CISCO


   

CISCO Futures
1-303-306-1521 1-800 800 7227 Fax 1-303-306-1572
http://www.cisco-futures.com
dljones@cisco-futures.com



MARQUEE-AE: An Advice Engine Daily Posting

Diversification

Hours: 2 AM to 6 PM

October 10, 2006
CISCO©

Most traders concentrate on a single market. They do understand that at times other markets may well offer more potential than than their chosen, but they lack the capability to continuously survey a wide variety of markets. The CISCO Advice Engine (AE) offers a way out of this dilemma. AE develops a wide list of futures every day, all the US markets that are in balance. A CISCO proprietary methodology selects out the best potential movers, placing them in a Select Table. The Select Table entries are posted here in an intra-day Advice Engine Diversification Table, i.e. the MARQUEE-AE. MARQUEE-AE monitors these select entries for breakout and Potential (maximum price excursion from breakout) throughout the day. Also listed is the current position of price relative to breakout, the open trade value. These listings are color coded, green for up, red for down. Following the marquee permits the trader to evaluate whether the breakout was real or merely a market test (false breakout). Markets picking up momentum will begin to appear on MARQUEE-AE more or less regularly. Thus, MARQUEE-AE items are a daily selection, a snapshot, of currently active markets. From time to time at the sole discretion of CISCO, MARQUEE-AE will be presented on a delayed basis.

At a glance: Some years ago a big advance for traders was piping the floor noise into the outlying brokerages. The trader in Sacramento could listen in on the floor. There is no noise from electronic trading. But Marquee gives you the equivalent and, quantitatively, a lot more.
...What is in balance: How many markets? Is the market generally balancing or moving?
...How many deliveries have broken out? Energies, indexes, grains? How many continue to trend? How far?
...What direction are the breakouts taking, long or short?
...How active are the moves: fast or dawdling?
...Which have broken out and returned to balance?
If you wish to track moving markets with a minimum of effort, CISCO's Advice Engine Report provides you an end-of-day survey of all balanced markets in the CISCO list (US futures). For each market listed you will find an upper and lower balance limit. These are their 'resistance and support' prices for the time frames specified (10 days for the Select Table list). The breakout trader will have a strategy based on price exceeding the limits. A responsive trader can trade within the limits. Whatever your pleasure, initiating or responsive trading, the Report carries the information you need for generating a trading strategy for any future on the list. Since the really large gains come from trending (breakout) markets, the focus of the Advice Engine Report is on balancing markets (the only source of breakouts). MARQUEE-AE brings Advice Engine data (the Select Table part) into real time tracking.

Advice Engine
Advice Engine was developed six years ago to quantize trading information and to provide a firm basis for (your) model development. The lynchpin is the Overlay Demand Curve© which gives market condition (balanced or trending). In a balancing market the nominal risk is the Octant (1/8 the price range between the upper and lower limits). Thus, in balanced markets you have a good 'first estimate' of risk. For breakouts you can track the trend, marking the high (low for downside breakouts). This maximum excursion is called the Potential. Potential is the most you could make on a breakout trade if you had perfect timing. With both Risk and Potential in hand you have the two most important elements for choosing markets to trade. The ratio, Potential/Risk, is the Figure of Merit (FOM) of a trade. For example, if the Octant risk is 100 and the average (historical) Potential is 200, FOM is 2. The higher the FOM the less risk there is for a given return. An Advice Engine function permits you to evaluate the Advice Engine FOM for any future over the period of time of your choice. AE is not a trading model, but rather the market structure within which you can develop your own proprietary model. Further, the structure is so well defined that you can daily survey a group of markets in a few minutes, putting diversification easily within your reach.

For more information on the Advice Engine and Figure of Merit use the two links below.
Advice Engine Background
Trading Opportunity: The Figure of Merit

Why Diversify?
Even if you can, why diversify your trading? Isn't it better to concentrate on a particular market, say eMini S&P, as so many do? The answer is simple: you are presumably trading to make money. Often opportunity (defined here by the figure of merit, FOM) in other markets may come along. This opportunity may be short term, a month or so, or longer term (eMini S&P itself offered exceptional potential from 1995 to 2000). Your trading can be much more profitable if you participate in a big move. Quick millionaires have been made in soybeans, gold, silver, sugar, petroleum, ... As this is written, there is an ongoing major trading opportunity in the petroleum complex. Unleaded gas, for example, has nearly tripled in price since mid 2004 and now has come much of the way back, accompanied by exceptional volatility. The opportunity offered in this one market is awesome, both on the long side and the short. Over the same period, the S&P has risen only about 12 percent with little change in volatility.

To take advantage of the movers when they come along, you first need to be alerted. Unusual opportunities do not arise every day. A survey such as Advice Engine Report, or the Diversification Table on the marquee is enough. On this date, October 10, 2006, the full Advice Engine Report has 56 entries in eleven commodities (corn, coffee, Canadian dollar, soybean oil, gold, wheat, natural gas, Australian dollar, palladium, crude and silver). Our proprietary Select Program filtered that group down to the 8 best trading candidates, which are listed on the Report as the 'Select Table' (see table below). Often there are duplications from several deliveries of the same item. This day it is gold, crude, unleaded gas and natural gas that offer opportunity. For most traders this boils down to gold and one of the petroleums. You can get a good estimate of the value and utility of Advice Engine selections by checking their historical Figure of Merit. You have nothing further to do but wait for your researched future(s) to appear on the Postings. In a nutshell, you can trade your standard market, while with little effort you can track the special opportunities as they appear. 



                           Todays Select Trades 061010
   Mo Yr ND    Long   StopL     Short   StopS  Risk $  Risk Pts VaU    POC    VaL
QL 11 06 10   15600   15462     14500   14638     578    138  14950  14810  14774
NO 12 06 10    8150    8006      7000    7144    1438    144   8123   8022   7964
CL  1 07 10    6280    6255      6080    6105     250     25   6220   6170   6159
CL 11 06 10    6370    6302      5830    5898     675     68   5962   5900   5883
CL 12 06 10    6470    6407      5970    6033     625     63   6115   6070   6043
CC 12 06 10   10820   10750     10260   10330     263     70  10310  10285  10260
GC  2 07 10    5940    5911      5710    5739     288     29   5860   5850   5819
GC 12 06 10    5890    5861      5660    5689     288     29   5802   5768   5759

  Legend: Mo and Yr are the delivery, ND is the days in the Overlays, Long
          signifies Buy at or above the listed price, StopL is the stop-loss
          price. Short means Sell at or below the listed price; StopS is its stop-
          loss. Risk $ is the stop-loss in dollars: Risk Pts is in trading points.
          VaU, POC and Val are the Meta-Profile Value Area and Point of Control.

          Todays Select Trades are chosen from the best reward to risk ratios.


Proof of the Pudding
We tell our trading course customers to collect the basic information from the Advice Engine and devise their own trading algorithm. This, we believe is a winning way for them trade. We took our own advice: using the Advice Engine balances as a starting point we developed a proprietary model based on our teachings (limited risk tied to the size of the balance (octant)) as well as maximum risk from the same source. You can see the results at:
Intra-day Trading with Advice Engine Data

Use of the Advice Engine Posting
Postings from the Select Table are your key to tracking those markets that offer breakout trading potential. You already know that these are selected out of a much larger group. A Post lists the symbol and delivery of entries in the day's Select Trades table. Postings monitor each listed future for breakout on a 1 to 5 minute cycle. Breakouts are reported as they occur. Breakout time and price are posted, as well as the current 'Potential' and latest open trade gain from breakout. Potential is measured from the highest price attained for a long (lowest price for a short). Potential is not to be confused with 'profit'. Profit depends on your trading strategy, potential is the largest profit possible.

In practice you will first notice that a future begins appearing on the MARQUEE. You may want to know if the Potential is large enough to be of interest. If you are a subscriber to the Advice Engine Report you can turn to the Advice Engine page, find the upper and lower limits (breakout pprices) and/or calculate the historic FOM. If you like what you see, you are ready to devise a trading strategy to put into play the next time that future appears on the MARQUEE. Alternatively, you are able to day-trade the current day. If you do not subscribe to Advice Engine Report you may still use the marquee to follow the Select Table entries. Experience with the marquee will tell you if the Potential is adequate.

Users of the Advice Engine Postings are given the commodities and deliveries of those futures CISCO deems the cream of the crop for that day. Prior to breakout, you the trader, will know that the market reported is still in balance. If you should like to trade responsively you need the balance limits from the full Advice Engine Report. These limits are not part of the Postings. The MARQUEE-AE postings are for breakout traders seeking much larger gains. After breakout, trend trading is in order. Tradings are posted (updated) during normal market hours. For instance, a breakout at 2 AM (Chicago time) that returned to balance prior to the open will not be logged.

Advice Engine Postings allow you to diversify at any time. One simply trades the 'old reliable' regularly, while keeping an eye out for something of interest from the postings.

EX