CISCO Futures
1-303-306-1521 1-800 800 7227 Fax 1-303-306-1572
Internet http//www.cisco-futures.com
Value Based Power Trading
Swing Trading: A Basic Model
A Theoretical Study
Keywords:
Swing Trades, Basic Model (Breakout), Trading Range Control, Five Day Brackets, Shorter
Brackets, Volatility Control, Model Improvement Factors, Basic Model
(Responsive)
A swing trade is longer than a day trade and shorter than a position trade, typically lasting
one to three days. The swing trader does not accept the large risk of position trades.
The Basic Model concept:
Any widely used 'formula' model suffers and ultimately fails due to crowding at entry and exit.
Users of the Trader Control Package (TCP) avoid such problems because each has his 'own' model.
A Basic Model, as shown below, is just a starting point; a platform to build on.
The Basic Swing Model uses only two of the many TCP variables:
- the Overlay Demand Curve
- the Commercial Analysis.
By adding additional indicators the trader builds a unique model, one based
on market understanding; i.e. a real time trading model designed for the
specific purposes of that individual.
Trading Model Development
Idealized Overlay Demand Curve (tm), with Reference Points
100:00 x
99:31 xx Trading above the limit alerts to start of up-trend
99:30 xxx <== Upper bracket limit: Breakout point.
99:29 xxxx
99:28 xxxxx <== Octant: One-eighth of bracket range.
99:27 xxxxxx
99:26 xxxxxxx <== Quadrant: One-quarter of bracket range.
99:25 xxxxxxxx
99:24 xxxxxxxxx
99:23 xxxxxxxxxx
99:22 xxxxxxxxxxx <== Middle of distribution.
99:21 xxxxxxxxxx
99:20 xxxxxxxxx
99:19 xxxxxxxx
99:18 xxxxxxx <== Quadrant: One-quarter of bracket range.
99:17 xxxxxx
99:16 xxxxx <== Octant: One-eighth of bracket range.
99:15 xxxx
99:14 xxx <== Lower bracket limit: Breakout point.
99:13 xx Trading below the limit alerts to start of down-trend
99:12 x
Sample Commercial trading analysis table: T-bonds, Dec 1, 1995
12 01 Upper Comml Action: 11924 VALUE AREA QUADRANT
Lower Comml Action: 11903 VALUE AREA QUADRANT
11 30 Lower Comml Action: 11818 VOL/PRICE VALUE AREA QUADRANT
11 28 Upper Comml Action: 11731 VOL/PRICE VALUE AREA QUADRANT
11 27 Upper Comml Action: 11801 QUADRANT
11 22 Lower Comml Action: 11626 VOL/PRICE
Three measures of unusual commercial activity outside the value area are
volume per price tick (VOL/PRICE), volume above or below the value-area
(VALUE AREA) and unusually heavy trading in the quadrant (QUADRANT). The
details of these three calculations are in the book, Value Based Power
Trading, page 34ff.
Actual five day Overlay (tm) and Market Profiles (tm)
T-BOND (CBOT) DAY MAR 95 First date: 1 27 95 Last date: 2 2 95
Volume TPO Overlay 27 30 31 1 2
10127 604 1 2 K
10126 7520 2 22 ZK
10125 11842 4 2222 <== Upper Limit ZDHK
10124 23616 5 22222 ZDGHK
10123 29280 7 2222222 Z$CDGHK
10122 66868 12 222222222222 Z$BCDEFGHIJK
10121 63030 13 2222222222222 Z$ABCDEFGHIJK
10120 92060 12 222222222222 $ABCDEFGHIJK
10119 61188 11 22222222223 <== Upper Octant L $ABCDEFIJK
10118 62434 7 2222233 KL $ABCK
10117 60026 8 22222333 KLM $BCKL
10116 80982 9 222233333 HIKLM $CKL
10115 61066 10 2223333333 EGHIKLM CKL
10114 42144 10 2233333333 EGHIJKLM KL
10113 52394 8 22333333 EGHIJK KL
10112 69048 11 22333333334 C DEFGHIJK KL
10111 68800 10 2233333334 C DEFGHJK KL
10110 93390 11 22333333455 LM C DEFGJK KL
10109 87936 14 22333333344455 LM BCD BDEFGJK KL
10108 78090 13 2333333344455 LM BCD BCDEFGJ L
10107 68132 12 223333334445 L BCD BCDEFG LM
10106 71158 12 223333334445 L BDE $BCDEF LM
10105 74496 17 12233333344444445 L ABDEHJK $ABCDF LM $
10104 98352 16 1133333444444445 Mid = L $ABEHIJK $ABCD $K
10103 145204 21 111113333344444444445 10101 L $ABEFGHIJK $ABCD $CIJK
10102 166014 24 111111113333344444444445 L Z$AEFGHIJK $ABCD Z$CDHIJK
10101 158056 31 1111111111111133333444444444445 L Z$AEFGHIJKL $ABCD Z$ABCDEGHIJKLM
10100 184006 29 11111111111111133334444444445 L Z$FGHJKLM Z$CD Z$ABCDEFGHIJKL
10031 119288 27 111111111111111333444444455 $L Z$FGKLM ZCD Z$ABCDEFGHIJKL
10030 145682 18 111111133344445555 $BCL $FGL ZCD ABCDFGL
10029 104206 17 11111113344455555 $BCKL $FG ZC ABCDFGL
10028 106126 12 111113355555 $BCKL ZC ACDFG
10027 88810 10 1113355555 $BCKL ZC DFG
10026 69372 7 3555555 $ABCJK C
10025 50666 8 35555555 $ABCDJK C
10024 71958 10 5555555555 $ABCDGHIJK
10023 75784 8 55555555 $ABDGHIJ
10022 50152 9 555555555 $ADEFGHIJ
10021 54654 9 555555555 <== L Octant $ADEFGHIJ
10020 49132 8 55555555 $ADEFGHI
10019 33832 5 55555 $DEFG
10018 38530 5 55555 $DEFG
10017 14946 5 55555 $DEFG
10016 6210 3 555 <== Lower Limit Z$G
10015 13874 2 55 Z$
10014 19434 2 55 Z$
10013 14012 1 5 Z
10012 3450 1 5 Z
10011 274 1 5 Z
10010 54 1 5 Z
The Basic Swing Model
The Trader Control Package provides brackets, commercial activity analysis and many, many other indicators of the market. The Basic Model uses just two pieces of this information: breakout from a bracket to initiate a trade and commercial capping to terminate the trade. Step 1. Select a commodity and a bracket period. We will use Bonds and the 5 day Overlay. Step 2. Monitor commercial activity at the extremes of the trading day to find selling at the top or buying at a bottom. This is called "commercial capping" and acts to buffer markets in balance. Capping is a signal that the short term trend is over. It is our signal to exit the trade. Commercial activity is listed in the 'Commercial Traders Volume Analysis' tables from the Trader Control Package. The lower table translates unusually heavy trading at the extremes into three measures of commercial capping. We accept any of the three as sufficient to denote an exit.
Basic Model Rules 1) Go long on a one-tick breakout from the upper bracket limit. 2) Reverse from long to short if price goes one tick below the lower bracket limit. 3) Exit from a long on the open the next day if upper commercial capping is observed.
1) Go short on a one-tick breakout from the lower bracket limit. 2) Reverse from short to long if price goes one tick above the upper bracket limit. 3) Exit from a short on the open the next day if lower commercial capping is observed.
Setting the Initial Conditions (IC)
Five day brackets can range from ten or fifteen ticks in very quiet markets to sixty or more ticks
in active markets. Risk of reversal is obviously higher in narrow brackets; an artificially low
range for a few days will inevitably be succeeded by a more normal trading range. Thus there is
a minimum bracket range, below which trading profitability is negatively impacted.
IC. Define the acceptable minimum trading range (ticks) for swing trading to be initiated.
For the years 1994, 1993 and 1992, Trader Control Package data shows
Minimum 1994 1993 1992 Total
Bracket
5 Day 34 ticks -1.82 ticks/trade 2.27 ticks/trade 2.34 ticks/trade 3.7
5 Day 32 ticks -1.80 ticks/trade 2.74 ticks/trade 1.26 ticks/trade 2.2
5 Day 30 ticks -2.00 ticks/trade 2.27 ticks/trade 2.31 ticks/trade 2.6
5 Day 28 ticks -2.02 ticks/trade 2.66 ticks/trade 2.74 ticks/trade 3.4
5 Day 26 ticks -3.79 ticks/trade 1.98 ticks/trade 3.55 ticks/trade 1.7
5 Day 24 ticks -3.78 ticks/trade 2.15 ticks/trade 3.22 ticks/trade 1.6
5 Day 22 ticks -3.31 ticks/trade 2.36 ticks/trade 2.77 ticks/trade 1.8
5 Day 20 ticks -3.31 ticks/trade 2.98 ticks/trade 3.18 ticks/trade 2.8
5 Day 18 ticks -3.17 ticks/trade 2.98 ticks/trade 2.53 ticks/trade 2.3
5 Day 16 ticks -2.86 ticks/trade 2.98 ticks/trade 2.24 ticks/trade 2.4
For the 5 day bracket, 28 ticks is chosen (34 ticks has a slightly larger return, but appears
to be somewhat of an anomaly and tends to cut off a considerable amount of trading).
One might ask whether including shorter time frame brackets than 5 days would improve the return.
Below is a study that includes four day brackets (both 4 and 5 days are accepted).
Minimum 1994 1993 1992 Total
Bracket
5 & 4 Day 34 ticks -1.63 ticks/trade 0.02 ticks/trade 1.43 ticks/trade -0.08
5 & 4 Day 32 ticks -1.21 ticks/trade -0.04 ticks/trade 0.30 ticks/trade -0.95
5 & 4 Day 30 ticks -1.42 ticks/trade -0.16 ticks/trade 1.55 ticks/trade -0.03
5 & 4 Day 28 ticks -1.55 ticks/trade -0.12 ticks/trade 2.09 ticks/trade 0.42
5 & 4 Day 26 ticks -2.97 ticks/trade -0.39 ticks/trade 1.22 ticks/trade -2.14
5 & 4 Day 24 ticks -3.00 ticks/trade -0.17 ticks/trade 0.97 ticks/trade -2.20
5 & 4 Day 22 ticks -2.65 ticks/trade 0.36 ticks/trade 0.66 ticks/trade -1.63
5 & 4 Day 20 ticks -2.85 ticks/trade 0.49 ticks/trade 1.16 ticks/trade -1.20
5 & 4 Day 18 ticks -2.73 ticks/trade 0.49 ticks/trade 0.00 ticks/trade -2.24
5 & 4 Day 16 ticks -2.69 ticks/trade 0.49 ticks/trade 0.01 ticks/trade -2.19
Based on the past three years, there is little to recommend including four day brackets.
Testing the research results against recent trading data (January 1 through September 30 1995); average profitability is:
Bracket Wins Losses Net
5 Day 32 ticks 386/23 -275/18 2.71 ticks/trade
5 Day 30 ticks 403/24 -275/18 3.05 ticks/trade
5 Day 28 ticks 425/26 -267/17 3.67 ticks/trade *** $114/trade except slip & comm.
5 Day 26 ticks 425/26 -273/18 3.45 ticks/trade
5 Day 24 ticks 425/26 -273/18 3.45 ticks/trade
Clearly the most profitable bracket width has a minimum of 28 ticks, validating the choice from research on the 1994 - 1992 period.
This completes the Basic Model. For T-bonds, use only five day (completed) overlays; bracket width minimum is 28 ticks ($875); and commercial capping is that from the Trader Control Package, with any and all capping taken indiscriminately.
A hallmark of market understanding is that it leads to low risk trading. The better the understanding, the lower the risk. The ultimate goal is to know the market and oneself so well that one trades without stops most of the time. Prior to achieving this goal, most traders must use stops to enforce their discipline. Stops inevitably increase risk. However, while one is gaining auction market understanding it is safer to use stops to limit absolute risk, i.e. the risk that comes from 'holding and hoping'.
Meanwhile, the trader continues to learn, modifying and improving on the Basic Model. The quickest and easiest way to learn is to become thoroughly familiar with the Trader Control Package. The range of the phenomena is very wide. As the trader implements new ideas, the Basic Model becomes less and less recognizable. A new model begins to take form, a model unique to the trader. A consequence of the modification process is that each trader's approach will probably differ from all others. No one will be chasing the same entry and exit points. A few ideas on improving the Basic Model follow:
Volatility affects trading risk. There are a number of ways to measure volatility; the Garman
formula, annualized for options; a simple ten day average of the high - low range, etc. We have
a scaled short term volatility model (proprietary) that rates volatility from CV = 1 to CV = 20. At
CV = 1 there is no volatility. At CV = 20 volatility is through the roof. Starting with the
5 day, 28 minimum tick bracket (1995 Jan - Sep):
5 Day 28 ticks CV = 20 3.67 ticks/trade 43 trades
5 Day 28 ticks CV = 15 3.67 ticks/trade 43 trades
5 Day 28 ticks CV = 12 3.67 ticks/trade 43 trades
5 Day 28 ticks CV = 11 3.67 ticks/trade 43 trades
5 Day 28 ticks CV = 10.5 3.67 ticks/trade 43 trades
5 Day 28 ticks CV = 10 4.24 ticks/trade 41 trades
5 Day 28 ticks CV = 9.5 3.73 ticks/trade 41 trades
5 Day 28 ticks CV = 9 5.31 ticks/trade 39 trades *** $165/trade except slip & comm.
5 Day 28 ticks CV = 8.5 4.87 ticks/trade 38 trades
5 Day 28 ticks CV = 8 4.67 ticks/trade 36 trades
5 Day 28 ticks CV = 7.5 4.45 ticks/trade 31 trades
5 Day 28 ticks CV = 7 3.91 ticks/trade 22 trades
5 Day 28 ticks CV = 6.5 3.75 ticks/trade 16 trades
The best performance is at CV = 9, meaning that volatilities above 9 are not traded.
There is no volatility control in the Basic Model. This brief study indicates that
performance variation with volatility might be an important factor. On the basis of
the original $114 per trade, this is a 45 percent improvement.
There are many, many more ways to improve on the Basic Swing Model. We here mention only a few. As
a trader becomes more familiar with the markets as seen through 'auction market' eyes, concepts and
ideas will continually arise.
1. The first basic premise of entering on a one-tick breakout might be improved by
testing for false breakouts, i.e. time delay to enter, or entering on a larger breakout.
One might integrate the volatility concept into breakout measurements. For instance,
it is not necessary to execute at one tick past the limit. Possibly, a wait of a few
ticks could cut down the number of trades and avoid some quick losers.
2. The second basic rule to exit on the following open after a commercial cap has been
observed may be deemed too slow. One could examine the hourly (CBOT) Liquidity Data
Bank prior to close (1:30 PM download) for evidence of commercial capping and if such
is found, to then exit on or near the close. Alternatively, the second reconciliation
is available at 7 PM, with commercial activity calculated, giving time to exit in
the night session.
3. The rule on reversal can be modified to, say, a stop at the midpoint of the Overlay.
This cuts down on the whipsaw risk, possibly at the expense of additional trading.
4. Commercial capping that occurs at the close might not be capping at all. It could be
the commercials going with the market. One can tell by the market behavior after
tomorrow's open. An upper cap will be followed by lower prices, if it were not a cap,
but 'going with' instead, prices will continue steady or up the next day.
5. Volume activity generally confirms market movement. Volumes are available from the
Liquidity Data Bank (for CBOT and CME markets). Other techniques associated with
volume are discussed in Lesson 2.
6. Trends are closely related to the minor auction and more loosely to the major auction.
The minor auction can often be determined from the shorter Overlays (5 and 10 days), from
local cycles and from short term price changes such as differences over the past five days.
Major auctions are found from the 20 day Overlay, from longer cycles and from price
differences over time periods of several weeks. A major major auction for very long time
frames (e.g.) a six month trend are apparent from a bar chart. Very long term auctions are
rarely useful to the swing trader.
7. The Trader Control Package connects the short term market behavior of the current day through
twenty days back in a continuous manner. The trader will find developing market activity
graphically depicted for this time period. There are many nuances that one comes to
recognize and that support one's trading. More about this when we compare the Basic Model
trading with that done directly from the TCP data (see below).
Trade-by-trade on a modified Basic Model: January 1995 through September 1995
U2 92 14 32 31.25 05 05 028 15.0 1.00 05 05 029 15.0 0008 DATE DIR DT-IN PR-IN STOP PR-ST Lim-U Lim-L PR-OUT PROF PROF$ TKS CV-Vty Ovrride 950104 0 0 9924 9821 0 0 0 35 5.67 950105 0 0 9923 9821 0 0 0 34 5.47 950106 SHORT 950106 9821 EXOPN 9923 9921 9820 0 0 0 33 10.73 950109 0 0 9921 9820 9906 -17 -530 33 5.33 950110 LONG 950110 9921 S&R 9820 9921 9825 0 0 0 28 7.93 950111 LONG 950110 9921 S&R 9825 9929 9825 0 0 0 36 7.27 950112 LONG 950110 9921 S&R 9825 9929 9825 0 0 0 36 7.60 950113 LONG 950110 9921 EXOPN 9825 10010 9829 0 0 0 45 7.53 950117 LONG 950117 10010 S&R 9829 10011 9901 10003 14 436 42 7.33 950118 LONG 950117 10010 S&R 9901 10017 9902 0 0 0 47 6.93 950119 LONG 950117 10010 EXOPN 9902 10017 9921 0 0 0 28 6.60 950120 SHORT 950120 9921 EXOPN 10017 0 0 9924 -18 -561 0 6.07 NO_DYS 950123 0 0 0 0 9911 10 312 15 6.13 NO_DYS 950124 0 0 0 0 0 0 0 15 4.07 NO_DYS 950125 0 0 9928 9824 0 0 0 36 7.13 950126 LONG 950126 9928 EXOPN 9824 0 0 0 0 0 0 6.73 NO_DYS 950127 0 0 0 0 10010 14 436 0 7.87 NO_DYS 950130 0 0 0 0 0 0 0 26 5.60 NO_DYS 950131 0 0 0 0 0 0 0 33 8.20 NO_DYS 950201 0 0 0 0 0 0 0 41 6.80 NO_DYS 950202 0 0 10125 10016 0 0 0 41 5.47 950203 LONG 950203 10125 EXOPN 10016 0 0 0 0 0 6 9.93 NO_DYS 950206 0 0 0 0 10211 18 561 14 5.33 NO_DYS 950207 0 0 0 0 0 0 0 24 6.07 NO_DYS 950208 0 0 0 0 0 0 0 27 5.07 NO_DYS 950209 0 0 10228 10126 0 0 0 34 6.60 950210 SHORT 950210 10126 EXOPN 10228 10224 10109 0 0 0 47 9.40 950213 SHORT 950213 10109 S&R 10224 10224 10109 10118 8 249 47 4.73 950214 SHORT 950213 10109 S&R 10224 10213 10109 0 0 0 36 7.27 950215 LONG 950215 10224 EXOPN 10109 10301 10109 10224 -47 -1466 56 9.33 950216 LONG 950216 10301 S&R 10109 10305 10109 10218 -6 -187 60 9.33 950217 LONG 950216 10301 EXOPN 10109 0 0 0 0 0 44 4.47 NO_DYS 950221 0 0 10305 10125 10214 -19 -592 44 4.47 950222 LONG 950222 10305 S&R 10125 10307 10203 0 0 0 36 8.40 950223 LONG 950222 10305 EXOPN 10203 10322 10207 0 0 0 47 9.27 950224 0 0 10322 10207 10302 -3 -93 47 9.07 950227 LONG 950227 10322 S&R 10207 10323 10207 0 0 0 48 6.80 950228 LONG 950227 10322 EXOPN 10207 0 0 0 0 0 0 8.87 NO_DYS 950301 0 0 10325 10201 10309 -13 -405 56 8.47 950302 0 0 10325 10201 0 0 0 56 7.60 950303 SHORT 950303 10201 EXOPN 10325 0 0 0 0 0 11 7.93 NO_DYS 950306 0 0 0 0 10123 10 312 11 7.40 NO_DYS 950307 0 0 0 0 0 0 0 35 9.47 NO_DYS 950308 0 0 0 0 0 0 0 40 8.33 NO_DYS 950309 0 0 10222 10105 0 0 0 49 6.73 950310 LONG 950310 10227 EXOPN 10105 0 0 0 0 0 3 12.00 NO_DYS 950313 0 0 10320 10105 10309 14 436 79 6.13 950314 LONG 950314 10322 EXOPN 10105 0 0 0 0 0 0 7.00 NO_DYS 950315 0 0 0 0 10414 24 748 23 8.73 NO_DYS 950316 0 0 0 0 0 0 0 36 8.93 NO_DYS 950317 0 0 0 0 0 0 0 37 8.33 NO_DYS 950320 0 0 10504 10331 0 0 0 37 5.53 950321 SHORT 950321 10331 EXOPN 10504 0 0 0 0 0 0 7.27 NO_DYS
950322 0 0 0 0 10314 17 530 13 6.20 NO_DYS 950323 0 0 0 0 0 0 0 19 5.93 NO_DYS 950324 0 0 10418 10303 0 0 0 47 7.67 950327 LONG 950327 10418 EXOPN 10303 0 0 0 0 0 0 6.27 NO_DYS 950328 0 0 0 0 10425 7 218 39 6.80 NO_DYS 950329 0 0 0 0 0 0 0 39 10.27 NO_DYS 950330 0 0 10431 10322 0 0 0 41 10.13 950331 SHORT 950331 10322 EXOPN 10431 10431 10307 0 0 0 56 9.33 950403 0 0 10431 10307 10327 -5 -156 56 7.87 950404 0 0 10429 10307 0 0 0 54 6.93 950405 LONG 950405 10429 S&R 10307 10429 10307 0 0 0 54 6.20 950406 LONG 950405 10429 EXOPN 10307 0 0 0 0 0 21 4.93 NO_DYS 950407 0 0 10514 10406 10506 9 280 40 10.27 950410 SHORT 950410 10403 EXOPN 10514 10514 10400 0 0 0 46 5.27 950411 0 0 10514 10400 10414 -11 -343 46 7.73 950412 0 0 10514 10400 0 0 0 46 7.00 950413 LONG 950413 10514 S&R 10400 10514 10400 0 0 0 46 6.53 950417 LONG 950413 10514 S&R 10400 10513 10400 0 0 0 45 7.13 950418 LONG 950413 10514 S&R 10400 10513 10407 0 0 0 38 8.00 950419 LONG 950413 10514 S&R 10407 10513 10408 0 0 0 37 7.73 950420 LONG 950413 10514 EXOPN 10408 10513 10409 0 0 0 36 7.13 950421 0 0 10510 10409 10504 -10 -312 33 5.00 950424 LONG 950424 10510 EXOPN 10409 0 0 0 0 0 0 4.73 NO_DYS 950425 0 0 0 0 10518 8 249 26 5.73 NO_SHT 950426 0 0 0 0 0 0 0 22 6.20 NO_SHT 950427 0 0 0 0 0 0 0 19 5.33 NO_SHT 950428 0 0 0 0 0 0 0 25 6.73 NO_SHT 950501 0 0 0 0 0 0 0 24 4.47 NO_SHT 950502 0 0 0 0 0 0 0 23 4.07 NO_SHT 950503 0 0 0 0 0 0 0 0 5.47 NO_DYS 950504 0 0 0 0 0 0 0 5 7.80 NO_DYS 950505 0 0 0 0 0 0 0 10 11.20 NO_DYS 950508 0 0 0 0 0 0 0 330 6.20 NO_DYS 950509 0 0 0 0 0 0 0 260 12.00 NO_DYS 950510 0 0 0 0 0 0 0 460 12.80 NO_DYS 950511 0 0 11021 10800 0 0 0 850 11.80 950512 0 0 11021 10817 0 0 0 680 8.67 950515 0 0 11021 10824 0 0 0 610 5.87 950516 LONG 950516 11021 EXOPN 10824 0 0 0 0 0 250 8.80 NO_DYS 950517 0 0 0 0 11106 17 530 360 8.47 NO_DYS 950518 0 0 0 0 0 0 0 370 7.73 NO_DYS 950519 0 0 0 0 0 0 0 400 5.33 NO_DYS 950522 0 0 11108 11000 0 0 0 400 4.73 950523 0 0 11108 11000 0 0 0 400 6.93 950524 LONG 950524 11108 EXOPN 11000 0 0 0 0 0 130 8.33 NO_DYS 950525 0 0 0 0 11216 40 1248 320 11.40 NO_DYS 950526 0 0 0 0 0 0 0 320 5.20 NO_DYS 950530 0 0 0 0 0 0 0 460 6.73 NO_DYS 950531 0 0 11222 11105 0 0 0 490 7.80 950601 LONG 950601 11222 EXOPN 11105 0 0 0 0 0 180 8.00 NO_DYS 950602 0 0 0 0 11309 19 592 40 16.67 NO_DYS 950605 0 0 0 0 0 0 0 380 9.73 NO_DYS 950606 0 0 0 0 0 0 0 440 8.07 NO_DYS 950607 0 0 0 0 0 0 0 450 9.40 NO_DYS 950608 0 0 11521 11328 0 0 0 570 7.93 950609 SHORT 950609 11230 EXOPN 11521 0 0 0 0 0 80 12.53 NO_DYS 950612 0 0 0 0 11220 10 312 470 9.47 NO_DYS
950613 0 0 11424 11129 0 0 0 910 9.73 950614 0 0 11411 11129 0 0 0 78 7.53 950615 LONG 950615 11411 S&R 11129 11411 11129 0 0 0 780 9.73 950616 LONG 950615 11411 EXOPN 11129 0 0 0 0 0 44 7.93 NO_DYS 950619 0 0 11413 11231 11325 -18 -561 46 6.00 950620 LONG 950620 11413 EXOPN 11231 0 0 0 0 0 26 6.93 NO_DYS 950621 0 0 0 0 11418 5 156 35 7.53 NO_DYS 950622 0 0 0 0 0 0 0 17 8.00 NO_DYS 950623 0 0 0 0 0 0 0 32 8.20 NO_DYS 950626 0 0 11528 11403 0 0 0 57 5.20 950627 0 0 11528 11409 0 0 0 51 7.60 950628 0 0 11528 11409 0 0 0 51 7.20 950629 SHORT 950629 11409 EXOPN 11528 0 0 0 0 0 15 10.73 NO_DYS 950630 0 0 0 0 11304 37 1154 24 7.80 NO_DYS 950703 0 0 0 0 0 0 0 27 4.93 NO_DYS 950705 0 0 0 0 0 0 0 33 5.07 NO_DYS 950706 0 0 0 0 0 0 0 0 10.40 NO_DYS 950707 0 0 0 0 0 0 0 35 13.33 NO_DYS 950710 0 0 0 0 0 0 0 35 6.40 NO_DYS 950711 0 0 0 0 0 0 0 40 6.67 NO_DYS 950712 0 0 11523 11413 0 0 0 42 6.27 950713 0 0 11523 11414 0 0 0 41 7.20 950714 SHORT 950714 11414 EXOPN 11523 11518 11326 0 0 0 56 8.07 950717 SHORT 950717 11326 EXOPN 11518 0 0 11405 9 280 0 6.47 NO_DYS 950718 0 0 0 0 11231 27 842 0 7.60 NO_DYS 950719 0 0 0 0 0 0 0 20 13.20 NO_DYS 950720 0 0 0 0 0 0 0 35 11.87 NO_DYS 950721 0 0 0 0 0 0 0 0 9.53 NO_DYS 950724 0 0 0 0 0 0 0 51 9.40 NO_DYS 950725 0 0 11120 10929 0 0 0 55 10.47 950726 0 0 11116 10929 0 0 0 51 8.13 950727 LONG 950727 11116 S&R 10929 11118 10929 0 0 0 53 7.27 950728 LONG 950727 11116 S&R 10929 11119 11003 0 0 0 48 9.20 950731 LONG 950727 11116 EXOPN 11003 11119 11009 0 0 0 42 6.33 950801 SHORT 950801 11009 EXOPN 11119 11118 11010 11108 -8 -249 40 8.20 950802 LONG 950802 11118 EXOPN 11010 11123 11010 11105 -28 -873 45 9.47 950803 SHORT 950803 11010 S&R 11123 11123 11006 11030 -20 -624 49 8.73 950804 SHORT 950803 11010 EXOPN 11123 11122 11003 0 0 0 51 10.60 950807 0 0 11122 11003 11027 -17 -530 51 4.93 950808 0 0 11122 11003 0 0 0 51 6.47 950809 0 0 11114 11003 0 0 0 43 6.07 950810 SHORT 950810 11003 S&R 11114 11114 11003 0 0 0 43 8.80 950811 SHORT 950810 11003 EXOPN 11114 0 0 0 0 0 12 11.93 NO_DYS 950814 0 0 0 0 10831 36 1123 17 6.67 NO_DYS 950815 0 0 11031 10830 0 0 0 65 9.00 950816 0 0 11025 10830 0 0 0 59 7.80 950817 0 0 11016 10830 0 0 0 50 6.93 950818 0 0 0 0 0 0 0 20 4.47 NO_DYS 950821 0 0 11024 10923 0 0 0 33 5.00 950822 0 0 11024 10924 0 0 0 32 4.87 950823 0 0 11024 10925 0 0 0 31 4.60 950824 LONG 950824 11024 EXOPN 10925 11030 10928 0 0 0 34 7.20 950825 LONG 950825 11109 EXOPN 10928 0 0 11109 17 530 0 10.20 NO_DYS 950828 0 0 0 0 11207 30 936 18 7.27 NO_DYS 950829 0 0 0 0 0 0 0 23 7.00 NO_DYS 950830 0 0 0 0 0 0 0 23 6.47 NO_DYS 950831 0 0 0 0 0 0 0 3 6.80 NO_DYS
950901 0 0 0 0 0 0 0 14 11.73 NO_DYS 950905 0 0 0 0 0 0 0 24 6.67 NO_DYS 950906 0 0 0 0 0 0 0 24 7.07 NO_DYS 950907 0 0 0 0 0 0 0 24 6.53 NO_DYS 950908 0 0 11328 11230 0 0 0 30 9.40 950911 0 0 11328 11231 0 0 0 29 5.33 950912 LONG 950912 11328 EXOPN 11231 11407 11301 0 0 0 38 7.40 950913 LONG 950913 11407 EXOPN 11301 11407 11301 11400 4 124 38 6.13 950914 LONG 950914 11407 EXOPN 11301 0 0 11327 -12 -374 13 8.40 NO_DYS 950915 0 0 0 0 11417 10 312 37 7.67 NO_DYS 950918 0 0 11427 11322 0 0 0 37 5.67 950919 SHORT 950919 11322 EXOPN 11427 11427 11323 0 0 0 36 6.00 950920 0 0 11427 11323 11405 -15 -468 36 7.07 950921 SHORT 950921 11323 EXOPN 11427 0 0 0 0 0 12 9.67 NO_DYS 950922 0 0 0 0 11312 11 343 35 11.93 NO_DYS 950925 0 0 0 0 0 0 0 35 6.67 NO_DYS 950926 0 0 0 0 0 0 0 37 7.60 NO_DYS 950927 0 0 11319 11201 0 0 0 50 9.20 950928 0 0 11316 11201 0 0 0 47 7.93 950929 LONG 950929 11316 EXOPN 11201 0 0 0 0 0 0 8.80 NO_DYS WINS (TKS, TDS) 425 26 LOSSES(TKS, TDS) -267 17 AVERAGE PER TDE 3.67
Question: What is the average holding time?
Question: Pick out a trade that would have been canceled if a volativity cut-off of CV = 9.0 is used.
Trading Summary:
IN OUT DIR GAIN LOSS IN OUT DIR GAIN LOSS
1/06 1/09 S 17
1/10 1/17 L 14 7/14 7/17 S 9
1/17 1/20 L 18 7/17 7/18 S 27
1/20 1/23 S 10 7/27 8/01 8
1/26 1/27 L 14
2/03 2/06 L 18 8/01 8/02 S 28
2/10 2/13 S 8 8/02 8/03 L 20
2/13 2/15 S 47 8/03 8/07 S 17
2/15 2/16 L 6 8/10 8/14 S 36
2/16 2/21 L 19 8/24 8/25 L 17
2/22 2/24 L 3 8/25 8/28 L 30
2/27 3/01 L 13
3/03 3/06 S 10 9/12 9/13 L 4
3/10 3/13 L 14 9/13 9/14 L 12
3/14 3/15 L 24 9/14 9/15 L 10
3/21 3/22 S 17 9/18 9/20 S 15
3/27 3/28 L 7 9/21 9/22 S 11
3/31 4/03 S 5
4/05 4/07 L 9
4/10 4/11 L 11
4/13 4/21 L 10
4/24 4/25 L 8
5/16 5/17 L 17
5/24 5/25 L 40
6/01 6/02 L 19
6/09 6/12 S 10
6/15 6/19 L 18
6/20 6/21 L 5
6/29 6/30 S 37
Question for the student: What is the worst drawdown period? How much (ticks) was the drawdown? In dollars?
Trading by Integrating Extra Controls: A project.
The following trades used some of the concepts described above, going beyond the Basic Model rules. The trader's attitude was "do I want this trade or do I want to be out?". Breakouts were used for entry, exit-on-open was still the method of termination. In between, however, judgement on the sense of the market was exercised.
Ideally (and ultimately), the trader will be able to take the Trader Control Package data and generate an attitude toward a trade. The trader will know whether to enter, stay or exit without reference to stops. At that point, it can truly be said that the trader has 'arrived'.
It is up to the student to use these trades to help develop his or her market attitude. By determining how these trades differ from the Basic Model, when they do, the trader will gain insight into real market analysis. This is the beginning of developing ones attitude, the making of a trader.
Trading Model Development
Raw data from the TCP are in files L1U20195.TXT, L1U20295.TXT,...,LIU20695.TXT.
01/06 S 9820 01/09 out 9906 -17 01/10 L 9921 01/17 " 10001 12 01/25 S 9829 01/25 " 9914 -17 01/25 L 9914 01/26 " 9919 5 01/26 L 9929 01/27 " 10010 13 01/27 L 10010 02/06 " 10214 65 02/09 S 10201 02/10 " 10201 0 02/10 S 10123 02/13 " 10118 5 02/15 L 10214 02/16 " 10218 4 02/16 L 10301 02/22 " 10209 -24 02/23 L 10311 02/24 " 10302 -9 02/27 L 10322 03/01 " 10328 6 03/03 S 10215 03/06 " 10123 24 03/08 L 10213 03/09 " 10209 -4 03/09 L 10221 03/17 " 10405 49 03/21 S 10330 03/22 " 10314 16 03/24 L 10324 03/27 " 10409 17 03/27 L 10418 03/29 " 10329 -21 03/29 L 10429 03/30 " 10430 1 03/30 S 10324 03/31 " 10322 2 03/31 S 10321 04/03 " 10327 -6 04/05 L 10429 04/07 " 10406 -23 04/07 S 10406 04/11 " 10414 -8 04/17 L 10521 04/21 " 10504 -17 04/24 L 10511 04/25 " 10518 8 04/28 L 10520 04/28 " 10431 -21 04/28 S 10431 05/03 " 10520 -21 05/03 S 10520 05/08 " 10820 96 05/09 L 10901 05/12 " 10829 -4 05/16 L 11021 05/19 " 11003 -18 05/19 S 11003 05/22 " 11004 -1 05/22 S 10031 05/23 " 11108 -41 05/24 L 11108 05/25 " 11216 40 05/30 L 11221 05/31 " 11300 11 06/01 L 11303 06/05 " 11501 62 06/06 S 11416 06/07 " 11416 0 06/07 S 11409 06/12 " 11220 53 06/13 L 11305 06/23 " 11527 86 06/29 S 11408 06/30 " 11304 36
CISCO: Value Based Power Trading
Responsive Day Trading: A Basic Model
A responsive trade is a day-trade based on selling near the upper limit of a bracket or
buying near the bracket lower limit. In either case the stop-loss point is the nearby
limit and the profit target is the middle of the distribution. A typical 'Responsive Day
Trade' will have a three to one reward to risk ratio.
The Basic Model concept:
Any widely used 'formula' model suffers and fails due to crowding at entry and exit.
Users of the Trader Control Package (TCP) avoid such problems because each has his 'own' model. A Basic Model,
as shown below, is a solid starting point; a platform to build on. The Basic Responsive Trader uses just one of the
TCP's variables, the Overlay Demand Curve (tm). The Overlay identifies the market's condition (bracket, test,
trend or trend-end). In balanced, bracketing markets, the Overlay locates the three critical market descriptors:
upper breakout price, value and lower breakout price. Responsive traders are alerted when price approaches the
upper or lower breakout limits. Failure to breakout is an opportunity, since it is not unusual for price to
quickly move back into the middle of the bracket.
In addition to the Overlay, the TCP identifies commercial activity, internal trends, volatility and a number of
other items that help to clarify the meaning of current market behavior. Adding indicators to the Basic Model
lets the trader build his own unique model; one based on market understanding; i.e. one designed by and for the
specific purposes of that individual.
Idealized Overlay Demand Curve (tm), with Reference Points
100:00 x
99:31 xx Trading above the limit alerts to start of up-trend
99:30 xxx <== Upper bracket limit: Stop point for responsive short.
99:29 xxxx
99:28 xxxxx <== Octant: One-eighth of bracket range. Initiate responsive short.
99:27 xxxxxx
99:26 xxxxxxx <== Quadrant: One-quarter of bracket range.
99:25 xxxxxxxx
99:24 xxxxxxxxx
99:23 xxxxxxxxxx
99:22 xxxxxxxxxxx <== Middle of distribution. Responsive trade target.
99:21 xxxxxxxxxx
99:20 xxxxxxxxx
99:19 xxxxxxxx
99:18 xxxxxxx <== Quadrant: One-quarter of bracket range.
99:17 xxxxxx
99:16 xxxxx <== Octant: One-eighth of bracket range. Initiate responsive long.
99:15 xxxx
99:14 xxx <== Lower bracket limit: Stop point for responsive long.
99:13 xx Trading below the limit alerts to start of down-trend
99:12 x
Constructing a five day Overlay Demand Curve from Market Profiles
T-BOND (CBOT) DAY SEP 95 First date: 8 1 95 Last date: 8 7 95
<---------------------- 5 Profiles -------------------------------> Overlay Demand Curve
1 2 3 4 7 5 Day Volume Overlay
11123 FI 11123 3154 2 44
11122 FIJ 11122 7542 3 444
11121 FIJ 11121 15330 3 444
11120 FGHIJ 11120 21564 5 44444
11119 FGHIJ 11119 29774 5 44444
11118 FGHIJ 11118 22084 5 44444
11117 FGHIJ 11117 15420 5 44444
11116 FGHIJ 11116 11726 5 44444
11115 BFHJK 11115 9810 5 44444
11114 BEFJK 11114 19402 5 44444
11113 BEFJKL 11113 20280 6 444444
11112 BCEFJKL 11112 32276 7 4444444
11111 BCEFJKL 11111 28008 7 4444444
11110 BCEFJKL 11110 16786 7 4444444
11109 A ZBCEKL 11109 13746 7 4444445
11108 ZA Z$ABCEKLM 11108 42448 11 44444444455
11107 Z$A Z$ABCDELM 11107 61516 12 444444444555
11106 Z$AB Z$ABCDEL 11106 64156 12 444444445555
11105 Z$ABC Z$ABCDE 11105 60556 12 444444455555
11104 Z$ABC Z$ABCDE 11104 61642 12 444444455555
11103 Z$ABC Z$ACDE K 11103 62744 12 144444455555
11102 ABC Z$ACDE KL 11102 49934 11 11444444555
11101 BC Z$ACD KL 11101 42930 9 114444455
11100 BC $ACD H KLM 11100 34584 10 1112444455
11031 C $ACD HIK JKLM 11031 34828 12 111122244445
11030 C $ Z HIJK EFJKL 11030 25644 12 111112222345
11029 C Z HIJKL DEFGIJL 11029 32530 14 11111112222235
11028 C Z CHIJKL DEFGIJ 11028 48402 14 11111122222235
11027 C Z CHIJKL ZCDEFGHIJ 11027 40684 17 11111111122222235
11026 C Z CEFGHIJKLM ZCDGHI 11026 65622 18 111111222222222235
11025 CD Z $ACEFGHIJLM Z$CDHI 11025 90904 20 11111122222222222355
11024 CD Z$ $ACEFGHIJLM Z$BCHI 11024 89840 21 111111222222222223355
11023 CD Z$ $ABCDEFGHJ Z$BC 11023 75612 18 111122222222223355
11022 CD Z$ $ABCDEFGH Z$AB 11022 77942 17 11112222222223355
11021 CD $ $ABCDEFGH Z$AB 11021 48626 16 1111222222222355
11020 D $IL $ABCD AB 11020 83442 11 11222223335
11019 D $HIL $ABCD AB 11019 55628 12 112222233335
11018 DI $GHIL $ABCD A 11018 59608 13 1222223333355
11017 DIJKL $GHIL $ABCD 11017 55350 15 222223333355555
11016 DEGHIJKLM $GHIJKLM $AB 11016 72024 20 22233333333555555555
11015 DEFGHIJKLM $CDGHIJKLM $A 11015 87156 22 2233333333335555555555
11014 DEFGHIJKLM $CDEFGHJKLM $A 11014 98794 23 22333333333335555555555
11013 EFGHIJKL $ACDEFGJKLM $A 11013 90700 21 223333333333355555555
11012 EFGHIJKL $ABCDEFGJKLM $A 11012 115814 22 2233333333333355555555
11011 EFGHIJKL $ABCDEFGJKL Z$A 11011 113392 22 2223333333333355555555
11010 EFGIJKL $ABCDEFGJK Z$A 11010 110910 20 22233333333335555555
11009 EK $ABCEFG Z$A 11009 58322 12 222333333355
11008 E $ABCEG Z$A 11008 60290 10 2223333335
11007 E $AEG Z$A 11007 55298 8 22233335
11006 E $AE Z$A 11006 40466 7 2223335
11005 E $ Z$A 11005 33516 5 22235
11004 $ Z$A 11004 24236 4 2223
11003 $ Z$A 11003 23252 4 2223
11002 $ $ 11002 16422 2 23
F VOL 592320 629130 609516 703578 195570
Responsive Day Trade on T-bond, January 3, 1992
TRADING DATE: 03 JAN 92
CONTRACT: MAR 92 T-BOND (CBOT) DAY (U2H)
TRADING BEGINS 0720 (CST);CLOSES 1405;TPO SYMBOLS ARE yzABCDEFGHIJKLM
FIRST PERIOD IS 10MINS; SUBSEQUENT PERIODS ARE ALL 30 MINS
y z A B C D E F G H I J K L M
10407 6
10406 27
10405 29 3 1 8
10404 6 8 9 24 3
10403 16 28 36 18
10402 15 Exit at Target ==> 26 38 24
10401 6 12 11 25 12
10400 14 27 1 6 10 6
10331 19 24 11 10 2 15
10330 17 32 24 20 17
10329 26 3 35 19 6 15 13
10328 31 8 56 11 15 19 6 14
10327 34 16 72 12 3 5 15 23 2 7
10326 29 2 13 43 23 12 7 7 13
10325 24 6 23 36 20 19 1 1 6
10324 39 25 4 27 18 37 10 2
10323 31 51 12 17 6 28 2
10322 7 41 10 14 2
10321 16 4 14
10320 21 9 15
10319 29 26 8
10318 19 20 3 <== Long, Target 10402, Stop 10309
10317 12 5
10316 5 11
10315 16 <== Alert
10314 11
10313 2
On January 2, 1992 the five day T-bond bracket limits were 10427 and 10309. For the next day, January 3, a Responsive long would be taken at 10316 (one tick above the lower Octant; or a Responsive short would be taken at 10420. In either Responsive trade, the target will be the bracket middle at 1402. The bracket breakdown looks like this:
Upper Limit Lower Limit
10427 10421 10402 10315 10309
Upper Octant Middle Lower Octant
In B period (8:30 to 9 AM), price came down through the lower octant at 10315, setting an alert. By the rules, no trade is taken until the beginning of period C. Any trading in C period (or later) above 10315 will trigger a long Responsive Long. That occurs in C period, assumed to be at 10318. The trade immediately triggers a protective stop at 10309 and a target stop at 10402.
The target was reached in J period (12:30 to 1:00 PM). Profit is calculated at 15 ticks, or $468 before commission and slip.
The Basic Responsive Model
The Trader Control Package provides brackets, commercial activity analysis and many, many other indicators on the market. The Basic Responsive Model uses previous day bracket information to initiate and to terminate the trade.
Step 1. Select a commodity and a bracket period. We will use T-bonds and the 5 day Overlay.
Step 2. Determine the reward/risk ratio desired. This sets the 'alert' points.
a) Octants have a reward/risk ratio of 3 to 1.
b) Sextants have a reward/risk ratio of 2 to 1.
c) Quadants have a reward/risk ratio of 1 to 1.
Basic Model Rules
1) Alert to go long when price drops below the 'alert' price (e.g. lower octant)
2) Go long on a one-tick breakout above the 'alert' in the next or any subsequent TPO period.
3) Upon entry, set a protective stop at the lower bracket limit.
4) Upon entry, set a target (profit) stop at the bracket mid point.
5) Alert to go short when price rises above the 'alert' price (e.g. upper octant)
6) Go short on a one-tick breakout below the 'alert' in the next or any subsequent TPO period.
7) Upon entry, set a protective stop at the upper bracket limit.
8) Upon entry, set a target (profit) stop at the bracket mid point.
Setting the Initial Conditions (IC)
Five day brackets can range from ten or fifteen ticks in very quiet markets to sixty or more ticks in active markets. Risk of reversal is obviously higher in narrow brackets; an artificially low range for a few days will inevitably be succeeded by a more normal trading range. Thus there is a minimum bracket range, below which trading profitability is negatively impacted.
IC. Define the acceptable minimum trading range (ticks) for swing trading to be initiated. For the years 1991 through 1994, Trader Control Package data shows (minimum stop 8 pts):
Minimum 1994 1993 1992 1991 Average Ave-Tds
Bracket
5 Day 48 ticks -0.40 ticks/trade 5.70 4.60 0.00 2.40 19/yr
5 Day 44 ticks 0.00 ticks/trade 4.60 4.60 4.30 3.30 24/yr
5 Day 40 ticks 0.90 ticks/trade 4.00 3.00 3.70 2.90 30/yr
5 Day 36 ticks 1.40 ticks/trade 2.70 4.00 3.40 2.90 41/yr
5 Day 32 ticks 1.90 ticks/trade 2.40 4.60 3.20 3.00 * 52/yr
5 Day 28 ticks 2.20 ticks/trade 2.50 2.70 4.00 2.90 59/yr
5 Day 24 ticks 2.50 ticks/trade 2.30 2.50 3.80 2.70 66/yr
5 Day 20 ticks 2.50 ticks/trade 2.00 2.70 3.70 2.70 71/yr
5 Day 16 ticks 2.50 ticks/trade 2.00 2.70 3.60 2.70 71/yr
5 Day 12 ticks 2.50 ticks/trade 2.00 2.70 3.60 2.70 71/yr
The most balanced match is with 32 tick (minimum) brackets, but the region is relatively flat.
Consequently, year to year shifts should are minimized.
Reducing the minimum protective stop to 4 points ($125):
Minimum 1994 1993 1992 1991 Average Ave-Tds
Bracket
5 Day 48 ticks 0.10 ticks/trade 5.90 5.00 0.50 2.80 19/yr
5 Day 44 ticks 0.80 ticks/trade 5.30 5.10 4.60 3.90 24/yr
5 Day 40 ticks 0.70 ticks/trade 4.30 3.00 3.60 2.90 31/yr
5 Day 36 ticks 1.20 ticks/trade 2.80 4.20 3.30 2.80 43/yr
5 Day 32 ticks 1.50 ticks/trade 2.60 4.60 3.50 3.00 52/yr
5 Day 28 ticks 1.90 ticks/trade 2.80 3.30 4.30 3.00 * 59/yr
5 Day 24 ticks 2.20 ticks/trade 2.70 3.10 4.20 3.00 66/yr
5 Day 20 ticks 2.20 ticks/trade 2.60 3.00 3.90 2.90 71/yr
5 Day 16 ticks 2.20 ticks/trade 2.60 2.90 3.80 2.80 72/yr
5 Day 12 ticks 2.20 ticks/trade 2.60 2.90 3.80 2.80 72/yr
Using the 4 point stop improves the trading by broadening the average return of 3.0 and slightly
increasing the amount of trading. The best balance lies in the range of 24 to 32 tick brackets.
For the Basic Responsive Model we accept a minimum bracket of 28 points and minimum stops of 4 points.
The Basic Model has a profit expectancy of 3 ticks per trade ($93 before slip and commissions). It
thus provides the 'platform' we sought for building a personal model.
In developing the Basic Swing Model we found that factoring in the volatility substantially imporved the
results. Possibly the same will be the case here.
Basic Responsive Trading Model with volatility override: No trading above CV = 9.0.
Minimum 1994 1993 1992 1991 Average Ave-Tds
Bracket
5 Day 48 ticks 4.90 ticks/trade 1.70 7.80 0.50 3.70 9/yr
5 Day 44 ticks 4.80 ticks/trade 2.60 6.60 4.60 4.60 13/yr
5 Day 40 ticks 4.00 ticks/trade 1.90 3.80 3.60 3.30 19/yr
5 Day 36 ticks 4.60 ticks/trade 0.60 4.80 3.30 3.30 31/yr
5 Day 32 ticks 4.30 ticks/trade 1.00 5.00 3.50 3.40 40/yr
5 Day 28 ticks 4.70 ticks/trade 1.30 3.50 4.30 3.40 46/yr
5 Day 24 ticks 4.70 ticks/trade 1.20 3.20 4.40 3.30 55/yr
5 Day 20 ticks 4.70 ticks/trade 1.20 3.10 4.00 3.20 58/yr
5 Day 16 ticks 4.70 ticks/trade 1.20 3.00 3.90 3.20 59/yr
5 Day 12 ticks 4.70 ticks/trade 1.20 3.00 3.90 3.20 59/yr
The volatility cut-off increases the profitability by some ten percent and decreases trading by about twenty percent. The improvement is not nearly so large as with the Swing Model. Two reasons are suggested: A Swing Model trade is triggered by a single tick breakout. That tick is easily affected by the normal market noise or fluctuation. A less volatile market has less noise. A responsive trade is first alerted and later (next half-hour period at the earliest) traded. So the fluctuation associated with a flurry of activity has less chance of affecting the trade.
The second point lies in the inherent difference between swing and responsive trading. A responsive trade is successful if the market remains stable, i.e. in bracket. The probability is that will be the case--markets in balance tend to remain in balance. A breakout signals a potential alteration of the market dynamics: the old bracket is breaking up, to be replaced with imbalance (trend).
The Basic Responsive Model applied to 1995 data
The Basic Model, developed against 1991 - 1994 data can be tested against the markets of 1995. For January through September 1995, the trading is:
Wins Points Losses Points #Tdes Net Pts Pts/Tde
5 Day 48 ticks 8 110 11 77 19 33 1.7
5 Day 44 ticks 14 169 15 99 29 70 2.4
5 Day 40 ticks 17 204 20 131 37 73 1.9
5 Day 36 ticks 26 326 23 158 49 168 3.4
5 Day 32 ticks 28 351 24 166 52 185 3.5
5 Day 28 ticks 28 351 28 191 56 160 2.8
5 Day 24 ticks 30 363 28 191 58 172 2.9
5 Day 20 ticks 30 363 28 191 58 172 2.9
5 Day 16 ticks 30 363 28 191 58 172 2.9
5 Day 12 ticks 30 363 28 191 58 172 2.9
and for the case of volitility override, CV = 9 (5 day Overlay, minimum stop 4 points):
Wins Points Losses Points #Tdes Net Pts Pts/Tde
5 Day 48 ticks 7 107 6 33 13 74 5.6
5 Day 44 ticks 11 160 12 63 23 97 4.2
5 Day 40 ticks 14 195 14 73 28 122 4.3
5 Day 36 ticks 19 262 18 89 37 173 4.6
5 Day 32 ticks 20 274 18 89 38 185 4.8
5 Day 28 ticks 20 274 22 102 42 172 4.0
5 Day 24 ticks 22 286 22 102 44 184 4.1
5 Day 20 ticks 22 286 22 102 44 184 4.1
5 Day 16 ticks 23 293 22 102 44 184 4.1
5 Day 12 ticks 23 293 22 102 44 184 4.1
Commercial Capping
The volatility override improves the Basic Model return substantially for this period.
Now that the Basic Responsive Model Platform is set, the Trader Control Package can offer us many pieces of information to improve and extend the model. These extensions will come from the needs and observations of each individual trader. Each individual's model will be unique.
One important indicator is the behavior of the commercial traders. If they are capping a market, the odds are against a responsive trade going counter to that. Say the commercials were active at the high and price dropped. This is evidence of (top) capping, a short term resistance. We learn this at night, for use the next day. Our preferred trade would be a responsive short. A long might well run into the resistance. Conversely, a (bottom) cap of the low would encourage us to look for responsive longs. Using the trading data below we found that a responsive long, the next day after an upper cap, or a responsive short after a lower cap lost on four out of five trades (1/20, 2/27, 3/3, 8/3 and 8/10. We would expect the odds to be with the trade by shorting under an upper and going long after a lower cap. Here, we find two out of three winning (4/11, 7/17 and 9/20).
DATE LIMU LIML DIR DT-IN PR-IN PD EXIT PR-OUT PD PROF PROF$ Upper Lower TFF 950104 9924 9821 0 0 0 0 0 0. NO_DYS 950105 9923 9821 0 0 0 0 0 0. 950106 9921 9820 0 0 0 0 0 0. NO_VTY X X 950109 9921 9820 0 0 0 0 0 0. 950110 9921 9825 SHORT 950110 9911 3 MIDDL 9904 4 12 374. 950111 9929 9825 0 0 0 0 0 0. NO_SHT X 950112 9929 9825 SHORT 950112 9925 2 MIDDL 9911 3 14 437. X 950113 10010 9829 LONG 950113 10000 2 MIDDL 9911 3 14 437. X X 950117 10011 9901 SHORT 950117 10005 3 U LIM 10010 14 -5 -156. 5.00 950118 10017 9902 SHORT 950118 10006 1 U LIM 10011 3 -5 -156. 6.50 950119 10017 9921 SHORT 950119 10012 7 CLOSE 9930 14 14 437. X 950120 0 0 0 0 0 0 0 0. NO_SHT X 950123 9912 9829 0 0 0 0 0 0. X 5.41 950124 9912 9829 0 0 0 0 0 0. NO_DYS 7.63 950125 9928 9824 0 0 0 0 0 0. NO_DYS X X 950126 0 0 SHORT 950126 9924 7 U LIM 9928 8 -4 -125. X 950127 0 0 0 0 0 0 0 0. 950130 10110 10016 0 0 0 0 0 0. 5.25 950131 10117 10016 0 0 0 0 0 0. NO_DYS X X 950201 10125 10016 0 0 0 0 0 0. NO_DYS X 950202 10125 10016 0 0 0 0 0 0. NO_DYS 7.45 950203 10228 10222 0 0 0 0 0 0. NO_VTY X X
950206 10218 10204 0 0 0 0 0 0. NO_DYS 6.67 950207 10228 10204 0 0 0 0 0 0. NO_DYS 5.35 950208 10228 10201 0 0 0 0 0 0. NO_DYS 5.85 950209 10228 10126 0 0 0 0 0 0. NO_DYS X X 5.50 950210 10224 10109 0 0 0 0 0 0. NO_VTY X X 950213 10224 10109 LONG 950213 10114 3 L LIM 10109 7 -5 -156. X 5.92 950214 10213 10109 0 0 0 0 0 0. X 950215 10301 10109 0 0 0 0 0 0. NO_VTY X 950216 10305 10109 0 0 0 0 0 0. NO_VTY 950217 10305 10125 0 0 0 0 0 0. 5.58 950221 10305 10125 0 0 0 0 0 0. NO_DYS X 950222 10307 10203 0 0 0 0 0 0. X 950223 10322 10207 0 0 0 0 0 0. NO_VTY X 950224 10322 10207 0 0 0 0 0 0. NO_VTY X 5.23 950227 10323 10207 SHORT 950227 10317 11 U LIM 10322 12 -5 -156. 5.37 950228 0 0 SHORT 950228 10307 1 MIDDL 10231 3 18 562. X X 950301 10325 10201 0 0 0 0 0 0. 5.08 950302 10325 10201 0 0 0 0 0 0. X 950303 10208 10129 LONG 950303 10208 14 CLOSE 10207 15 -1 -31. X X 950306 10208 10129 0 0 0 0 0 0. NO_DYS X 950307 10208 10105 0 0 0 0 0 0. NO_VTY 5.84 950308 10213 10105 0 0 0 0 0 0. NO_DYS X 950309 10222 10105 0 0 0 0 0 0. NO_DYS X 5.43 950310 10313 10310 0 0 0 0 0 0. NO_VTY X 950313 10320 10105 0 0 0 0 0 0. NO_DYS 950314 0 0 0 0 0 0 0 0. 950315 10423 10400 0 0 0 0 0 0. X 5.46 950316 10504 10400 0 0 0 0 0 0. NO_DYS X X 950317 10504 10331 0 0 0 0 0 0. NO_DYS 6.25 950320 10504 10331 0 0 0 0 0 0. NO_DYS X X 950321 0 0 LONG 950321 10403 6 L LIM 10331 14 -4 -125. X 950322 10316 10303 0 0 0 0 0 0. X 5.47 950323 10322 10303 0 0 0 0 0 0. NO_DYS X X 950324 10418 10303 0 0 0 0 0 0. NO_DYS X 950327 0 0 SHORT 950327 10413 2 U LIM 10418 3 -5 -156. 950328 10431 10324 0 0 0 0 0 0. X 950329 10431 10324 0 0 0 0 0 0. NO_VTY X 950330 10431 10322 0 0 0 0 0 0. NO_VTY X 950331 10431 10307 0 0 0 0 0 0. NO_VTY X 950403 10431 10307 0 0 0 0 0 0. X X 950404 10429 10307 SHORT 950404 10424 2 CLOSE 10417 15 7 218. 950405 10429 10307 SHORT 950405 10423 9 CLOSE 10417 15 6 187. 950406 10428 10407 SHORT 950406 10423 2 U LIM 10429 6 -6 -187. 6.73 950407 10514 10406 0 0 0 0 0 0. NO_VTY X X 950410 10514 10400 LONG 950410 10411 11 CLOSE 10414 15 3 94. X 950411 10514 10400 LONG 950411 10405 10 CLOSE 10422 15 17 530. X 950412 10514 10400 0 0 0 0 0 0. 5.00 950413 10514 10400 SHORT 950413 10509 10 CLOSE 10505 11 4 125. 950417 10513 10400 SHORT 950417 10509 7 MIDDL 10423 14 18 562. X 950418 10513 10407 0 0 0 0 0 0. X 5.22 950419 10513 10408 LONG 950419 10412 8 L LIM 10407 13 -4 -125. 950420 10513 10409 SHORT 950420 10502 6 MIDDL 10426 7 14 437. X 5.63 950421 10510 10409 0 0 0 0 0 0. X 6.82 950424 0 0 0 0 0 0 0 0. X X 950425 10519 10425 0 0 0 0 0 0. 950426 10519 10429 0 0 0 0 0 0. NO_SHT X 6.20
950427 10519 10500 0 0 0 0 0 0. NO_SHT X 6.15 950428 10520 10427 0 0 0 0 0 0. NO_SHT X 950501 10519 10427 0 0 0 0 0 0. NO_SHT 7.44 950502 10518 10427 0 0 0 0 0 0. NO_SHT 5.08 950503 0 0 0 0 0 0 0 0. NO_SHT X 950504 10718 10713 0 0 0 0 0 0. X 950505 10830 10820 0 0 0 0 0 0. NO_VTY X 950508 10901 10800 0 0 0 0 0 0. NO_DYS 5.17 950509 11008 10914 0 0 0 0 0 0. NO_VTY 950510 11021 10907 0 0 0 0 0 0. NO_VTY X 950511 11021 10800 0 0 0 0 0 0. NO_VTY X X 950512 11021 10817 0 0 0 0 0 0. 950515 11021 10824 0 0 0 0 0 0. 6.77 950516 11027 11002 SHORT 950516 11014 1 U LIM 11021 2 -7 -218. X 950517 11108 11004 0 0 0 0 0 0. NO_DYS 5.52 950518 11108 11003 0 0 0 0 0 0. NO_DYS 5.27 950519 11108 11000 0 0 0 0 0 0. NO_DYS X X 5.00 950522 11108 11000 0 0 0 0 0 0. NO_DYS X 7.10 950523 11108 11000 0 0 0 0 0 0. 5.20 950524 11129 11116 0 0 0 0 0 0. X 950525 11216 11116 0 0 0 0 0 0. NO_VTY X X 950526 11216 11116 0 0 0 0 0 0. NO_DYS X 950530 11230 11116 0 0 0 0 0 0. NO_DYS X 5.05 950531 11222 11105 0 0 0 0 0 0. NO_DYS X X 5.57 950601 11316 11230 SHORT 950601 11216 1 U LIM 11222 5 -6 -187. X X 950602 11419 11415 0 0 0 0 0 0. NO_VTY X X 950605 11521 11415 0 0 0 0 0 0. NO_VTY X 950606 11521 11409 0 0 0 0 0 0. NO_DYS X X 950607 11521 11408 0 0 0 0 0 0. NO_VTY X 950608 11521 11328 0 0 0 0 0 0. NO_DYS X 7.44 950609 11214 11206 0 0 0 0 0 0. NO_VTY X 950612 11312 11129 0 0 0 0 0 0. NO_VTY 950613 11424 11129 0 0 0 0 0 0. NO_VTY 950614 11411 11129 0 0 0 0 0 0. 6.28 950615 11411 11129 0 0 0 0 0 0. NO_VTY 950616 11411 11231 0 0 0 0 0 0. 950619 11413 11231 0 0 0 0 0 0. NO_DYS 950620 11417 11323 SHORT 950620 11408 3 U LIM 11413 4 -5 -156. 950621 11426 11323 0 0 0 0 0 0. NO_DYS X 950622 11527 11510 0 0 0 0 0 0. NO_DYS X 950623 11528 11428 0 0 0 0 0 0. NO_DYS X 950626 11528 11403 0 0 0 0 0 0. NO_DYS 5.57 950627 11528 11409 LONG 950627 11410 2 MIDDL 11431 5 21 655. X 950628 11528 11409 LONG 950628 11415 7 CLOSE 11430 15 15 468. X 950629 11312 11229 0 0 0 0 0 0. NO_VTY X X 950630 11321 11229 0 0 0 0 0 0. NO_DYS X 5.09 950703 11324 11229 0 0 0 0 0 0. NO_DYS X 5.29 950705 11330 11229 0 0 0 0 0 0. NO_DYS X 6.33 950706 0 0 0 0 0 0 0 0. NO_VTY X X 950707 11523 11420 0 0 0 0 0 0. 950710 11523 11420 0 0 0 0 0 0. NO_DYS X 6.86 950711 11523 11415 0 0 0 0 0 0. NO_DYS 5.26 950712 11523 11413 0 0 0 0 0 0. NO_DYS X 950713 11523 11414 LONG 950713 11419 4 MIDDL 11502 13 16 499. 950714 11518 11326 0 0 0 0 0 0. X 950717 0 0 LONG 950717 11401 3 L LIM 11326 6 -7 -218. X
950718 0 0 0 0 0 0 0 0. X X
950719 11111 11023 0 0 0 0 0 0. X X
950720 11116 11013 0 0 0 0 0 0. NO_VTY
950721 0 0 0 0 0 0 0 0. NO_VTY X
950724 11116 10929 0 0 0 0 0 0. X
950725 11120 10929 0 0 0 0 0 0. NO_VTY X X
950726 11116 10929 SHORT 950726 11113 3 MIDDL 11024 13 21 655.
950727 11118 10929 SHORT 950727 11110 3 U LIM 11116 11 -6 -187.
950728 11119 11003 0 0 0 0 0 0. NO_VTY X
950731 11119 11009 0 0 0 0 0 0. X
950801 11118 11010 LONG 950801 11014 8 L LIM 11009 13 -5 -156. X X
950802 11123 11010 0 0 0 0 0 0. NO_VTY X
950803 11123 11006 LONG 950803 11015 9 L LIM 11010 12 -5 -156.
950804 11122 11003 0 0 0 0 0 0. NO_VTY X X
950807 11122 11003 0 0 0 0 0 0.
950808 11122 11003 SHORT 950808 11116 7 MIDDL 11028 12 19 593. X
950809 11114 11003 0 0 0 0 0 0. X 5.06
950810 11114 11003 LONG 950810 11008 10 MIDDL 11024 12 16 499.
950811 10912 10900 0 0 0 0 0 0. NO_VTY X
950814 10916 10831 0 0 0 0 0 0. NO_DYS 5.26
950815 11031 10830 0 0 0 0 0 0. NO_VTY
950816 11025 10830 0 0 0 0 0 0.
950817 11016 10830 0 0 0 0 0 0. X
950818 11011 10923 0 0 0 0 0 0. 6.70
950821 11024 10923 0 0 0 0 0 0. NO_DYS X
950822 11024 10924 0 0 0 0 0 0. X X
950823 11024 10925 0 0 0 0 0 0. X
950824 11030 10928 0 0 0 0 0 0. NO_SHT X
950825 0 0 0 0 0 0 0 0. NO_VTY X
950828 11225 11207 0 0 0 0 0 0.
950829 11225 11202 0 0 0 0 0 0. NO_DYS 5.53
950830 11212 11121 0 0 0 0 0 0. NO_DYS 8.08
950831 11226 11223 0 0 0 0 0 0. NO_DYS X
950901 11318 11304 0 0 0 0 0 0. NO_VTY X X
950905 11328 11304 0 0 0 0 0 0. NO_DYS X
950906 11328 11304 0 0 0 0 0 0. NO_DYS X 6.24
950907 11328 11304 0 0 0 0 0 0. NO_DYS X
950908 11328 11230 0 0 0 0 0 0. NO_VTY X X
950911 11328 11231 0 0 0 0 0 0. NO_SHT X 5.33
950912 11407 11301 0 0 0 0 0 0. NO_SHT X
950913 11407 11301 SHORT 950913 11403 3 CLOSE 11324 15 11 343. X X
950914 11427 11414 0 0 0 0 0 0. X
950915 11427 11322 0 0 0 0 0 0. NO_DYS X 5.23
950918 11427 11322 0 0 0 0 0 0. NO_DYS
950919 11427 11323 LONG 950919 11326 1 L LIM 11322 2 -4 -125. X
950920 11427 11323 LONG 950920 11329 4 MIDDL 11409 8 14 437. X X
950921 11317 11305 0 0 0 0 0 0. NO_VTY X X
950922 11317 11214 0 0 0 0 0 0. NO_VTY X
950925 11317 11214 0 0 0 0 0 0. NO_DYS X
950926 11319 11214 0 0 0 0 0 0. NO_DYS X
950927 11319 11201 0 0 0 0 0 0. NO_VTY X
950928 11316 11201 0 0 0 0 0 0.
950929 0 0 0 0 0 0 0 0. X
5 5 32 9.0 4 # WINS 20 TICKS 274 # LOSSES 18 TICKS -89
Legend:
Columns are date, bracket limits for the date listed, direction of the trade,
date of trade (today), price in, TPO period in, exit (middle, limit or close), price out,
period out, profit in ticks and profit in dollars, basic control, commercial capping and
trade facilitation factor. The basic controls are: NO_DYS ==> Bracket has less than 5 days;
NO_SHT ==> Bracket has less than 28 ticks; NO_VTY ==> Volatility greater than CV = 9.
There are many other variables and indicators that go into 'market understanding'. A few:
1) Structure of the Overlay Demand Curve. 2) Relative behavior of shorter vs longer Overlays. 3) Effect of the commercials (as illustrated above). 4) Internal trends in a bracket. 5) Volume activity. 6) Volatility. 7) Major and minor auctions. 8) Value area behavior. 9) Volume above and below the value area. 10) Quadrant of close. 11) Relative volume, quadrant to quadrant. 12) How well trade is being facilitated. 13) Modify the Basic Model initial conditions.
Are these thirteen elements all? Of course not. Just as a good algebraist can develop 'what if' problems in algebra; so can one who understands the market develop 'what if' queries in the market. As market understanding grows, all the elements become melded into the whole.
It is a step by step process to include element after element into one's analysis. At the end, the person who truly understands the market, understands and integrates all the elements. That person is described in one phrase "he trades without stops". Click here to go back to CISCO home page
For info: 800-800-7227 or 303-306-1521; Email: dljones@mcs.com
Address: 14571 E. Mississippi Ave., #202, Aurora, CO 80012 USA
The CISCO home page is at http://www.cisco-futures.com/