Sunday 29 July 2012

Week of 2012 JL 27

SPY rose by 1.8% this week, while my account fell 0.2%.  The loss-floor is now -7.9%.

Euro news: On Thursday, Mario Draghi of the ECB said that he would do whatever is needed to save the Euro and ”believe me, it will be enough”.  This pixie dust caused the market to zoom!  For 24 hours.  On Friday, Draghi announced that he would meet with Germany next week to get approval for the money-printing he had just promised.  The market zoomed!  For about 12 hours.  On Saturday, Wolfgang Schäuble of Germany said Nein! as expected.  Will the markets fall on Monday?

US news: The Fed’s committee meets next Wednesday.  The expected result is “no action”.  The markets will probably be up on Tuesday and down on Wednesday.

Friday’s allocations:
Daily % gain
size
Max loss
Sym  Buy Fri Mon Tue Wed Thu Fri Beg   End
 
SRTY ¹  JL20 +0.1  15  +0.1  15  +0.1  15  +0.1  0 
SRTY ²  JL23 -0.2  15  -0.2  15  -0.2  15  -0.2  0  -1.1 -1.1
SRTY ³  JL24 +0.1  15  -0.0  15  -0.0  15  -0.0  15  -1.2 -1.2
UPRO  JL24 +0.0  10  +0.0  10  +0.0  10  +0.0  0  -1.2 -1.2
SPY +8.7   +7.6   +6.7   +6.7   +8.5   +10.5
me -7.7 -7.9 -7.8 -7.9 -7.9 -7.9
floor -7.7 -7.9 -9.0 -7.9 -7.9 -7.9

UPRO: Non-robot day trade.  I successfully caught the end-of-day ramp on Tuesday, but the gain was insignificant.  It seems that UPRO is not a suitable vehicle for these half-hour trades.  Perhaps I need to upgrade my account to ”Options level 1” so I can buy calls instead of shares to increase the leverage.

Stock-trading robot

Ticker
Symbol
Buy dateBuy priceSell dateSell priceAcct Profit
ModelActualMAModelActual  M  A  M  A
SRTY ¹² JL 20 11:00 $45.50 $45.57 (Do not sell) JL 20 15:00 $45.84 +0.7% -0.1%
(Do not buy) JL 23 11:00 $48.42 JL 23 14:00 $47.90
SRTY ³ JL 24 13:00 $49.69 $49.68 JL 25 10:00 JL 25 10:40 $49.69 -0.1% -0.0%

SRTY ¹²: I would have had a profit for the week if this trade had gone according to model!  New rule: If the model says “keep” but the robot sells, then put in a limit-order to try to get the shares back at the erroneous sale price.  Last Friday I didn’t get home until after the market closed, but the sale price showed up again during the after-hours session so I could have saved this trade.

SRTY ³: Another quote problem.  Used a limit-order to break even.

Quote fetch&archive system:  The problem with SRTY ¹ wasn’t a single wrong quote, but a set of wrong quotes over a period of days, which led to accumulating errors in the indicators.  Previously I was replacing Schwab’s quotes with stockchart.com’s quotes once per week, but apparently an entire week is too long and the indicators can diverge significantly in only a day or two.  Solution: pull replacement quotes from barchart.com once per day.  This worked partially on Wednesday (closing price was wrong, which is part of why SRTY ³ failed), worked correctly on Thursday, then failed Friday because barchart.com decided to show two days of data in response to a request for one day (they fixed this on Saturday).  So now I am using three different sources for quotes, none of which actually does what I need!  Maybe I should move my account to Interactive Brokers.

When will the models give a “buy” signal?

TNA: A day or two at least.  STDDEV(80) is only a little higher than its EMA(43).

TZA: Several days at least.  The short-term trend is up!

URTY: Not for a while.  TRIX(176,15) is approximately zero.

SRTY: Could happen on Monday, if there is a big gap-down followed by an hour’s retrace.

IAU: Could happen next Friday, if current trends continue.  MACD is only slightly negative.

Surfing the oscillations

The US equity markets haven’t gone anywhere since February.  For the last month, IWM (the small-caps) have been in a down-trending channel, while the SPY (the large-caps) have been in an up-trending channel.  As of Friday, IWM has reached the top of its channel, while SPY has burst through the top of its channel.  For next week, I expect either a gap-up to escape from the channel or a corrective bounce-down to stay inside it.

Saturday 21 July 2012

Week of 2012 JL 20

SPY rose by 0.5% this week, while my account fell 0.7%.  The loss-floor is now -7.7%.

Market news: The bears are licking their chops!  Robert Prechter, of Elliot Wave Theory fame, has started sending out emails about his “drop like a rock scenario”.  Cycle analysis has convinced some traders that the market will start dropping next week, hitting its usual bi-monthly low around August 7th (last year the decline was July 25th..August 9th).  Of course, nothing ever goes as planned on the stock market, so I will wait for a “short” signal from my indicators.

Friday’s allocations:
Daily % gain
size
Max loss
Sym  Buy Fri Mon Tue Wed Thu Fri Beg   End
 
TZA  JL11 -0.6  14  -0.6  14  -0.6  14  -0.6  0 
TNA  JL18 -0.3  15  -0.4  15  -0.8  14  -1.1 -1.0
UPRO  JL19 -0.0  15  -0.0  15  -0.0 -0.0
SRTY  JL20 +0.1  15  -0.9 -0.9
SPY +8.2   +7.9   +8.7   +9.5   +9.7   +8.7
me -7.0 -7.0 -7.0 -7.2 -7.4 -7.7
floor -7.0 -7.0 -7.0 -8.0 -8.0 -7.7

UPRO: Non-robot day trade.  I tried to catch the end-of-day ramp on Thursday, but the ramp was too small and didn’t cover my trading costs.  I did this trade by eye, but afterward it turned out that I would have gotten substantially the same results using MACD(10,30,20) on the 1-minute chart (which I had backtested some months ago).

Stock-trading robot

Ticker
Symbol
Buy dateBuy priceSell dateSell priceAcct Profit
ModelActualMAModelActual  M  A  M  A
TNA JL 18 13:00 $55.89 $55.91 JL 20 12:00 $52.92 -0.8%
SRTY JL 20 11:00 $45.50 $45.57 (Not yet) JL 20 15:00 $47.00 +0.1%

TNA: Rats!  The stupid model said to buy this at (what turned out to be) Wednesday’s high of the day.  Should reprogram the model to *wait* for a retrace before buying — although in this case that would merely have reduced the loss.

SRTY: The robot’s real-time quotes from Schwab differ by pennies from the model’s on-the-hour quotes from Stockcharts.com.  In this case, the divergence was enough to produce a spurious “sell” signal.  I’m not sure what to do in such cases.  Should I buy back what should not have been sold?  Use a limit order to try to get it back at the sale-price (reducing profit by 0.03% for the two extra transaction fees)?  For now, I have replaced the robot’s quote archive with the model’s data and added a temporary rule to the model:
IF time = "2012-07-20 15:00" THEN sell SRTY
This causes the robot to realize that it doesn’t currently own SRTY, so it will buy anew on Monday if the downtrend resumes.

PPO-based swing trades

How to change the TNA/TZA models so they wait for a retrace after a breakout?  Perhaps I need a new indicator RETRACE(size,significance) which will calculate a retrace of size percent of the distance from the most recent peak to a recent bottom.  Significance would somehow have to define “recent bottom” — perhaps a number of hours of rising prices that must follow it?

Before trying that, I decided to try replacing the PPO-based model with something simpler: how about a TRIX+MACD model?  For my bearish tests on IWM, I ended up using TRIX(22,2) and MACD(10,60,13): short when TRIX < 0 and MACD > 0 and falling; cover when TRIX > 0 or MACD > 0 and rising.  This works okay, but not as well as the PPO-based model.  The problem seems to be that “waiting for the retrace” is not generally a good idea, at least for bearish swings.  I suppose I should try a bullish test, to see whether this approach works better for those, but I haven’t done that.

For last August’s crash, the TRIX+MACD model would have waited until August 2nd before shorting (because that is how long it took for MACD to go briefly above zero before crashing) while the PPO model would have shorted on July 26th.  As a result, the TRIX+MACD model would have increased my account by only 11.5% on that crash, while PPO would have made 18.9%. For 2008..2011 as a whole, the TRIX+MACD model’s TZA profits would have been 31.5%, while the PPO model’s would have been 61.9%.  I think I’ll stick with the PPO model.

To get some use out of this abandoned research, I have added the TRIX rule to the TNA/TZA models.  This helps only slightly: for TNA the four-year profit was 47.7% and win:loss ratio was 29:16, now it’s 50.7% and 29:15.  For TZA the old results were 61.9% and 23:17, now 66.3% and 21:13.  Much of these profit-increases come from retuning the models, since TRIX is blocking some bad trades so now they don’t need to be blocked by other indicators.

Bull swing (TNA) Bear swing (TZA)
Buy signal:
  • Time = 11am–3pm, on the hour
  • PEAKFREQ(140,8) ≤ 11
  • TRIX(23,2) > 0
  • This hour’s price > 99.9% of previous hour’s price
  • This hour’s price > stop
  • This hour’s price > SMA(30)
  • This hour’s price > max of preceding 26 hourly prices
  • PPO(8,71,1) < +2.0
  • PPO(8,71,12) > +0.4
  • PPO(8,71,12) has gone below -0.25 since last sale
  • STDDEV(80) < its EMA(43)
  • Time = 10am–3pm, on the hour
  • PEAKFREQ(140,8) ≤ 11
  • TRIX(23,2) < 0
  • This hour’s price < 100.1% of previous hour’s price
  • This hour’s price < stop
  • This hour’s price < SMA(77)
  • This hour’s price < min of preceding 32 hourly prices
  • PPO(10,57,1) > -2.0
  • PPO(10,57,10) < -0.1
  • PPO(10,57,10) has gone above +0.28 since last sale
  • STDDEV(29) < its EMA(25)
Alternate buy signal:
  • Time = 11am–3pm, on the hour
  • This hour’s price > SMA(30)
  • This hour’s PPO(8,71,12) minus its value from 35 hours ago > +2.6
  • It has been at least 6 hours since last sale.
  • Time = 10am–3pm, on the hour
  • This hour’s price < SMA(77)
  • This hour’s PPO(10,57,10) minus its value from 22 hours ago < -2.35
  • It has been at least 10 hours since last sale.
Buy-more signal:
  • Time = 10am–4pm, on the hour
  • Either
    • PPO(8,71,12) has risen by at least 0.006 during each of the last two hours
    • PPO(8,71,12) has changed by less than ±0.006 during the last hour and rose by at least 0.006 during each of the preceding two hours
  • PPO(8,71,12) fell by at least 0.006 during the two hours before that.
  • STDDEV(80) < its EMA(43)
  • Have bought 2 or fewer tranches so far
  • If signal received at 10am or 4pm, postpone purchase to 11am
  • Time = 10am–4pm, on the hour
  • Either
    • PPO(10,57,10) has fallen by at least 0.025 during each of the last two hours
    • PPO(10,57,10) has changed by less than ±0.025 during the last hour and fell  by at least 0.025 during each of the preceding two hours
  • PPO(10,57,10) rose by at least 0.025 during the two hours before that.
  • STDDEV(29) < its EMA(25)
  • Have bought 4 or fewer tranches so far
  • If signal received at 4pm, postpone purchase to 10am 10am or
Sell signal:
  • Time = 11am–3pm, on the hour
  • 99.9%  of this hour’s price < previous hour’s price
  • This hour’s PPO(8,71,12) < -0.25
  • PPO(8,71,12) has gone above +0.4 since original purchase
  • Time = 10am–3pm, on the hour
  • 100.1% of this hour’s price > previous hour’s price
  • This hour’s PPO(10,57,10) > +0.30
  • PPO(10,57,10) has gone below -0.1 since original purchase
Alternate sell signal:
  • Time = 11am–3pm, on the hour
  • This hour’s PPO(8,71,12) minus its value from 35 hours ago < -2.05
  • It has been at least 6 hours since last purchase.
  • Time = 10am–3pm, on the hour
  • This hour’s PPO(10,57,10) minus its value from 22 hours ago > +0.58
  • It has been at least 10 hours since last purchase.
Stop update:
  • Time = 10am
  • Calculate new stop = lowest price seen in preceding 22 hours.
  • Raise new stop to 95.0% of the highest price seen in preceding 22 hours, if less than that
  • If I don’t currently own TNA, replace stop with the newly-calculated value.  Otherwise:
    • Discard new stop (and keep the old one) if the new value is lower
    • Sell now if lowest price of last 22 hours occurred during the last hour
    • Otherwise, convert the IWM-based stop to the corresponding TNA price and update the standing stop-order at Schwab
  • Time = 10am
  • Calculate new stop = highest price seen in preceding 22 hours.
  • Lower new stop to 104.6% of the lowest price seen in preceding 22 hours, if greater than that
  • If I don’t currently own TZA, replace stop with the newly-calculated value.  Otherwise:
    • Discard new stop (and keep the old one) if the new value is higher
    • Sell now if highest price of last 22 hours occurred during the last hour
    • Otherwise, convert the IWM-based stop to the corresponding TZA price and update the standing stop-order at Schwab

Additional models

Currently I have two bullish models (TNA=swing and URTY=trend) and two bearish models (TZA=swing and SRTY=news).  What if I want to add a third model, such as a bullish news trade?  There are only two pairs of ETFs that offer 3× leverage on the value of the Russell 2000 basket of stocks.  However, there is also a pair of ETNs: RTLA and RTSA.  The ETF/ETN distinction doesn’t seem to matter much: there are no tax differences since I am using a retirement account, and the tail risk if Barclay’s Bank were to go belly-up doesn’t seem much different since leveraged derivatives are “side bets with the banksters” which lose all their value if the world’s financial system collapses, whether bought via an ETF or an ETN.  The trading volume of RTLA is abysmal—less than one trade per day—but does that really matter for a synthetic instrument whose shares get created on-the-fly when someone wants to buy them?

On Monday, I watched the market.  The good news is that Barclay’s (or whoever the market maker is) updates their bid/ask prices for RTLA every few seconds, even though days go by between trades.  The bad news is that the spread tends to be around 7¢, versus maybe 2¢ for TNA.

At 12:48, the offering price for RTLA was $64.65, while IWM could be had for $79.34.  By 13:32, the bid for IWM had gone down by 0.3% while the bid for RTLA went down by 0.6%, which is only 2× even though it says “3×” on the tin.  Multi-day charts show 3× performance for RTLA, but intraday performance (at least for early Monday afternoon) was only 2×.  It looks like RTLA is not suitable for news trades, which often take only a few hours from purchase to sale.

Friday 13 July 2012

Week of 2012 JL 13

SPY rose by 0.2% this week, while my account rose by less than 0.1%.  This is my third week in a row of gains, which hasn’t happened since last October.  My loss-floor has risen to -7.0%.

New this week: in the “Daily Gains” table, the gain is now shown in green on the first day of ownership (last day still shown in red; I guess orange would be used for day-trades).

Friday’s allocations:
Daily % gain
size
Max loss
Sym  Buy Fri Mon Tue Wed Thu Fri Beg   End
 
SRTY ¹  JL06 -0.2  15  +0.1  15  +0.1  15  +0.1  15  +0.1  0  -0.7 -0.7
SRTY ²  JL11 +0.2  15  +0.5  16  +0.5  15  -0.8 -0.8
TZA  JL11 -0.2  15  -0.1  15  -0.6  14  -1.2 -1.2
SPY +8.0   +7.9   +6.9   +6.9   +6.4   +8.2
me -7.0 -6.9 -6.9 -6.8 -6.4 -7.0
floor -7.7 -6.9 -6.9 -8.9 -7.6 -7.0

Stock-trading robot

Bugfix: Last week’s NO_MODIFICATION_ALLOWED_ERR was coming from Schwab's function closeAccountSelector(), which responds to any key-event (such as the RETURN I have to send to get past Opera's stupid secure-script warning) by trying to modify the event and then maybe close the account-selector menu. Fixed using window.opera.defineMagicFunction() to override Schwab’s buggy function.  Monday's stop-update was successful, as was Monday's sale and Wednesday’s purchases.  Thursday's stop-update failed due to use of closeAccountSelector() on a different Schwab page (copied over the fix).  Thursday’s and Friday’s sales successful.

Ticker
Symbol
Buy dateBuy priceSell dateSell priceAcct Profit
ModelActualMAModelActual M AMA
SRTY ¹ JL 06 13:00 JL 06 15:35 $43.55 JL 09 10:00 $44.25 $43.86 +0.1%
SRTY ² JL 11 10:00 $45.29 $45.09 JL 12 14:00 $47.00 $46.92 +0.5%
TZA JL 11 15:00 $18.65 $18.63 JL 13 12:00 $17.86 $17.85 -0.6%

SRTY ²: Fourth profitable trade in a row!  I haven’t had four winners in a row since January of 2011.

TZA: Broke my winning streak.

Friday 6 July 2012

Week of 2012 JL 06

SPY fell by 0.5% this week, while my account rose 0.5%.  Both of these figures have returned to within 0.1% of their values as of May 11th, eight weeks ago.  My loss-floor has risen to -7.7%.

Euro economy: Greece has reported to the Troika that its citizens have stopped paying bills in Euros.  The people have lost faith in their currency, so re-drachma-tization *should* occur soon, but it seems the Hellenic Government still isn’t ready to face that music.

US economy: Friday’s Nonfarm Payroll report was bad, so the market fell (and will probably continue falling for Monday and Tuesday).  There have been a slew of negative warnings for the Q2 earnings reports.

US markets: Closed on Wednesday for Independence Day.  Tuesday was a half-day.

Friday’s allocations:
Daily % gain
size
Max loss
Sym  Buy Fri Mon Tue Wed Thu Fri Beg   End
 
TZA  JN21 -0.2  15  -0.2  0 
URTY  JN22 +1.4  17  +1.4  17  +1.4  17  +1.4  0 
TNA  JN29 +0.2  15  +0.7  16  +1.3  16  +1.3  16  +0.8  16  -1.9 +0.1
SRTY  JL06 -0.2  15  -0.7 -0.7
SPY +8.5 +8.8 +9.5 +9.0 +8.0
me -7.5 -7.0 -6.4 -6.4 -7.0
floor -9.7 -9.3 -9.2 -8.9 -7.7

TNA: Max-loss above zero!  That hasn’t happened since last November.  The stock got sold later that same day, but still — I made it to the “guaranteed” profit level.

Stock-trading robot

The big problem this week was Opera’s NO_MODIFICATION_ALLOWED_ERR, which I got during Tuesday’s stop-adjust (worked correctly on manual retry).  Same problem occurred during Friday’s stop-adjust (but the adjustment went through anyway?)  Same problem a third time prevented the SRTY purchase from going through (I used a limit order).  Clearly, Schwab has screwed around with their order-entry process YET AGAIN.  I shall have to look into that this weekend.

Another problem: Schwab failed to reset their ”volume so far today” value to zero for July 4th, so the robot did a spurious stop-update on Wednesday.

Ticker
Symbol
Buy dateBuy priceSell dateSell priceAcct Profit
ModelActualMAModelActual M AMA
TNA JN 29 11:00 $52.88 $52.86 JL 06 11:00 JL 06 11:19 $55.80 $55.84 +0.8%
SRTY JL 06 13:00 JL 06 15:35 $43.55 (Not yet)

TNA: Robot failed to detect the “sell” signal at 11am.  The 10am IWM quote from Schwab was $80.60 (stockcharts.com said $80.54), then the 11am quote from Schwab was $80.54 (stockcharts said $80.44).  So the price of IWM “really” fell 10¢ during that hour but the robot saw a 6¢ drop.  My previous change to the TNA/TZA models was supposed to allow a “slop” of 0.1% price rise while still matching the sell-rule ”price must have fallen during last hour” — but I had coded it wrong so it actually required that the price had to drop by at least 0.1% (= 8¢ for IWM).  The robot tried to sell at noon, but I had already sold manually.  Bug has been fixed, but this reduces 2008..2011 TNA profits by 2.7 %-points (no effect on TZA profits).  Just dropping the “price must fall” rule would cost an additional 7.7 %-points, so I guess I’ll keep putting that off.

SRTY: Robot tried to buy at the proper time, but got the dreaded NO_MODIFICATION_ALLOWED_ERR.  I successfully used a limit-order to obtain the model’s expected price several hours later.

Gold trading

Refinement: Add a 3% hard stop in addition to the 10% trailing.  This reduces 5½ year profit from 15.4% to 15.2%, but reduces the maximum loss from 1.5% to only 0.5%.

Here is my revised model:
Using weekly indicators for IAU.
Buy signal:
  • Time = Friday at 4pm (after-hours trade).
  • MACD(14,25,9) is greater than 0.
  • MACD(14,25,9) has been less than 0 since last sale.
Sell signal:
  • Time = whenever US markets are open.
  • Current price < 90% of highest price seen since purchase or 97% of purchase price.
Here are all trades for the last 5½ years:
BuySellProfit
2007 JA 192008 MR 20+6.5%
2008 DE 122009 MR 03+1.5%
2009 MA 222009 JN 15-0.5%
2009 SE 042009 DE 17+1.5%
2010 AR 302011 AU 25+6.7%
2012 FE 242012 FE 25-0.5%

On Friday, gold jumped sharply after the NFP report, but then settled back down.  Weekly MACD is still rather negative.  A “buy” signal for this model does not seem imminent.