Comparing Overlapping Systems (Part 2)

Do your systems overlap?

In the last post, I compared three systems that traded the same instrument (SPY) in different ways, and also compared the combination of the three systems. Combining those systems reduced risk, which allowed us to increase our position size (either through more cash or using leverage). We could then realize a larger profit for the same amount of risk as we’d experience using just one of the systems.

There is still however a risk of our systems being overly correlated. We might end up throwing two buckets of money at the market, when we thought we were just throwing one bucket. How do we figure that out?

Continue reading Comparing Overlapping Systems (Part 2)

Comparing Overlapping Systems (Part 1)

I have this oscillator that comes in handy. The details of the oscillator are unimportant, but I’ve found three different ways to use it as a signal to enter into a short-term (“swing”) trade on SPY. The duration is anywhere between one and twelve days, depending on the system being used, the exit etc.

My problem was this: the systems all trade SPY. Two use mean reversion (one long, the other short), and the third uses long momentum. The systems overlap! How do I determine which systems to trade?

If you are using multiple trading triggers or systems on the same instrument, it’s really important to know how these systems will work together. Is it better to use just one system and discard the others, or should you use all of them and divide up your resources (if necessary) between the systems?

How do you go about comparing these systems in a meaningful way? Here’s what I did.

Continue reading Comparing Overlapping Systems (Part 1)

TRINdicators

When I start to write a blog post, usually my process is this:

  1. Come up with a really bad pun for the title.
  2. Write the rest of it.

Bad puns are an important part of finance, and life in general.

A blog reader contacted me recently to chat about various technical analysis indicators, and one he mentioned was “TRIN”, aka the Arms Index. If you’ve been reading my blog awhile, you know that technical analysis makes my skin crawl…at least the kind that debates whether the chart shows a double top or a head and shoulders pattern. Interpreting shapes in financial data is just another form of tasseography. Give me quantities that I can quantify!

That said, some classical “TA” indicators can be useful. For example, RSI is useful because it can be tested and be shown to work for some systems. Continue reading TRINdicators

The “SPY RSI No Lie” Swing Trade System

She's thinking about how financial blogs can be a bit boring when they have too many graphs.
She’s thinking about how financial blogs can be a bit boring when they have too many graphs.

 

Here’s a free system for you. I call it the “SPY RSI No Lie” system. It’s called that because I like stupid titles, and internal rhymes are an added plus.

I read a post on Jeff Swanson’s System Trader Success recently about using a short-period RSI value to trigger trades with the S&P 500. Jeff’s post was more from a theoretical standpoint, as it used the SPX index (rather than a tradable ETF or future) and also traded on the same day the RSI is calculated. The index issue is easily translated to SPY or an equivalent ETF. Calculating the RSI of the day before the day is actually finished is, well, technically impossible. But in practice, it’s doable in a sort of almost/kinda/fuzzy-round-the-edges sort of way. I thought I’d take a look at an easily tradable system.

Continue reading The “SPY RSI No Lie” Swing Trade System

Chasing the Momentum-Burst Unicorn

unicorn-stocks-fin

A reader of my blog, Matt B., commented recently on an old post I’d written about momentum bursts. Like me, Matt was intrigued by the short 3 to 5-day momentum bursts he saw described time and again on Pradeep Bonde’s stockbee site. Those bursts look so pretty, so elegant, and more to the point: so profitable.

Continue reading Chasing the Momentum-Burst Unicorn