Friday, July 30, 2010

Emini Trading Signals and Alerts

Just a quick thought for those interested in trading...we do not sell our methodology, we sell our trading signals...Those who sell their methodology are probably selling is one of the most difficult things to do successfully...why do you think 95% fail?

now its time for the mountains and some rest after a very difficult seven months...


I will be on vacation and will resume blogging September 1.

Thursday, July 29, 2010


We calculate a proprietary volatility statistic. This indicator has been backtested to 1950 and captures the market's volatility and its relative volatility to other years very well. I use it to adjust my price stops on trades. Other traders may also want to adjust position sizes. Our March 23, 2010 post contains some historical charts. Generally, .95% is our threshold. See our volatility page above.

Friday, July 23, 2010

Why European Bank Stress Test Results are to be Ignored

One word defines the stress test results that are to be released today...silly. Here's why. The European Bank Stress test results will not include the possibility of European sovereign debt defaults. What?!! This is exactly what they are supposed to be measuring; the amount of risk that the banks are undertaking due to their holdings of sovereign debt.

These tests are supposed to give investors and the financial community some idea if the banks can survive defaults in any of their government bond holdings. The results of these tests are to be ignored. This is certainly a coordinated effort at trying to cover up big systemic problems. I believe that everyone in the back of their minds understands that if Greece or other countries were to default, there would be a cascading problem. The value of all the bonds would decline as investors repriced them during a crisis. The banks holding these bonds would face severe losses and the European governments would have to bail them out. It's as simple as that. Ignore these test results.

Tuesday, July 20, 2010

What if the Chinese have to bailout their banks ?

Over the weekend I was reading about how the Chinese banks are playing games with their loans and moving them off-balance sheet. How much of this is going on and why? Here is the possible problem with this. If the world economy stagnates or even declines again, what will happen if Chinese workers, borrowers, and real estate companies have problems servicing their debts?

Here is one possible scenario I hope never plays out. The world economy stagnates or declines more than expected, Chinese factories begin to experience a slowdown in production, Chinese workers begin to be laid off, leading to more non-performing loans. If this occurs, one wonders how many loans are at risk. Can you imagine if the Chinese government has to step in and bailout its banks like we did ours? This would mean that one of the biggest buyers of U.S. debt would probably reduce their purchases, or even worse, stop buying our debt.

This would lead to severe complications in the U.S. We have not structurally reformed our government and economy. We cannot stop gourging ourselves with debt. Our states are in a fiscal mess and I wonder who will bail us out next time. If the Chinese stop lending to us we will face even bigger problems than we already have.

Thursday, July 15, 2010

Emini Trading Performance - June 2010 YTD

Although our returns at various risk levels have outperformed the SP 500 Cash Index, we are underperforming in comparison to other indices we track. A review of our comparative performance can be seen here.

Wednesday, July 14, 2010

Paul Tudor Jones Interview

This interview with Mr. Jones was insightful from a variety of perpectives. My favorite part is his definition of what can be considered good performance. Mr. Jones feels that a money manager or trader should return two to three times more than their worst drawdown, on average. This concept is similar to the Calmar ratio, which compares returns to drawdowns.

On our website, in the money management section, we allow users to run historical returns and drawdowns for a given risk level. A comparison of our returns to drawdowns, from Mr. Jones' perspective, can help one understand our performance.

Tuesday, July 13, 2010

Paul Tudor Jones - F word Speech

This speech given by Mr. Jones has some great advice...

My favorite part is, "Some things happen to you that at the time will make you feel like the world is coming to an end, but in actuality, there is a very good reason for it. You just can't see it and don't know it. When one door closes another will open, but standing in that hallway can be hell. You just have to persevere."

Things do happen for a reason...

Wednesday, July 7, 2010

Systematic Trading vs. Discretionary Trading - Some Statistics

Traders always argue over which is better; systematic trading or discretionary trading? I believe this question will always be debated, but by looking at some statistics we can try to get a better understanding. I am a systematic trader, so I am biased, nonetheless, I began to research answers to this question and came up with some interesting statistics that I would like to share with you.

The systematic and discretionary data is from I calculated the S&P500 data and the compounded returns from 1999 to 2009.

Systematic traders 7.08%, Discretionary Traders 8.79%, and S&P 500 Cash -.93%.

The 1999 to 2009 statistics support the case that discretionary traders have outperformed system traders by statistical return measures. Interestingly, both groups have easily outperformed the market return over this particular time period.

According to Barclayhedge, if one looks at the time period from 1987 to 2009, systematic traders returned 9.33%, with a Sharpe ratio of .37, and drawdown of 22.07%. Discretionary traders returned 9.20%, with a Sharpe ratio of .61 and 10.67% drawdown. The SP500 returned 9.41% from 1987 to 2009. Interestingly, both groups underperformed relative to the market, but the numbers seem to support discretionary trading as a better alternative to systematic trading.

So which I is better? The answer is that the statistics seem to support discretionary trading. But in specific terms, the answer will depend on each individual firm or trader’s performance. Certain firms will have excellent discretionary traders, others will have excellent systematic trading systems. My suspicion is that those who do call themselves discretionary, still follow some kind of systematic approach, and leave the final decision of entering a trade as discretionary.

Tuesday, July 6, 2010

Please Note

Virus Alert!

There is this dangerous virus being passed electronically, orally, and by hand.
This virus is called Worm-Overload-Recreational-Killer (WORK).

If you receive WORK from any of your colleagues your boss or anyone else via any means DO NOT TOUCH IT.

This virus will wipe out your private life completely.

If you should come into contact with WORK put your jacket on and take two good friends to the nearest bar.

Purchase the antidote known as Work-Isolator-Neutralizer-Extractor (WINE) or Bothersome-Employer-Eliminator-Rebooter (BEER).

Take the antidote repeatedly until WORK has been completely eliminated from your system...

Saturday, July 3, 2010

Emini Trading This Week

One X trade this week for -7 points.

We are currently in a 7 month drawdown and 19 point decline. In comparison, some of our other historical drawdowns have lasted from 5 to 9 months, with the worst drawdown of 21 points, and others of 16 to 18.50 points. We are still within historical parameters, but nonetheless, these declines always are difficult to handle.