Week of 2012 JN 15

SPY rose by 0.8% this week, while my account fell 0.5% to its lowest value ever.  The loss-floor has fallen to -10.8%.

World news: Crown Prince Nayef of Saudi Arabia has died.  My pet theory is that this will have a much larger effect on world affairs than the elections in Greece.  None of Nayef’s obituaries discuss his position as a kingpin among the world’s crony capitalists.  His expected replacement, Prince Salman, is a very different man.

Euro news: The lying is nearing a crescendo.  The BBC reports that Spain “was given” a bailout.  Oh yeah?  They got *promises* of a bailout.  You can’t eat promises.

US news: Next Wednesday, the Federal Reserve will announce its policy for the next two months.  Far too many people have written that it is “almost certain” that they will announce a new money-printing program (QE3).  I think this is absurd.  Printing money now will cause a spike in the price of food, which could start another Arab Spring, which Saudi Arabia cannot afford during their line-of-succession difficulties.  Hopefully the Fed will put this off until August, which will cause large numbers of traders to be sorely disappointed next week.

Friday’s allocations:

Daily % gain size │ Max loss Sym  Buy │ Fri Mon Tue Wed Thu Fri │ Beg   End   SRTY ¹  JN12 │ -0.1 15  -0.1  15 -0.1  15 -0.1  0 │ -1.0 -1.0 SRTY ²  JN13 │ +0.1  15 -0.3 15  -0.3  15 │ -1.1 -1.1 RWM  JN15 │ -0.1  15 │ -0.7 -0.7 TNA  JN15 │ +0.0  15 │ -1.3 -1.3 SPY │ +6.1 +4.7 +5.9 +5.2 +6.4 +6.9 │ me │ -8.4 -8.4 -8.5 -8.4 -8.8 -8.9 │ floor │ -8.4 -8.4 -8.5 -9.7 -8.8 -10.8 │

New this week: the daily-gains table no longer has a “Final Gain” column.  Instead, when a security is sold, its daily gain is red for one day and then freezes for three days until the trade settles and the size goes to 0%.

RWM: Non-robot trade.  Obviously the market is going down, so I might as well bet against it.  Sell if QE3 is announced, or hold until the crash (with 5% trailing stop to catch the bottom).  RWM is a 1× bear, while TNA is 3× bull, so for now I am net 30% long.  My guess is that the market will be down on Monday, up on Tuesday, stable on Wednesday if “Operation Twist 2” is announced, then begin its decline.

Stock-trading robot

Ticker Symbol		Buy date			Buy price			Sell date			Sell price			Acct Profit
		Model	Actual		M	A		Model	Actual		M	A		M	A
SRTY ¹		JN 12 11:00	JN 12 11:06		$55.49	$54.77		JN 13 14:00	JN 13 14:12		$54.27	$54.34		-0.3%	-0.1%
SRTY ²		JN 13 15:00			$54.51	$54.41		JN 14 14:00			$53.38	$53.42		-0.3%
TNA		JN 15 15:00			$48.64	$48.65		(Not yet)

SRTY ¹: Tuesday's buy-order did not go through because Schwab reformatted their website again.  Entered manually.  Sell-order didn't work either, so entered manually as well.  Adjusted the robot code.

SRTY ²: Wednesday's buy-order went through, but not the sell-stop order.  Entered manually.  More robot code adjustments.

TNA: Robot is now working properly again.

Surfing the Oscillations

The robot has lost money for every month of its existence.  MarketSniper explains why: in their desperation to avoid the next crash, the central banksters are now intervening in the markets almost continuously, breaking up even the hourly patterns that my robot is looking for.  We’ve seen this script before.  Remember “Baghdad Bob” announcing that the Yankees have been defeated, while US tanks roll down the street behind him?  Increasingly I see the words “end game” being used to describe the Euro situation (and by extension the US situation).  The game actually ended about two years ago.  Wile E. Coyote is off the cliff, hovering in thin air, refusing to admit that he is actually falling.  Eventually he will hit the ground and the illusion will shatter.  Hopefully my robot will catch the crash and make lots of money, but as of yet there is no evidence that it will actually work.

Last year, the TNA and TZA models would have lost money in the first half, then made it all back and more in the second half.  We shall see how 2012 turns out.

Week of 2012 JN 08

SPY rose by 4.0% this week, while my account fell 0.3%.  My loss-floor rose because I am out of the market again.

Friday’s allocations:

Daily % gain size │ Max loss │ Final Gain Sym  Buy │ Fri Mon Tue Wed Thu Fri │ Beg   End │   TNA  MA29 │ -3.5 29  -3.6 29  -2.7 0  │ │ -1.6% SRTY  MA30 │ +1.4 15  +1.4 15  +0.9 0  │ │ +0.2% TZA  MA30 │ +0.7 16  +0.8 16  +0.2 16  -0.8 16  -0.6 16  -1.1 0  │ -1.4 -0.8 │ +0.5% SPY │ +2.1 +2.1 +2.8 +5.2 +5.2 +6.1 │ │ me │ -8.1 -8.1 -8.4 -8.4 -8.4 -8.4 │ │ floor │ -10.3 -10.0 -8.4 -8.4 -8.4 -8.4 │ │

TZA: Sold for 0.2% less than last Friday’s estimate, but account value went down by 0.3% for the week.  Some sort of round-off error.

Stock-trading robot

Ticker Symbol		Buy date			Buy price			Sell date			Sell price			Acct Profit
		Model	Actual		M	A		Model	Actual		M	A		M	A
TZA		MA 31 11:00			$22.56	$22.60		JN 05 13:00			$23.39	$23.42		+0.6%	+0.5%

TZA: Sold Tuesday using the "Alternate sell rule”.  Spent the rest of Tuesday cursing that damned rule.  Wednesday morning the market jumped, so would have sold TZA for a loss at the 10am stop-update.  Hooray for the alternate sell rule!

Custom indicator PEAKFREQ

As of Friday’s close, PEAKFREQ(140,8) = 7, so the SRTY model is disabled but the other models remain on duty, waiting for “buy” signals.

On Thursday, PEAKFREQ got down to 6, so I tried to recreate the previous histogram which showed only two hours of the last 7,000 that had such a low value.  But the numbers are all different on my re-creation!  Something went wrong last time.  Here is the revised chart, showing 6,895 hours from February 2008 through December 2011.  There were only 10 hours during 2008..2011 where PEAKFREQ=4 and only 4 hours with PEAKFREQ=16.  About 13% of all hours have PEAKFREQ<8 (which blocks purchases of SRTY), while 24% of all hours have PEAKFREQ>11 (which blocks TNA and TZA).

Week of 2012 JN 01

SPY fell by 3.2% this week, while my account fell 0.6% to its lowest value ever.  My loss-floor has fallen to -10.3%, but is expected to rise to perhaps -9.8% on Monday morning.

Euro news: The government of Spain has announced that they can continue as a going concern until October, but it has become increasingly apparent that Spain is lying its collective head off, so presumably their actual financial condition is dire.

US news: Friday’s non-farm payroll report was awful, so President Obama went on TV to reassure the public.  As usual, the market fell after the Obama speech.  The S&P 500 pierced its 200-day moving average, so I expect at least a one-day bounce next Monday, which hopefully will cause my robot to double-down on its bearish bet.

The last five months have been a nightmare for my trading system.  The market goes up, I lose money; the market goes down, I lose more money.  Some stock trader I am!  For reassurance, I look to the back-tests for last August.  If I had been using my latest TZA model last year, there would have been four losses in a row from April through July, totalling -2%, before the +19% win in August.  For TNA the results were more mixed: if somehow I had failed to get the +5.7% win in July, then results for April through July would have been -0.6%.  So there would have, could have, should have been several months in a row of “I just can’t win!”, followed by a big win.

On Monday, US markets were closed for Memorial Day.  The “post Memorial Day bounce” lasted all of one day.

Friday’s allocations:

Daily % gain size │ Max loss │ Final Gain Sym  Buy │ Fri Mon Tue Wed Thu Fri │ Beg   End │   SRTY 1  MA23 │ -1.0 14  -1.5 14  -0.8 0  │ │ -0.8% TNA  MA29 │ -0.0 15  -0.9 30  -1.1 29  -3.5 29  │ -1.6 -1.6 │ -1.6% SRTY 2  MA30 │ +0.0 15  +0.1 16  +1.4 15  │ -0.9 -1.0 │ +0.2% TZA  MA30 │ -0.5 15  +0.7 16  │ -1.5 -1.4 │ SPY │ +5.3 +6.5 +5.0 +4.8 +2.1 │ │ me │ -7.5 -7.5 -8.4 -9.3 -8.1 │ │ floor │ -7.5 -9.2 -10.0 -10.4 -10.3 │ │

Stock-trading robot

Ticker Symbol		Buy date			Buy price			Sell date			Sell price			Acct Profit
		Model	Actual		M	A		Model	Actual		M	A		M	A
TNA		MA 29 11:00			$50.48	$50.45		MA 31 10:00	MA 31 09:49		$46.42	$46.40		-1.6%
		MA 30 11:00			$47.79	$47.81
SRTY 2		MA 30 13:00			$53.98			MA 31 15:00			$54.84	$54.87		+0.2%
TZA		MA 31 11:00			$22.56	$22.60		(Not yet)

TNA: Bought on Tuesday near (what turned out to be) the high of the week.  Price went down and back up again, triggering a “buy-more” at 4pm, but the tranche-purchase was postponed until Wednesday 11am (for a much better price).  At Wednesday’s close, PPO was just above giving a “sell” signal.  From Thursday’s open the market just sank until it hit my stop.

SRTY ² : Sold near Thursday’s close, just before its price went through the roof on Friday.  What can ya do?  The SRTY model has a hair-trigger “sell” signal and it triggered.

TZA: Bought Thursday.  Its price went down at Thursday’s close, then up at Friday’s open, but a “buy more” signal was not triggered because STDDEV was too high.  This will turn out to have been a good move if there is a reaction rally on Monday and so I end getting a better price on the second tranche.  Even if I had bought the tranche at 11am on Friday, my account would still have lost 0.3% this week.

Overall, the robot performed well this week.  I got the expected amounts of profit and loss, the buy-times and sell-times were correct (the model cannot predict stop-out times any more accurately), and the actual prices received were as close to the model prices as could reasonably be expected.  The main thing that went wrong was that Thursday’s max-loss recalculation for SRTY caused the stop price to go *down*, but stop prices should only ever go up.  I have adjusted the robot to pull latest quotes for both IWM and TZA during the same invocation of Opera, so they will differ by milliseconds instead of seconds.  Hopefully that will tighten up the stops a little.

Surfing the oscillations

Here are the last two weeks, showing how mean the stock market has been to me.  Three times the market went in one direction just far enough to convince me to hop on, then immediately reversed to make me lose money.  This sort of thing happens periodically and is a side-effect of using “average” model parameters that have typically worked well over the last four years (but those parameters have worked very badly for certain multi-month periods).

Week of 2012 MA 25

SPY rose by 1.9% this week, while my account fell 1.5% to its lowest value ever.  I am once again out of the market, so my loss-floor is same as account-value.

Euro news: The “GrExit” is no longer unspeakable among Europe’s leaders.  Greece has announced that they will be unable to meet payroll after the end of June without another bailout, which they can’t get without an “austerity” government, which (polls say) the Greeks will not vote for.  The end seems nigh.

US news: Many pundits predict that next week will have the traditional ”Memorial Day bounce".  The US market seems decoupled from Europe, going up while Euro markets are falling.  This may continue for a few weeks—or the US market may crash later next week.  Hopefully my robot will catch the crash if it happens.

Thursday’s allocations:

Daily % gain size │ Max loss │ Final Gain Sym  Buy │ Fri Mon Tue Wed Thu Fri │ Beg   End │   SRTY 1  MA16 │ +2.1 16  +0.9 16  +1.2 16  +0.9 0  │ │ +1.4% SRTY 2  MA18 │ +1.2 15  -0.9 15  -0.6 15  -0.9 0  │ │ -0.3% TZA  MA21 │ -0.8 13  -0.6 13  -0.9 13  -0.9 0  │ -0.7 -0.7 │ -0.7% SRTY 3  MA21 │ -0.0 14  +0.2 14  -0.1 14  -0.2 14  -0.1 0  │ -0.4 -0.4 │ -0.1% SRTY 4  MA23 │ -0.9 14  -1.0 14  +0.2 14  │ -1.2 -1.2 │ -0.8% SPY │ +3.4 +5.2 +5.3 +5.4 +5.6 +5.3 │ │ me │ -6.0 -6.7 -6.8 -7.7 -7.5 -7.5 │ │ floor │ -6.0 -7.0 -6.8 -7.9 -7.5 -7.5 │ │

Stock-trading robot

Ticker Symbol		Buy date			Buy price			Sell date			Sell price			Acct Profit
		Model	Actual		M	A		Model	Actual		M	A		M	A
TZA		MA 14 11:00	MA 21 10:01		$20.58	$23.18		MA 21 15:00	MA 21 12:26		$21.94	$21.97		+1.0%	-0.7%
SRTY 3		MA 21 12:00	MA 21 15:56		$55.97	$54.11		MA 22 10:00			$53.88	$53.94		-0.5%	-0.1%
SRTY 4		MA 23 12:00			$57.40	$57.45		MA 24 10:00			$54.48			-0.7%	-0.8%

TZA: What a horror story!  Last Sunday night, I put in a buy-stop order for TZA that would trigger if the market dropped to 0.5% below its 200-day moving average.  Also I resolved to get up early Monday morning and buy TNA if the market zoomed instead.  Well, Monday morning the market just sat there, hugging the 200-MA.  Eventually I got tired of waiting, convinced myself that the market looked like it was going down, and changed the buy-stop to a market order for TZA.  Immediately the market went up!  I bought at the worst price of the day!  Yet another reason why I use a trading robot, so I don’t have to make those real-time trading decisions.  Rule: don’t get up early.  It’s never worth it.
      To recap recent events: when the robot failed to buy SRTY a few weeks back, I put in a limit-order to buy if the model’s price showed up again—which it did, but the trade ended up being a small loss.  Then the robot failed to buy TZA, but I didn’t put in a limit-order even though the price did come back—and the trade would have been a medium-sized winner.  So this 2-item subset of trades shows the same “small losses, big gains” feature that we expect of all trades.  New rule: when the model says “buy” but the robot fails to buy, put in a limit-order to at least try to get the model’s price.

SRTY ³ : Because I was screwing around with the robot’s price-data, trying to make it match up with my manual TZA trade, I caused it to not buy SRTY at noon as it should have.  I ended up buying near the close for a better price — but still the trade ended as a small loser.

SRTY ⁴ : Normal trade, which happened to be a loser during a week that already had losses.

Custom indicator PEAKFREQ

I can haz nu indicator!

Let PEAKFREQ(n,size) be the number of peaks and troughs detected during the last n hours.  Detection uses Donchian channels: a “peak” is a rise in the upper CHAN(size) followed by a drop, while a “trough” is a fall in the lower CHAN(size) followed by a rise.

This indicator shows how “jittery” the market is.  If there are a lot of peaks and troughs per unit time, then the market is changing direction a lot these days.

The chart at right shows the last 140 hours of price action, with 8-hour channels.  The light blue arrows show when peaks and troughs are detected (which happens nine hours after they occur).  There are eight arrows shown and therefore PEAKFREQ(140,8) = 8 as of Friday’s close.

Here is a histogram showing the PEAKFREQ(140,8) values during the period 2008 through 2011 (excluding January 2008, to give the algorithm a running start).  There were 7,329 trading hours during this period.  About 14% of all hours had PEAKFREQ=13.  Only two(!) of all these hours had PEAKFREQ=6.  Only 0.6% of all hours had values below 8, so Friday’s close was a rather “calm” hour.

Adding a PEAKFREQ test helps my TNA and TZA models a lot!

MACD-based news trades

The SRTY model is a “news” trade in the sense that its typical hold time is hours-to-days, even though this is a quant model and doesn’t attempt to parse a news feed.

New rule: don’t buy SRTY if PEAKFREQ(140,8) < 8.  Although only 0.6% of hours have such low values, those trades are mostly losers, so skipping them raises the 2008..2011 return from 42.4% to 42.8% and improves the win:loss ratio from 93:104 to 81:88.  Yeah, it’s not much.  Then I retuned the model: only the SMA parameter changed (from 27 to 26), but that further increased returns to 43.2%.

PPO-based swing trades

	%return, win:loss
	TNA	TZA
Old model	41.0%, 26:22	53.9%, 25:20
add PEAKFREQ	44.9%, 24:15	56.0%, 22:11
retune	52.4%, 29:15	63.2%, 24:17

New rule: do not buy TNA or TZA if PEAKFREQ(140,8) > 11.  This removes 77% of all hours from consideration for purchase, while improving results noticeably.  Because PEAKFREQ eliminates so many bad hours, I was able to retune for best results on just the hours that remained.  After retuning, 66% of the TNA model’s trades are now winners (was 54%) while TZA now has 59% winning trades (was 56%).

In the new model, there are now no TNA trades at all for the first five months of 2012.

The PPO model is overcomplicated, but I can’t decide what to prune.  The most obvious candidates are the “alternate buy” and “alternate sell” rules, but the alt-buy rule is responsible for 13 %-points of profit during 2008..2011, while the alt-sell rule provides almost 5 %-points of the total 116% profit.  Anyway, here is the model-description, with highlighting for changes:

Bull swing (TNA)	Bear swing (TZA)
Buy signal:
Time = 10am–3pm, on the hour PEAKFREQ(140,8) ≤ 11 This hour’s price > previous hour’s price This hour’s price > stop This hour’s price > SMA(30) This hour’s price > max of preceding 26 hours PPO(8,71,1) < +1.8 PPO(8,71,12) > +0.4 PPO(8,71,12) has gone below -0.25 since last purchase STDDEV(80) < its EMA(43)	Time = 11am–3pm, on the hour PEAKFREQ(140,8) ≤ 11 This hour’s price < previous hour’s price This hour’s price < stop This hour’s price < SMA(75) This hour’s price < min of preceding 34 hours PPO(10,60,1) > -2.4 PPO(10,60,12) < -0.1 PPO(10,60,12) has gone above +0.28 since last purchase STDDEV(29) < its EMA(25)
Alternate buy signal:
Time = 10am–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 = 11am–3pm, on the hour This hour’s price < SMA(75) This hour’s PPO(10,60,12) 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 0.02 during each of the last two hours PPO(8,71,12) has changed by less than ±0.02 during the last hour and rose by at least 0.02 during each of the preceding two hours PPO(8,71,12) fell by at least 0.02 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(10,60,12) has fallen by at least 0.02 during each of the last two hours PPO(10,60,12) has changed by less than ±0.02 during the last hour and fell  by at least 0.02 during each of the preceding two hours PPO(10,60,12) rose by at least 0.02 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 = 10am–3pm, on the hour 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 = 11am–3pm, on the hour This hour’s price > previous hour’s price This hour’s PPO(10,60,12) > +0.28 PPO(10,60,12) has gone below -0.1 since original purchase
Alternate sell signal:
Time = 10am–3pm, on the hour This hour’s PPO(8,71,12) minus its value from 35 hours ago < -2.7 It has been at least 6 hours since last purchase.	Time = 11am–3pm, on the hour This hour’s PPO(10,60,12) minus its value from 22 hours ago > +0.6 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  94.5% 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

TRIX-based trend trades

No change.  It turns out that the URTY model only ever triggers when PEAKFREQ has a middling value, so there is nothing to gain from adding an explicit test.

For almost three months now, the robot has woken up every hour and calculated whether to buy URTY.  Every single hour, the answer has been “No.”  This model typically triggers about six times per year, so clearly we are going through a dry spell.

Summary of changes to trading performance

In this version of the chart, the left column for each quarter shows the results using the models as of March 31st (but excluding URTY) and the right column shows results using the latest model as above.  For the 2012 quarters there is a third column showing actual results.

So far, Q1 and Q2 of 2012 look only a little worse than Q4 2010 and Q1 2011.

Week of 2012 MA 18

SPY fell by 4.7% this week, while my account rose 0.9%.  I am out of the market again; many pundits believe that next Monday will bring either a large bounce or a crash.

Friday’s allocations:

Daily % gain size │ Max loss │ Final Gain Sym  Buy │ Fri Mon Tue Wed Thu Fri │ Beg   End │   TZA#0 MA03 │ +0.7 30  +1.8 30  +1.9 0  │ │ -0.0% SRTY#0  MA08 │ -0.1 14  +0.4 0  │ │ -0.3% SRTY#1  MA14 │ +0.0 15  +0.1 15  +0.4 15  +1.4 0  │ -0.9 -0.9 │ -0.2% SRTY#2  MA16 │ +0.6 16  +1.6 16  +2.1 16  │ -0.4 -0.3 │ +1.4% SRTY#3  MA18 │ +0.2 16  │ -1.2 -1.2 │ -0.3% SPY │ +8.1 +6.9 +6.2 +5.8 +4.3 +3.4 │ │ me │ -6.9 -7.1 -7.1 -6.5 -5.5 -6.0 │ │ floor │ -6.9 -7.1 -7.1 -7.5 -7.2 -6.0 │ │

This week, I have changed the “Daily % Gain” table so all figures are percentages of my total account, not of the individual trade.  Basically, all numbers are now ⅟₇ of what they used to be.  This removes the disparity between the daily table above and the robot’s weekly table below, which was already using total-account figures.

Stock-trading robot

Ticker Symbol		Buy date			Buy price			Sell date			Sell price			Acct Profit
		Model	Actual		M	A		Model	Actual		M	A		M	A
TZA#1		MA 14 11:00	(Skipped)		$20.58			(Not yet)
SRTY#1		MA 14 12:00	MA 14 11:00		$51.05	$51.25		MA 09 14:00			$50.57	$50.50		-0.2%
SRTY#2		MA 16 10:00			$50.75	$50.58		MA 18 11:00			$55.75	$55.70		+1.3%	+1.4%
SRTY#3		MA 18 12:00			$57.52	$57.50		MA 18 13:00			$56.47	$56.46		-0.3%

TZA^#1: Argh!  The robot didn’t buy because it got an IWM real-time quote from Schwab at 11am that was higher than the one for 10am, while stockcharts.com shows a lower price.  Because of the new STDDEV rule, the robot then refused to buy TZA all week, waiting for a bounce that never came.  As I suspected last week, it was a bad idea to sell TZA last Thursday and it might well turn out to have been a bad idea not to overrule the robot and buy TZA this week.

SRTY: This ticker underwent a 1-for-5 reverse split last Friday, so all price-quotes are now five times larger ($50 instead of $10).

SRTY^#2: Good timing on the purchase!  The robot shorted the market on Wednesday at what turned out to be nearly the highest price of the day.  Friday’s sale-time wasn’t so hot, though.

SRTY^#3: This was stupid.  I have added a new rule: Do not buy SRTY unless at least two hours have passed since the last sale.  This rule increases average profit slightly (from 10.4%/year to 10.5%/year) and improves the win:loss ratio slightly (from 101:118 to 101:116 since 2008) but the main point is that it would have blocked the third trade this week.

Daily stop-update: Friday’s stop price for SRTY^#2 should have been $50.40 (for a -0.1% max loss) but the robot chose $49.48 (for -0.3%).  As a result, the max-loss actually went *down* from Thursday’s -0.2%.  I really ought to fix this, by fetching quotes for IWM and SRTY during the same invocation of Opera so their prices will differ by milliseconds instead of seconds.

Week of 2011 MA 11

SPY fell by 0.9% this week, while my account fell 1.2% to its lowest value ever, mainly due to last week’s big TNA loss coming home to roost after the unrealized TZA gain evaporated.  I am out of the market again.

This week, I withdrew some more money to put food on the table.  Because of its tranche limits, the current robot algorithm would never have invested that cash, anyway.  Now that I’ve withdrawn 20% of the money, it has become clear that there were some math problems in the weekly chart above (last week’s closing balance was actually -5.7%, not -6.1% as shown last week), so I have made a few adjustments to fix things up.  Unfortunately, it is too difficult to adjust the historical loss floor values so I just made some rough tweaks to make the chart look reasonably close.

Friday’s allocations:

Daily % gain size │ Max loss │ Final Gain Sym  Buy │ Fri Mon Tue Wed Thu Fri │ Beg   End │   TNA  AL26 │ -10.8  28 -9.7  0         │ │ -4.7% SRTY#0  MA02 │ +7.0  16 +5.8  16 +6.4  16 +8.0  0 │ │ +6.5% TZA  MA03 │ +6.5  16 +5.2  16 +5.6  16 +2.8  31 +1.6  30 +2.1  30 │ -3.8 -0.3 │ -0.1% SRTY#1  MA08 │ -2.2  14 -0.7  14 -1.9  14 -1.2  14 │ -5.5 -3.7 │ -1.9% SPY │ +9.2 +9.2 +8.8 +8.2 +8.4 +8.1 │ │ me │ -5.9 -6.1 -6.3 -6.3 -6.9 -6.9 │ │ floor │ -7.5 -7.6 -8.4 -7.8 -6.9 -6.9 │ │

Surfing the oscillations

The TZA trading model did an exceptionally bad job of surfing the recent oscillation.  From May 1st to May 9th the market dropped by 6%, but I lost a third of that before the robot realized that it was time to go short, and lost another third waiting for the robot to realize that it was time to close the position, so I got less than one third of the total available profit on that first tranche.  As has been the norm recently, the second tranche was completely mistimed and its loss mostly cancelled out the gain from the first tranche, so I ended up with nothing after subtracting the 0.3% transaction cost.

On Thursday, IWM’s PPO peaked at +0.32, but my model sells TZA at +0.28.  I will be quite unhappy if the market plummets on Monday.

Stock-trading robot

Ticker Symbol		Buy date			Buy price			Sell date			Sell price			Acct Profit
		Model	Actual		M	A		Model	Actual		M	A		M	A
TZA		MA 03 12:00			$18.58			MA 10 13:00			$19.51	$19.43		+0.1%	-0.0%
		MA 09 11:00			$20.33	$20.36
SRTY#1		MA 08 10:00	MA 08 11:50		$10.00			MA 09 14:00			$9.82			-0.2%	-0.3%

There were yet more problems with the robot this week:
      Tuesday: at 10am, it adjusted the stop for TZA.  It was also supposed to buy SRTY at that hour, but inexplicably didn’t (with no error message), so at 11:30 I put in a limit order to buy for the 10am price, which was triggered at 11:50.  But SRTY got sold the next day for a loss so I guess I should just have skipped it.
      Wednesday: The stop-update for TZA tried to change price on SRTY, got rejected by Schwab because stop-price above latest price.  Bug fixed.  Stops for TZA and SRTY updated manually.

PPO-based swing trading

At the beginning of this week, I altered the TZA trading model to reduce churn by avoiding trades where STDDEV is too high.  Since TNA is just a variant of the same model, I ended up adjusting that one also.  Here are the new rules, with yellow highlighting for changes:

Bull swing (TNA)	Bear swing (TZA)
Buy signal:
Time = 10am–3pm, on the hour This hour’s price > previous hour’s price This hour’s price > stop This hour’s price > SMA(30) This hour’s price > max of preceding 33 hours PPO(8,71,1) < +1.8 PPO(8,71,12) > +0.4 PPO(8,71,12) has gone below -0.25 since last purchase STDDEV(80) < its EMA(43)	Time = 11am–3pm, on the hour This hour’s price < previous hour’s price This hour’s price < stop This hour’s price < SMA(75) This hour’s price < min of preceding 34 hours PPO(10,60,1) > -2.4 PPO(10,60,12) < -0.1 PPO(10,60,12) has gone above +0.28 since last purchase STDDEV(29) < its EMA(25)
Alternate buy signal:
Time = 10am–3pm, on the hour This hour’s price > SMA(30) This hour’s PPO(8,71,12) minus its value from 33 hours ago > +2.8 It has been at least 5 hours since last sale.	Time = 11am–3pm, on the hour This hour’s price < SMA(75) This hour’s PPO(10,60,12) minus its value from 22 hours ago < -4.1 It has been at least 13 hours since last sale.
Buy-more signal:
Time = 10am–4pm, on the hour Either PPO(8,71,12) has risen by at least 0.02 during each of the last two hours PPO(8,71,12) has changed by less than ±0.02 during the last hour and rose by at least 0.02 during each of the preceding two hours PPO(10,60,12) fell by at least 0.02 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(10,60,12) has fallen by at least 0.02 during each of the last two hours PPO(10,60,12) has changed by less than ±0.02 during the last hour and fell  by at least 0.02 during each of the preceding two hours PPO(10,60,12) rose by at least 0.02 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 = 10am–3pm, on the hour 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 = 11am–3pm, on the hour This hour’s price > previous hour’s price This hour’s PPO(8,71,12) > +0.28 PPO(10,60,12) has gone below -0.1 since original purchase
Alternate sell signal:
Time = 10am–3pm, on the hour This hour’s PPO(8,71,12) minus its value from 33 hours ago < -2.7 It has been at least 5 hours since last purchase.	Time = 11am–3pm, on the hour This hour’s PPO(10,60,12) minus its value from 22 hours ago > +0.6 It has been at least 13 hours since last purchase.
Stop update:
Time = 10am Calculate new stop = lowest price seen in preceding 22 hours. Raise new stop to 94.5% of the highest price seen in preceding 22 hours, if it is 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, update 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 it is 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, update standing stop-order at Schwab

For TZA, this new model improves the win:loss ratio from 36:34 to 25:21, while average profit goes down from 12.5%/yr to 11.8%/yr (but the profit÷risk ratio improves from 59 to 74).  For TNA, win:loss improves from 33:35 to 28:23, average profit from 8.1%/yr to 8.9%/yr, and profit÷risk ratio from 26 to 35.

This week, the new STDDEV requirement prevented the robot from buying another tranche of TZA at 11am on Tuesday, which would just have increased my loss.

Here is a chart showing old and new quarterly results for TNA and TZA.  Note how little change there is, considering that there are now 20% fewer TNA trades and 34% fewer TZA trades!  Also note that Q2 was a bad quarter in three out of the last four years.

Future plans

At the end of Q1, I said that this system hadn’t had two loser quarters in a row at any time in the last four years, so there was no excuse for that to happen now.  Since then I have further improved the system, so it has even less of an excuse to yield the worst performance in four years just after I start betting on it.

What should I do if Q2 ends up as another loser?  We are already halfway through and something is rotten in Denmark.  Perhaps I just don’t know how to use past performance to guarantee future results.  My back-tests say that this system should work, but it just doesn’t.  Maybe the problem is that 2012 is like 2007, which was before the beginning of my back-tests.  Maybe I should just shut the thing down and transfer this money to the mortgage account to reduce my debt.

Tim Knight said on Monday that he expects “a few days of a bounce and then Party Time USA”.  Are we done with the bounce?  Or will the pseudo-bankruptcy of JP Morgan Chase lead to the mother of all short-squeezes next week?

Week of 2012 MA 04

SPY fell by 2.7% this week, while my account was un­changed after being down 2.4% at mid-week.  My loss floor rose by 0.4%.

US market news: On Tuesday, the market rose sharply after a surprisingly-good ISM report was released at 10am; then small-cap prices nosedived in the afternoon (I would have been better off in the large-cap SPY).  Wednesday morning’s ADP report was bad, so the market gapped down, then recovered.  On Friday, the NFP report was bad, so the market tanked and did not recover.  Overall, the US market seems bearishly biased right now.  Sy Harding has noticed that the NFP report is The Big One, often moving the market by a large amount over the following one to three days.  So there is reason to hope for continued bearishness next Monday.

Friday’s allocations:

Daily % gain size │ Max loss │ Final Gain Sym  Buy │ Fri Mon Tue Wed Thu Fri │ Beg   End │   TZA#0  AL23 │ -12.9  13 -10.0 13 -10.3  0       │ │ -9.9% TNA  AL26 │ +3.6  15 +0.2 15 -1.9  30 -1.1  29 -5.4  29 -10.8  28 │ -9.3 -4.7 │ -4.7% SRTY  MA02 │ -2.9  15 +1.0  15 +7.0  16 │ -7.3 -3.3 │ +6.5% TZA#1  MA03 │ +0.5  15 +6.5  16 │ -13.0 -3.8 │ SPY │ +11.9 +11.5 +12.1 +11.8 +11.0 +9.2 │ │ me │ -6.3 -6.8 -7.4 -8.7 -8.0 -6.3 │ │ floor │ -8.3 -7.3 -8.3 -9.4 -11.4 -7.9 │ │

TNA: Seventh loss in a row!  And a double tranche!  And it tanked immediately after I bought the 2nd tranche!  So disheartening.

SRTY: Second trade with this new model is a winner!  And the win was more than twice as large as the first trade’s loss.  Now that’s more like it!

Stock-trading robot

Ticker Symbol		Buy date			Buy price			Sell date			Sell price			Acct Profit
		Model	Actual		M	A		Model	Actual		M	A		M	A
TNA		AL 26 12:00			$58.55	$58.51		MA 02 10:00	MA 02 09:31		$57.33	$57.18		-1.4%	-1.5%
		MA 01 11:00			$61.40	$61.39
SRTY		MA 02 11:00			$9.19	$9.20		MA 04 15:00			$9.81			+0.9%	+1.0%
TZA#1		MA 03 12:00			$18.58			(Not yet)

TNA: Stop-out at 9:31, which the model noticed at 10:00.  I’m not sure what number to use for “model TNA sell price”, since the model is actually using IWM prices, so I show the lowest TNA price of the preceding three days.  Actually the robot takes the IWM stop-price and then multiplies by the leverage, which generally produces a lower TNA stop-price than that.  Anyway, the “model acct profit” works out to -1.4% as expected.

SRTY: Got the expected prices, but profit was slightly better than expected due to leverage.

TZA^#1: If the market drops on Monday, the robot could buy another tranche as early as 11am.  Otherwise, the max-loss floor could rise above break-even as early as Tuesday.

Daily stop-update: Didn’t work well this week.  On Wednesday, the initial stop for SRTY was miscalculated, so I fixed it manually.  On Thursday, the robot picked a ridiculous 13% max-loss for TZA (should have been 8%).  On Friday the daily stop-update failed so I did it by hand.  The underlying problem is that SRTY is a short-selling model (so the robot does its calculations with negated prices) but unlike TZA it has no stop based on “x% below peak”, just a hard floor based on “low of last x days”, so the algorithm has problems with calling abs() and max() in the proper order.  Hopefully this will be fixed up by Monday.