Saturday, May 16, 2009

Forever young

"As for value, could you explain which method of software/rule based trading do you find the best value in? You use blue-wave, market club, and a few others if I am not mistaken. Which rule based trading platform would you find the most value or return on investment even, for someone who's just getting into rule based trading or at least exploring potential software and could only purchase one?"

My short answer to this inquiry was Blue Wave. As you will see, its also my long answer. But let's compare apples to apples. Market Club, which generated the Trade Triangles, is a great, inexpensive and simple rule based system. It serves as an introductory to rule-based trading while providing excellent profitability. But its not on the same level as Blue Wave, not in terms of cost, nor in terms of profitability. My best advice, buy Market Club and use your profits garnered from the Triangles to buy Blue Wave.

Why?

Below is the two-hour chart of DXD, the Ultrashort (2X beta) index of the DJIA, with Blue Wave trade signals annotated on the chart.



This is the spiritual part. Click on the chart to enlarge it, maybe print it out, and study the signals. Get to know the cycles that underlie prices and see how well the BW trade signals stayed in sync with the market. What are you feeling? Yea, it was good for me too.

If you don't already trade like that, then Blue Wave will make the difference between whatever you are doing now and consistently pocketing profitable trades, as evidenced by this chart.


Why Two-Hours?

This rule-based algorithm works in all time frames in which I have applied it, from Weekly on down to 1-minute charts. The two-hour chart signals provide a nice balance between profits per trade, number of trades per week (about 2) while minimizing whipsaws.

In addition, when the big one comes, you will never be longer then 2 hours away from joining the festivities.

Why DXD?

Damn, you ask a lot of questions. A rule based system theoretically works with any tradable. In fact, almost by definition, if there are exceptions, then you are not finished tweaking the system. Trading the underlying security is the best way to trade a trend following model as there is nothing between you and your system's profitability. The leverage of options can really jack up returns, but you are introducing a level of complexity that only works against you. Anything and everything can go wrong with options that will degrade returns. Using an instrument with built-in leverage, as with these 2X beta index funds, doesn't add anything that will screw the trader, it just provides more return for the move, an almost perfect leveraged instrument. Take your pick, SDS, SSO, QLD, QID all work just as well as DXD with this model.

Where does Advanced GET fit into all of this?

Advanced GET
is the creation of Tom Joseph, who later sold his business to eSignal. A-Get has its own collection of short and longer term indicators, all proprietary and so cannot be duplicated elsewhere. The Type 1 and Type 2 mechanical trade setups are superb, as is the False Bar Stochastic. But unlike Blue Wave, A-Get is more of a change-in-trend trading system. But A-Get has its place in my arsenal and learning the Type 1 and 2 mechanical set-ups do complement my BW signals.

That leaves Bob Prechter and Glenn Neely unaccounted for. What's up with how then fit into your trading?

They are BIG PICTURE analysts. They represent the very best forecasting on the planet. Knowing where both of them are in their analysis can supplement the signals gernated by the above techniques, by presenting one or two or even three "trades of the year" each year, when all of the above come together in a perfect storm of trading.

In summary:

My techniques described above, in general terms without disclosing certain rules and filters that have made my application of these models my own and one that cannot be easily duplicated, are in essence the keys to the vault. My guess is the total cost of all of these tools is somewhere around $7-10K. Steep? Maybe, but it represents a fraction of my profits over the long run using these tools to execute my trades.


Epilogue


I put my daughter on a plane today, heading back East for the summer and then transferring to a smaller, Southern college for her sophomore year and beyond. Still, this past year has been a dream, a gift, having her close by, sharing one more year of her life then I probably deserved and making some wonderful memories to share when years from now, I lay still, waiting, remembering, while she and her sister come find me to say their final good-byes to their Dad.

My journey is not yet complete. Not over, not ending, just evolving into the final part of this life. Although there is much to be thankful for in all of this, what comes front and center are the disappointments, the weak moments when I lost the innocence of Father-Daughter bonds, so easily created, so painfully tested and so rudely matured by the inevitability of an imperfect life.


A




10 comments:

Mike said...

great post Allan...thanks for sharing.

Any thoughts on how the daily resets of these double/triple beta products affect returns when holding beyond a same day intra-day basis?

-Mike

jerrynmn1 said...

Allan-Well said about you and your daughters. Painfully sad and yet truly grateful for the good things. Being a Parent is one of the hardest jobs in the World. I know and live the words also. Thank you for sharing your feelings- Sort of puts the Market "game' bullshit into persepective, when it is compared to really important things, like ones life, and their kids.Jerry

ROB G said...

allan whats the best way to capitalize on this market downturn. is it to short individual stocks or etfs like faz dxd, sds, srs. or to play the options on the etf's. ive been reading alot that commercial realestate is the next to get hit hard, check out this link http://www.youtube.com/watch?v=I97IPJOH_fM&NR=1 so maybe srs is the way to go. looking at oct calls strike price of 25 for $7

rob g

Allan said...

Rob,

A core position should be in the double beta index funds. Only then, would I look at options.

Anonymous said...

Allan,

Great information. I am interested in how all the trading instruments fit into your trading plans. Stocks, ETFs, Options, Futures, Forex, so many things to trade. Then there is swing trading, longer term trading, day trading. If you wouldn't mind sharing the trading life of Allan in a typical week, that would be cool. If not I understand. I am genuinely interested in how it all comes together for a full time professional trader like yourself.
Thanks.

LB

PENN STATE Eric said...

Thanks Alan. Your video editing and slide show skills are pretty sharp too.

ROB G said...

FYI
NY HAS ITS FIRST CONFIRMED SWINE FLU DEATH.

ROB G..

Anonymous said...

Allan, can reality and the EW analysis trump over the pump being done by the financials? BAC was upgraded by GS. The timing is oddly coincidental with the planned sale of equity to raise $billions...I think BAC shares had to go for $14 per share to meet their goal.

Brett said...

Allan, fantastic blog -- thanks for doing it. I've studied Elliott for several years and am convinced it's the best forecasting tool available, but am perplexed by Prechter's extreme bearishness. I just can't get my head around a Dow target of 400 as being probable (although I still see plenty of downside to come) and Prechter seems to have called quite a number of bad tops and bottoms through the 90's. I'm wondering if he's off on his long-term count somehow.

Two questions:

1. Does Neeley help here? His Q&A seem to indicate he sees more of sideways correction coming for the next several years.
2. Is it possible for Prechter's forecasts to still produce profitable trades even if the long-term counts are off?

Any counsel you can give to this perplexed Elliott fan on how to reconcile Prechter's mixed record and his view that's so bearish I can't swallow it, with my personal conviction that Elliott definitely works, would be hugely appreciated.

Allan said...

Re: A day in the life

Coming soon (thx for the idea)

Re: Brett

It helps me to distinguish between Forecasts and Trading. I use the former, i.e. Prechter and Neely as a big picture compass and I use an excellent trend following model, i.e. Blue Wave for moving Long and Short WITH prevailing trends.