Two Swing Trade Systems (Part 2)

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Yesterday I discussed two swing-trade systems that work pretty well in out-of-sample data. While each works differently, they overlap enough that you don’t get any benefit from running them both at the same time. One great thing about these two systems is that they’re dead simple to manage. Trade at the open or the close, simple math, etc etc.

I will repeat the caveat from yesterday: these trades average <1% gain per trade. You must have sufficient capital and/or a low/nonexistent commission fee to make these work. While you can use leveraged ETFs or account leverage to help increase the profit/commission ratio, you also increase your chance of a catastrophic hole in your money.

In the lead image, you can see that I have indicators for both RSI and PIRDPO. PIRDPO occurs more frequently, and the RSI trades are a complete subset of the PIRDPO trades (during this particular time frame). There is no benefit to trading both systems.

Continue reading Two Swing Trade Systems (Part 2)

Two Swing Trade Systems (Part 1)

In my recent posts I’ve made reference to various swing-trade systems I’ve developed, which I’ve used as data to discuss things like correlation, diversification and the value of leveraged ETFs. I’ve had a number of people say “hey, what are these systems you’re referencing?” The short answer is: they’re not something I’m discussing publicly. “But that’s not fair!” you cry. “Everything should be free!” Yeah OK, I see your point.

Continue reading Two Swing Trade Systems (Part 1)

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