Wednesday, September 10, 2008

QID & Triangle Timing


QID is the Double Short NASDAQ ETF:


"The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the NASDAQ-100 index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is nondiversified."


Let's see how the Triangles have been playing the QID year-to-date:


As you can see, the Triangles are undefeated this year, averaging 11.78% per trade for a total year-to-date return of 61.27%, versus a buy and hold return of about 15%.

So why am I repeatedly referring to the Triangles? It's a simple trading system that anyone can implement on their own, clearly objective, mechanical, and effective. It's one of the few commercial products I support, despite a lot of other offers from other services to accept their advertising on my blog (outside of Google's standard click-ads).

As for this particular example, the QID, it's no coincidence that I am highlighting today.


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8 comments:

Anonymous said...

Allan,how would the triangles fare on a high beta,large cap stock like GOOG?
Thanks,Ron

Wayne said...

Hi Allan,

I went ahead and signed up to try out the triangles. They recommend a somewhat different approach than your example, but with much worse results than yours in the QID case :)

What they recommend is only enter into weekly trades when they match the monthly trend, and exit on mismatch. So assuming we make the initial entry of 2008 based on a monthly signal, we'd get:

01/07: buy 43.04
03/24: sell 50.87
05/01: short 40.80
06/11: cover 40.93
07/31: short 43.23
09/02: cover 42.62

Total Net: 8.31

So roughly 20% gain. Certainly beats the major indices during the same period, but clearly inferior to just playing both sides regardless of the monthly trend, like you did.

Allan said...

Ron, works great with AAPL, not as good with GOOG, still better then B&H though, excellent on ETF's.

Wayne, once you understand how it works you can come up with a better mousetrap on how to apply the system, as I did and as you can once you get the hang of it.

Wayne said...

Hey Allan,

I've spot-checked a few of the ETF's, both long and short. I gotta say, most of the ones I've looked at would have lost me money if I'd just followed the weekly triangle buy/sell signals. It is apparent that, to be successful using this approach you must use some other criteria to identify what is or is not a triangle-friendly stock.

What criteria do you use to separate the wheat from the chaff? I haven't found any training yet that directly addresses that question. The Market Club site has plenty of training links, but I'll never find time to absorb it all.

Thanks,
Wayne

Allan said...

Wayne, I'll be writing a guest Blog for Market Club in a few weeks and you just gave me an idea for it, how to use the signals in real time real money trading. To your question, I have found that the system signals work on about 2/3 of the stocks, ETF's, Futures, that I am testing. The Weekly signals have the highest percentage winners, the Daily signals are not bad, but usually not any better then the Weeklies. If you are looking for a filter, MACD works as well as any i.e. taking only those signals being confirmed by an MACD cross-over that is at an overbought/ovetsold extreme. Cuts down number of signals dramatically, but won/loss record is well over 80%.

Wayne said...

Thanks Allan! I'll be looking for your guest write-up.

Regards,
Wayne

Wayne said...

Hey Allan,

Would you mind alerting your blog readers once you post your piece on Market Club? Thanks!

Also fyi it turns out the triangle triggers were pretty easy to figure out after a little noodling (basically they're 3-period lows/highs that reverse a trend).

I've been playing with Excel macros over the last few months in order to mine data from the web. I had previously downloaded historical OHLC data for a lot of symbols, including 49 ETF's, with histories going back either as long as they've been around or 55 weeks, whichever is greatest.

I created a macro to back-test trading the triangle for these 49 ETF's over the weekly OHLC ranges collected. These were mostly double-long or double-short ETF's (list available upon request). What I found was that:

* 35 of them would have lost you money if only this timing signal were used (ranging from -4% to -85% loss).

* 14 of them would have netted a gain (ranging from 3% to 163%). 12 of them were 57% or less (the two standouts were EWV and EEV, with 154% and 164% respectively).

So almost 30% of these stocks would have lost money. One of the 14 winners was QID, which according to my calculations would have netted 11.3% gain over the 55-week period. At some point I plan on incorporating a lot more symbols as well as more history.

Anyways, I think these findings underscore the necessity of filtering this triangle trading through multiple indicators and/or confirmations, so I'll definitely be looking for your related posting on the MarketClub on this.

thanks,
Wayne

Allan said...

Wayne, this type of break out signal is working in this market, that's one of the reasons i put a lot more emphasis on recent signals then all signals. I know the orthodox view is that a mechanical system should work in all markets, but if you haven't noticed, I am anything but orthodox. And I still maintain that a money management filter where you cut losses and let profits win makes a huge difference in this and any other system. FInally, as long as you are testing the triangles, note how often triangles are 5-10% in the money before losing it. In other words, if one were to use the triangles to scalp between 5-10% per trade, you might have a higher percentage winning trades (although total profits may or may not be better).