.  Live-feed cameras showed police breaking their own rules of engagement.  Perhaps the food riots will begin next year.

In this week’s daily-progress table, the entries for Monday are missing.  I didn’t feel like writing them down because last week was so depressing, although actually Monday was a slight improvement over Friday.

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	0.1	21 50	?		1.7	21 50	3.6	22 50	5.1	22 50	4.5	22 50	│			│
old puts		│	-2.4	0 0	?		-2.5	0 0	-2.5	0 0	-2.6	0 0	-2.6	0 0	│			│
RPRX	JL25	│	-19.4	3	?		-22.8	2	-25.4	2	-32.0	2	-31.7	2	│	+15.5	+15.5	│
NOp7½	JL25	│	12.6	1.3	?		14.6	1.3	17.0	1.4	22.3	1.5	21.0	1.5	│	−23.2	−23.2	│
TZA	SE12	│	-10.7	11	?		-1.4	11	9.2	19	13.1	26	9.1	26	│		+0.9	│
TNA	SE21	│							-8.4	5	-16.4	5	-13.8	5	│			│	−0.5%
SPY		│	0.0		?		-1.1		-4.0		-7.1		-6.6		│			│
me		│	0.0		?		1.7		4.3		6.6		5.3		│			│

TZA: On Wednesday I was watching the market as the Fed made their announcement.  Volume picked up immediately!  There was a momentary up-tick, followed by a sustained down-tick, so I bought more TZA.  Big win!  On Thursday I was greedy and bought more, but it didn’t help.
      I have installed a 15% trailing stop on TZA, although 12% would have been sufficient to ride the August crash all the way down.

TNA: Oopsie!  In the excitement of the post-Fed rush, I entered my order for the wrong stock!  I realized my mistake a minute later and managed to get out of it with approximately zero loss (just trading costs).

SCHA: Got a ”buy” signal on Friday, but once again I didn’t follow my own rules.  If the market goes up on Monday, I should buy it to counteract the expected losses from TZA.  This will create difficulties because I have a lot of driving to do on Tuesday and can’t watch the market to check for a ”sell” signal.  But the market doesn’t care about my personal life.

Week of 2011 SE 16

(This is a back-dated entry.  The week of 2011 SE 16 was so awful, I didn’t feel like writing it up at the time.)

SPY rose by 4.8% this week, while my account fell 2.6% to its lowest level ever.  I bought TZA, thinking that the small-caps would go down, but instead they had their best week in two years!

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	3.1	22 50	2.6	22 50	1.7	21 50	0.8	21 50	0.2	21 50	0.1	21 50	│	−2.3	−2.3	│
old puts		│	-1.4	0 0	-1.4	0 0	-1.4	0 0	-1.4	0 0	-1.4	0 0	-1.4	0 0	│			│
SEp31	AU30	│	-0.8	0.1	-0.8	0.1	-1.0	0.1	-0.7	0.1	-0.7	0.1	-1.0	0	│	−1.0	−1.0	│	−1.0%
RPRX	JL25	│	-26.4	2	-29.7	2	-22.2	2	-19.6	3	-19.9	3	-19.4	3	│	+15.5	+15.5	│
NOp7½	JL25	│	18.5	1.5	20.5	1.5	15.0	1.4	12.0	1.3	12.7	1.3	12.6	1.3	│	−23.2	−23.2	│
SCHA	SE07	│	-2.7	25	-2.1	25	-0.5	0							│			│	+0.3%
TZA	SE12	│			-4.5	6	-9.2	6	-14.0	5	-10.1	11	-10.7	11	│			│
SPY		│	0.0		0.6		1.6		3.0		4.8		4.7		│			│
me		│	0.0		-0.5		-1.2		-1.8		-2.3		-2.6		│			│

RWM: Combined the already-sold puts into a single ”old puts” item whose value is frozen.  All changes in put-value are now assigned to the remaining live put.  This seems more sensible.
      As expected, the $31 put expired worthless.  There were no bids and so I couldn’t sell it for even a penny.  Next week it will be combined with ”old puts”.

SCHA: Last week’s sale settled on Tuesday.  My MACD-based system gave a ”buy” signal on Tuesday, but I didn’t buy because it seemed overhead resistance was too close.  But the market zoomed past the resistance.  I should have obeyed my own rules.  Discipline!

TZA: Bought on Monday, even though I have not yet back-tested any system for deciding when to sell it, because the news coming out of Europe suggests an implosion is imminent.  Bought more on Thursday because the rally seemed to be running out of steam (MACD gave a ”sell” signal). The market had better go down soon!

Week of 2011 SE 09

SPY fell by 1.6% this week, while my account managed to eke out a 0.1% gain.  The market has spent the last five weeks coiling itself up into an ever-narrowing trading range.  It ended Friday at the bottom of its range (or below its range, depending on how you draw the trendlines).  On Monday, the market should either bounce or crash.

Euro news: The Constitutional Court of Germany said what was politically necessary for it to say to preserve the EU.  But by Friday, the #2 man at the ECB quit his job, presumably because he thinks the sovereign default they are paying billions to postpone is unavoidable.  Rumours immediately started swirling that Greece will default on its debts this weekend.  If the prices on credit-default swaps are to be believed, the likelihood of a Greek default is about 90%.

Economy: The OECD said Thursday that Q4 world economic output will rise only 1.0%.  The OECD’s figure is probably overoptimistic.

US markets were closed on Monday for Labor Day.

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	3.2	26 67			2.6	31 50	0.6	30 50	1.6	30 50	3.1	22 50	│	−2.3	−2.3	│
AUp30	JL01	│	-0.6	0 0			-0.5	0 0	-0.5	0 0	-0.5	0 0	-0.5	0 0	│			│
SEp34	AU08	│	-1.2	0 0			-1.1	0 0	-1.0	0 0	-1.0	0 0	-1.0	0 0	│			│
SEp31	AU30	│	-0.6	0.1			-0.6	0.1	-0.6	0.3	-0.6	0.1	-0.6	0.1	│	−1.0	−1.0	│
RPRX	JL25	│	-21.8	2			-23.3	2	-17.7	2	-21.7	2	-26.4	2	│	+15.5	+15.5	│
NOp7½	JL25	│	15.0	1.4			16.5	1.4	11.5	1.3	14.9	1.4	18.5	1.5	│	−23.2	−23.2	│
SCHA#0	AU23	│	0.1	30 34			0.0	30 34	1.3	20 34	0.7	0 34			│			│	+0.6%
DRETF	AU29	│	-1.8	8			-3.0	8	-1.1	8	-2.0	0			│			│	−2.8%
TNA	AU31	│	-7.8	14 42			-8.3	14 42	-4.2	15 42	-6.4	0 42			│			│	−5.6%
SCHA#1	SE07	│							1.6	25	0.1	25	-2.7	25	│	−5.0	−3.3	│	+0.3%
SPY		│	0.0				-0.7		2.1		1.0		-1.6		│			│
me		│	0.0				-0.1		-0.5		-0.5		0.1		│			│

RWM: Bought more on Tuesday.  Used a 3% trailing stop on those shares and the ones from last Friday, which stopped out just before the close on Tuesday and settled on Friday.
      Because I have a put, and have already sold half the total shares purchased, I cannot lose more than 2.3% on RWM.  But if I exercise the put then I will lose the 1.0% I spent on it, for a total loss of 3.3%.
      Even if the market bounces next week, it seems the put will expire worthless next Friday.  Schwab claims that the put is worth 25¢ per share because that was the last trade price, but there have been no bids for several days so there is no one who would buy it from me.  Effectively, its value is already zero.

RPRX: Not going anywhere.  It’s getting close to the time when I said I would make a keep/dump decision for RPRX.  It’s looking like the answer is going to be “dump”.  If the market bounces, I could sell the put and ride the stock up the bounce (but this approach didn’t work when I tried it with FRED).

SCHA#0: Last week’s sales settled this Wednesday & Thursday.

SCHA#1: First use of the new MACD-based trading system.  Works!  Bought 11:02am Wednesday; sold 3:00pm Thursday.  This prevented my account balance from going any more negative than -0.5%, although I ended up not gaining much from the trade itself.

IAU: It’s not trending, so I’m not buying.

MACD-based trades

The SCHA#1 trade yielded a 0.3% gain.  According to the IWM chart, buying that security at 11:00am and selling at 3:00pm should have yielded a 0.04% loss before trading costs, but SCHA doesn't track IWM quite that precisely.  Since my median gain with these hourly trades is only about +0.4%, a 0.3% difference between theory and practice is a big deal!  I have no idea how often the divergence will be in my favour like this.

Looking at the chart all day, I wish I had bought SCHA earlier and sold earlier.  I have invented a new trading scheme:

• Buy (if not already bought) when PPO has risen by at least 1.1 over the last 11 hours, even if price is below SMA(n), even if price fell during the last hour.  Do not sell due to PPO going below ϶ until after it has risen above ϵ.
• Sell (if not already sold) when PPO has fallen by at least 0.35 over the last 11 hours, even if price rose during the last hour.  Do not buy back due to PPO exceeding ϵ until after it has fallen below ϶.
• Increase ϵ to 0.4 and ϶ to 0.07.
• Other rules same as last week’s hourly system.  Now that there are two rules for ”buy” and two for ”sell”, I will buy when either rule triggers and sell when either rule triggers.

This ruleset would have made a profit of 4.0% this week, rather than -0.04%.  It still shows an overall profit of about 26% over the last year, but the win:loss ratio is now 21:11 rather than 28:20.  There would have been 66 trades out of roughly 1250 hourly checks of the market, so 95% of the time when I checked the answer would have been ”do nothing”.  I am not sure that I can maintain such a low activity level!

I also tried doing calculations using TRIX.  By the time I got it tuned, it was producing approximately the same answers as PPO—but its profits were better than PPO's only during the previous bull market and worse during our current bear, which is the opposite of what I want.  So I’ll stick with PPO for now.

Week of 2011 SE 02

SPY fell 0.1% this week, while my account fell 1.2% to its lowest level ever!  Once again the “relief rally” is cancelled.  I bet that gold would go down, but it went up.  I bet that DRETF and TNA would go up, but they went down.  I need a more reliable trading paradigm.  See MACD-based trades below.

Euro news: Next Wednesday, the Constitutional Court of Germany will rule on whether it is permissible for Germany+France to bail out Greece, given that the Lisbon treaty says ”countries may not assume other countries’ debts”.  If they say no, the Euro is dead.

		│	Daily % gain size owned												│	Max % loss		│	Results
Symbol	since	│	Fri		Mon		Tue		Wed		Thu		Fri		│	Beg	End	│
RWM	JL01	│	3.0	30 63	-0.1	20 63	-0.5	20 63	-0.3	20 63	1.0	21 63	3.2	26 67	│			│
AUp30	JL01	│	-0.6	0 0	-0.6	0 0	-0.5	0 0	-0.5	0 0	-0.7	0 0	-0.6	0 0	│			│
SEp34	AU08	│	-1.3	0 0	-1.2	0 0	-0.9	0 0	-1.0	0 0	-1.3	0 0	-1.2	0 0	│			│
SEp31	AU30	│					-0.5	0.4	-0.6	0.3	-0.7	0.1	-0.6	0.1	│			│
IAU	JL25	│	5.6	22	3.5	0									│			│	+2.6%
SEp17	AU11	│	-2.2	0	-2.1	0									│			│	−2.1%
RPRX	JL25	│	-30.4	2	-23.8	2	-22.2	2	-24.7	2	-23.5	2	-21.8	2	│	−7.7	−7.7	│
NOp7½	JL25	│	7.7	1.0	16.0	1.4	5.8	1.0	6.4	1.0	6.1	1.0	15.0	1.4	│			│
SCHA	AU23	│	0.6	44 39	2.4	47 46	2.4	36 52	2.5	30 52	1.3	30 34	0.1	30 34	│	−3.6	+0.4	│	+0.6%
DGZ	AU29	│			-0.3	4	-4.0	4	-2.8	4	-2.9	4	-6.1	0	│	−2.4	−2.4	│	−3.0%
DRETF	AU29	│			-0.5	8	-0.9	8	-1.4	8	-1.4	8	-1.8	8	│	−2.8	−2.8	│	−2.8%
TNA	AU31	│							-0.9	15 42	-3.5	15 42	-7.8	14 42	│			│	−5.6%
SPY		│	0.0		2.9		3.1		3.6		2.5		-0.1		│			│
me		│	0.0		-0.2		-0.3		-0.5		-1.2		-1.2		│			│

RWM: On Monday the shares I sold last week were settled.  Bought more on Friday to prepare for the Big Drop if it happens this weekend.
      On Tuesday I bought another put, since I had expected a relief rally.  Looks like the put will expire worthless at the end of next week.  It is the nearly-invisible red line on the pie chart.

SCHA: Bought more Monday and Tuesday.  Previously-sold shares settled Tuesday and Wednesday.  Sold more on Thursday.  Sold all on Friday.  I need a better system for deciding when to buy and sell!

DGZ: I thought gold would go down, but it went up.

DRETF: I thought real estate would go up, but it went down.

TNA: Tried to catch the bottom on Wednesday, but missed on the first try.  Sold and bought some more at lower price.  Went down again.

MACD-based trades

Over the past year, on and off, I have been trying to figure out how to use MACD to get reliable profits.  I might finally have something!

Basic rules:

• Always buy blocks of the same dollar value, regardless of gain/loss from previous round (no compounding, more shares at lower prices).
• Use PPO(q,s,p), which is MACD(q,s,p) ÷ price so the numbers represent %change.
• Apply PPO to IWM, because it has a lot of volume and thus is hard for the bad actors to manipulate.  Do the actual buys/sells using SCHA because it has no trading commissions.  Generally, SCHA tracks the ups and downs in IWM quite well.
• Re-evaluate PPO at end of each period (hourly, daily, or weekly).
• Buy (if not already bought) when PPO > ϵ, the “epsilon” parameter.
• Sell (if not already sold) when PPO < ϶, the “negative epsilon” parameter.
• Emergency sale when price < peak × (1-trailing), the trailing stop.
• Do not buy if price fell during this period.  Do not sell if price rose during this period.  [This avoids “stupid moves” where the stock has changed direction but PPO hasn’t noticed yet.]
• Do not buy if price < SMA(n).  [This rule actually reduces profit slightly, but avoids another class of ”stupid move” that leads to occasional large losses.]

Here are simulated results for last 12 months.  The “profit” is expressed as a fraction of the block size.

	Inputs					Outputs
Period	PPO(q,s,p)	ϵ	϶	trailing	SMA(n)	Wins:Losses	Profit
Hourly	5,30,10	0.15%	0.05%	5%	20	28:20	26%
Daily	5,25,12	0.10%	0.05%	7%	10	5:3	19%
Weekly	5,30,10	1.00%	-1.00%	8%	10	1:0	22%

The ”weekly” rule says I should have bought at the open on October 3, 2010 and sold at the open on May 22, 2011 for a 22% profit!  At no time during those seven months did SCHA’s price ever fall more than 8% below its peak so far.  A nice, effective rule—but very rarely active. Over the last three years it would have triggered only five times, with four wins and one loss for an overall gain of 27%, during a period when the market lost 9%.  It says (and I think it is correct) that I should not own SCHA right now.

The ”daily” rule is apparently the most popular among traders, but it seems to have the most problems.  Its overall profit score is the lowest.  It requires that I buy and sell precisely at 4 PM (profits would be even lower if I used the next day’s opening price).  Worst of all, it says I should own SCHA as of today!  I don’t think so.  Perhaps I should just not use the daily rule.

The ”hourly” rule has seven times as much data to work with as the daily rule, so it does a better job.  It says I should have bought SCHA on August 26th at 1PM and sold August 31st at 12PM (5.5% gain) and not own any right now, which seems right. The main problem with the hourly rule is that it requires me to check the market every hour on the hour, all day every day.  Since this is unrealistic, I have adjusted the simulation to assume that I will not buy/sell based on the PPO for the first hour of each day (before I get out of bed) or the last hour of the day (requires sniping that 4PM price).  Oddly enough, skipping those hours improves profit slightly!  Other hours will have to be skipped because it’s just too inconvenient to check the market every hour of every day.  I am not sure yet how much profit will be lost that way.

If this thing actually works with SCHA, the next move would be to apply it to TNA, which tracks the same ups and downs as IWM but leveraged 3× (before fees).  Here are some comparative gain charts:

Period	Start	End	IWM	TNA	Trade time
Weekly	2010-07-01	2011-09-01	22%	66%	Monday 9:30AM
Daily	2010-07-01	2011-09-01	21%	65% 51%	Same day 4PM Next day 9:30AM
Hourly	2011-06-01	2011-09-01	16%	40%	Top of the hour

Looks great!  The problem is that if I screw up and get losses when the simulation says I should have had gains, the losses will be tripled.  I think I’ll stick with SCHA until this system proves itself.