Saturday, August 27, 2011

Meta-Trader - Kicking the Can

Welcome back Meta-Traders.

All eyes were on US Fed Chairman Ben Bernanke this week waiting for Friday's speech from the economic symposium in Jackson Hole, Wyoming. Recall that last year at this time, Uncle Ben starting dropping hints about asset purchases that let to the Fed's 600 billion asset purchase plan known as QE2. With QE2 behind us, and most of the resulting stock market gains gone, what would the Fed Chairman have for us this time?

Nothing much was the answer. Ben's thinking went like this: with Obama in Martha's Vineyard, Congress out on their summer recess, and the big money out in the Hamptons, why should the Fed have to do anything? After all, interest rates are already less than zero on an inflation adjusted basis.

Bernanke acknowledged that the US Credit Rating downgrade probably hurt business and consumer confidence, but he did strike an overall optimistic tone. It was good to see the Fed chairman using the bully pulpit to jawbone the market higher without causing further erosion in the USD. In any case, he effectively kicked the can down the road to the September Fed Meeting which was expanded to 2 days to allow for extra discussion regarding what to do with the remaining tools at the Fed's disposal.

The currency market had a confused reaction, first with a sell off in EUR/USD followed by a rally. In the end, it was an inside week for EUR/USD with all the action taking place within the prior week's high and low. Looking farther back, EUR/USD hasn't had any meaningful price action since April, and that might explain the poor performance in Forex robot's lately. More on that below.

The stock market reacted positively on Friday to end what was a positive week overall, gaining in 4 out of 5 sessions. My stock sales from last week were all poorly timed, with all of them well up from the levels where I sold. On the positive side, (AMZN) had a sharp recovery and was enough to pull me most of the way out of a five-thousand dollar hole in my portfolio. My AMZN September 190 calls gained back about half of their value and i'll be looking to get out of those positions and scratch or better this coming week if I get the chance.

Gold had a wild week with a nasty 8% sell off on Tuesday and Wednesday followed by a key reversal on Thursday and a great buying opportunity for a day trade on Friday. I didn't make any stock or option trades this week since I was out on vacation and away from the screen most of the time. I'm watching to see if gold will re-test the old highs this coming week and may consider going short.

Forex Robots were another disaster this week and my leading account Atipaq Full Portfolio lost a stunning 13% dropping from +40.55% to +27.55%. It probably would have been worse, but my laptop rebooted itself on Tuesday and I didn't get back to restart it until late Thursday.

We had some positive action in FX-Regression and Atinalla No3. Atinalla No4 broke down to a new equity low in a disappointing development. I'm considering some tactics to take profits and filter out trading during non-trending periods in the future. I have some pretty simple rules in mind, but i'm not going to share any ideas without some 10-year backtests to prove the concept.

Overall, its been a pretty rough summer for Forex Robots after a solid first half of the year. It highlights the need for systems which take advantage of sideways and trendless markets.

That's all for now, have a great weekend.

Wednesday, August 24, 2011

Meta-Trader - COATL - EUR-Centered Portfolio

Welcome back, Meta-Traders.

With all the volatility lately in financial markets, it’s a good opportunity to get back to the basics of what this blog is about. In this post, let’s examine COATL-EUR Centered portfolio from Asirikuy. Recall that I already discussed some details of this portfolio back in part 3 of my review of the COATL system here.

This past weekend, Daniel re-released the COATL system along with a new set of parameters. For this post, I reproduced back-tests for the EUR-Centered Portfolio and compared them with those included with the portfolio. There are a total of 8 COATL-based portfolios on Asirikuy, and I decided to dig into this one because it’s one of the 3 that I am demo-testing over on the right-side pane of this blog.

Reproducing the back-tests for COATL portfolios is very easy as follows:
  • Install the latest COATL expert files using the Asirikuy system installer
  • Download the daily historical data. Asirikuy provides historical data for 25 different currency pairs dating back as far as 1978.
  • Import the historical data for the pair being tested as follows. Select Tools, History Center, double click on the Currency Pair to expand the sub-tree then click on Daily. Click on Import and select the .HST file for the currency pair being tested and click Ok.
  • Select View, Strategy Tester to bring up the Strategy tester
  • Select COATL for Expert Advisor, Select the Symbol, under Model, select Control Points, and under Time Frame, select Daily.
  • Finally (and this step is important) click Expert Properties, click Load and load up the parameter Preset file for the Currency Pair
Once all that is done, click Start and the back-test will be completed in less than one minute. Once completed, click on the Report tab and examine the results. Then save the results into a folder on your hard drive. Repeat this for each of the 7 pairs in the portfolio. Once you have all 7 back-tests, load them up in the Asirikuy performance analyzer – which was used to create the graphic above. I decided to test the portfolio for an 11-year period from 1/1/2000 through 12/31/2010 to arrive at these results:
  • 100K grew to 21 Million dollars, versus 14 Million under the earlier COATL system
  • Annual Gain was over 66%, slightly better than the earlier version
  • Maximum Drawdown was about 15%, much improved from the 21% drawdown from the prior version
  • On a monthly basis, the system was profitable in 111 of 132 months, an impressive 85% of the time.
  • The largest monthly loss was over 13% while the largest monthly gain was just over 22%, not much different from the prior version.
  • The system was profitable in all but one of the 11-years in the back-test period
These results show that the new version is a definite improvement over the prior version. Profitability is improved while drawdown is reduced.

Overall, my results were about 10-15% better than Daniel's. The only thing I can attribute that to would be different spreads on the currency pairs which vary over time even with the same broker. Spreads are fixed and wider on the weekend, and vary throughout the trading day with the narrowest spreads during the most active trading hours.

If I get some time later this week, I will work on some of the other COATL portfolios and post the results here. Let's watch the performance of the new COATL portfolios for the remainder of this year before deploying live capital in 2012.

Make it a great day.

Friday, August 19, 2011

Meta-Trader - Stick to your Knitting

Welcome back, Meta-Traders.

Things went from bad to worse this past week in world markets. Recall we went into last week expecting some relief from an upcoming meeting between European leaders Angela Merkel and Nicolas Sarkozy. What did we get from that meeting? A new "financial transaction tax" on the banks!

Anyway, things stayed relatively calm in equity markets for most of the week until Thursday's 500-point plunge in the Dow Jones Industrials. The sell-off hit growth stocks hard: AAPL minus 16 points, NFLX minus 16 points, AMZN minus 14 points and the list goes on.

First a word about government IT contractor CACI. Recall I got washed out 2 weeks back at about $55 per share. I saw some basing action at around $50. With earnings coming out after the close on Wednesday, I expected some room for an upside surprise. So I bought a few shares in each account looking for an earnings related pop.

Well we got excellent earnings as expected and the stock gapped up to $52 after hours. I even tweeted Joe Terranova from CNBC's Fast Money and got a reply that he sold already 'Bad Trade' was his reply. So what happened? The stock opened down along with the rest of the market! It rallied above $50 at the close of the week. But it goes to show you that even good companies with a great story and great earnings can get crushed in a bad market.

On the bright side, I finally got involved in the gold trade. I bought some Oct 160 calls in GLD for about $16.50 and sold then just 2 days later at about $21 for a quick $450 profit per contract. Unfortunately, that was a splash of green in a sea of red that we saw on Thursday.

Also on the plus side, my AMZN August $210 calls expired worthless and I took in a fat premium on that contract. Unfortunately, I paid dearly on the underlying stock and i'm now deep in the hole on that trade in addition to the September $180 calls which have now lost about 75% of their value. But I'm still long AMZN stock as well as the contracts, and perhaps we'll get a move back to even before September expiration.

Thursday hit me hard and I started raising cash. I washed out of NFLX, CMG, and a few others, selling the weaker performers. Horrible news from Hewlett Packard on Thursday after the close hit tech stocks hard on Friday.

Even venerable tech stock IBM broken down on Friday, breaching the $160 level to the downside. This was tough to watch since I paid about $165 for this stock, and rode it all the way up to $185 level. Even earlier in the week it rallied back to about $171. I should have grabbed the profit while I had it, since I ended up selling at about 159.75 and it closed the week at $157.50.

As Dennis Gartman says "When they Raid the House of Ill Repute, even the Piano Player goes to Jail". Translation: Bear markets take down both good and bad stocks as we have seen with AAPL, NFLX, AMZN, CACI, IBM and the list goes on.

I expect that we are in for more pain next week, and that we will take out the lows in the major indices. I've kept a balanced approach trying to offset losses with winners and trying to hold onto the long terms gains that I have already booked this year. We'll see what happens, and perhaps we'll get some relief from Uncle Ben Bernanke with his policy speech in Jackson Hole, Wyoming.

Automated Forex Trading was a disaster this week and was down in every account except for Megadroid Live which had a pair of profitable trades on Wednesday. Most disappointing was my leading account Atipaq Full Portfolio which lost about 10% for the week, but is still up nearly 40% for the year in that account. My Forex Portfolio profits continue to evaporate, but I'm still up substantially for the year, and that's more than I can say for my equity account!

At times like this there's not much you can do except live to trade another day. So re-focus on your core strengths and preserve your capital. And have a fine weekend.

Saturday, August 13, 2011

Meta-Trader - Throwing the Gun

Welcome back Meta-Traders.

World markets took a wild ride this week. It was too much to summarize in just a few words, so let's take it day by day.

Monday was a bloodbath and the numbers were staggering, minus 550 points in the Dow, -79 handles in the S&P, and -175 points in the Nasdaq. As measured by the S&P, we lost about 5.5% for the day. I went the entire day without logging into E*Trade or starting eSignal market data.

From past experience, I've noticed that we rarely ever bottom on a Monday and we usually need at least half of Tuesday to work through situations like this. Besides, we had the Fed announcement on Tuesday, and that was sure to be newsworthy given recent market conditions.

Tuesday started out on firmer footing and we moved cautiously higher in the morning taking back about half of Monday's losses. The Fed news was a shocker - no interest rates increases until mid 2013! This was unprecedented - the Fed giving an actual date around monetary policy? There were 3 dissenting governors, who would have preferred the "exceptionally low rates for an extended period" text.

The interpretation was that the Fed, being out of monetary bullets, decided to Throw the Gun.

Stocks reacted with fear and confusion. Was the economy in such bad shape that the Fed had to take such extraordinary measures? What does this mean for interest rates? Wait, this means low Interest Rates and for a Long Period of Time. Which drives money into stocks, so why are stocks selling off? I knew this was my chance and the market was being plain stupid.

So I picked up some AAPL, adding a few shares. Just before the close I bought 1 the DIA Oct 100 calls in each account for about 12.70 or about $2170 per contract. Recall i'm nearly fully invested, with about 90% stocks and 10% cash, so i'm nearly out of bullet's myself! Tuesday closed strong into the finish and I felt the worst was over.

Wednesday started out flat to weak and continued to weaken as the day went on. Things continued to deteriorate and we closed even lower than Monday, wiping out Tuesday gains and then some. But we held the intra-day low set on Monday. Wednesday was a day to forget.

Thursday opened on a decidedly firmer tone with red hot Gold Market cooling somewhat with a 20% increase in Margin Requirements. Stocks were higher across the board erasing a good part of Monday and Wednesday's losses and closing above the their daily highs.

Friday brought an opening gap and pretty positive action although the week closed with a "Spinning top" candle formation which is sometimes a reversal signal. I used Friday's postive action to sell my DIA Oct 100 Calls for $14.0. I also sold my only Gold stock AUY - Yamana Gold which was showing a nice profit. Friday completed a "Close above the High of the Low Bar" formation which was positive. Thanks to Hubert Senters for that one.

So that closed out the week in Equities. I took some profits and took no losses. My overall portfolio swung from being profitable, to being underwater, then back to profitable all in 5 days time. I'm glad I didn't sell and hope I won't have to in the coming days.

Under what conditions would I sell? If my overall portfolio starts to show a -15% to -20% loss, I will flatten out. My philospohy is that you can recover from a 10-20% loss, but its very difficult to recover from a 50% or greater loss. I'll be monitoring the situation going forward and will only take action on a daily or weekly closing basis. This market is too crazy to make any decisions based on Intraday market swings.

Besides, I'm thinking this sell-off was a little overdone. US Corporations are sitting on record amounts of cash. There was a time this past week when Goldman Sachs (GS) was selling at less that book value. Sure the economy is slowing, and this isn't the 1950's and clearly not the 1990's either.

But stocks are still the place to be, particularly with interest rates so freaking low. The rate on the 10% year Treasury bond is almost the same as the dividend yield on the S&P 500 (2%). Where are you going to put your money?

Forex did us no favors this past week. My Forex portfolio continues to draw down, showing about a 16% profit for the year versus a high of 22% earlier in the year. The breakout-based systems from Asirikuy continue to get chopped up, getting caught in one false breakout after the next in the EUR/USD. Atipaq Full Portfolio and Atinalla No3 had small gains for the week, and everything else was flat to down.

My own FX-Regression continues to get chopped up and lost about 5% for the week. Suffice it to say that system has some room for improvement! I may be able to get to it this week since I have some vacation time coming up.

The COATL Demo portfolios are showing some pretty good gains. However they have some pretty large open losses too, about equal to the size of the profits. Its going to take some time to get used to these portfolios and how they trade.

That's all for now. Keep your powder dry and have a good weekend.

Saturday, August 6, 2011

Meta-Trader - Equities Crushed

Welcome back Meta-Traders.

It was another week to forget with equities getting crushed on the worst week since 2008. The US Congress pulled out a debt deal on Tuesday in time to meet Treasury's August 2 deadline. With disaster averted, the market was due for a big rally, right?

Wrong, instead the market sold off and sold off hard. By the time the dust had settled, my portfolio was down about 4% for the year and had lost the better part of one year's worth of gains, kicking its value back to what it was back in September of 2010.

The selling was indiscriminate. One example is CAC International (CACI) a government IT contractor. This stock made a new all-time high back on July 6, and I was loaded long in 3 separate legs, added as the stock moved higher. And I was sitting on a nice profit and expecting higher highs. Instead, the stock sliced lower and I ended up selling the entire position at a loss as it broke $55 and it closed the week at $51.59.

Some of the action here is due to the new psychology of the debt deal. A few short weeks ago, government spending was almost a certainly. Now with automatic cuts taking affect if congress won't act, government spending itself is now in question. Other industries such as Health Care contractors (example HMSY) and defense contractors (example LLL) which get much of their revenue from government spending got crushed and gave back the better part of a year's gains in a few short days.

Usually in times like this, the Fed comes to our rescue with an emergency rate cut, or some re-assuring words that they will provide all the liquidity needed to keep the market participants from failing. With no bullets left in that gun, the European Central Bank came to our rescue at about mid-day EST on Friday when they announced that they would start buying Italian government bonds in exchange for austerity measures. That was enough to stop the selling on Friday and reverse a 3% intra-day loss on Friday to end the day nearly flat.

As if all that weren't enough, S&P came in and downgraded the US from AAA to AA+ late Friday evening. Perhaps this is what all the selling was about in the first place. Fortunately, we have the weekend to digest that news. The US Treasury has basically already shrugged off the news saying it wouldn't affect their operations in any material way. It does affect confidence however, and we took a big hit in confidence this past week.

As for my own trading, I sold CACI. but stayed long everything else. In fact I added to AAPL, NFLX and bought some deep in the money calls in AMZN. I think we are a deeply oversold here and due for a bounce. We'll see what next week brings.

As for Automated Forex Trading, it was a surprisingly quiet week. Taking a look at my Meta-Trader platforms, I saw an unusual number of execution related issues. Some could be explained due to prohibited hedging, and other perhaps due to fast market conditions. There's also the potential for some platform related issues.

Since I added the 3 COATL demo accounts, my laptop computer appear to be close to capacity with the CPU "pegged" or running close to 100% most of the time. I will keep a close eye on this in the coming week and make adjustments as needed.

Speaking of COATL, my 3 new demo accounts started with a thud, with 2 of the 3 losing about 5% and the other gaining about 5%. It will be interesting to see how things unfold going forward.

Have a great week and keep your money safe and your powder dry.