3 replies to this topic

[Douglas]

According to my generous reckoning in 2016, 66% of the risk windows identified by the system were turns of one sort or another, 10% were acceleration events and 24% were duds.  The system, long or cash only, theoretically returned 23% versus about 16% for buy and hold. 

 

In 2017 I hope to eliminate the "theoretically" bit above by providing specific buy points in advance for a DJIA tracking fund in my Douglas Trading System posts here.  I will use the RYDHX mutual fund since it tracks the DJIA fairly well with the buys or sells acted on based on the DJIA at 3 pm to get that day's closing price.  I realize that for you quick firing day traders, this is all a bit slow and boring, but given I'm still working part time, I'm supposed to be retired and I'm basically lazy, it's all I have the energy and time to do. 

 

RYDHX closed Friday at 55.61 which will be use as the buy and hold starting point bench mark for the trading system.  On December 31, 2017 I'll compare the closing price of RYDHX - 55.61 + the small end of year fund distribution with the RYDHX points gained by the system.  Since closing price only will be used and this "H" fund doesn't charge to buy or sell, this should be a pretty good test of the system. 

 

Of course this is not investment advise and is being offered here purely for entertainment value (especially if it goes badly next year for my system and you need a good laugh).  I have no plans to trade RYDHX in my personal accounts. In my personal accounts I trade ETF's, proprietary mutual funds, and individual stocks complicated to an almost maddening degree by having to deal with the tax systems of two countries. 

 

Friday after the close the system gave a buy signal which is valid if the DJIA is above 19763 at 3 pm on Tuesday January 3rd.   

 

The 3rd and the 5th and 6th of January are risk windows next week.  

 

Happy New Year,

Douglas

[kssmibotm]

I have to admit that I have not paid much attention to your system.  Part of the issue is it's a black box.  Can you elaborate on how the risk windows are determined?

[Douglas]

Over the last 30 some odd years that I've been doing technical analysis, I've collected a list of reoccurring cycles and events that have repeatedly moved the stock market.  I plot these on a calendar and look for clusters expecting an elevated risk of a turn or acceleration of the current trend to occur when several of these dates line up.  This process is very subjective.   It doesn't always work as you can see from the 66% success rate this past year, but it does work often enough that I feel it's worth my time to watch these dates of higher risk of a sharp move in the stock market.   In my trading system, the risk window affects stops and enables trade signals to be taken which would be ignored if not occurring during a period of higher risk.

 

A lot of these higher risk dates everybody knows and watches including FED statement days, option expiration days, and moon phase change days.  For example, I identified this coming Tuesday as high risk since it is the first opportunity to do tax related selling to take advantage of potentially lower rates next year, and it is the first trading day of the month.  The first full trading day of the Trump administration which I believe is January 23rd is another high risk date given his Twitter unpredictability over the weekend after inauguration and the large number of risk cycles which are stacked up in the previous week. 

 

I probably make a mistake dwelling on the risk windows too much since they are a relatively minor part of my trading system.  If you've followed the risk windows at all you've probably noted that I miss about as many turns as I catch, and I've missed identifying some really big turns.  I use them to try to get a slight edge over buy and hold which my wife keeps nagging me to embrace.  

 

At the heart of my system are three elements: a trend detector, a risk of reversal detector and a set of buy/sell stops.  For example, the reversal detector gave a buy signal after the close last Friday which was confirmed by a weakening of the down trend detector.  Note that this signal clashes with my risk window for Tuesday which expects severe tax loss selling.  As a result the risk window will act like a stop and control the trade in that it will only take place if the tax loss selling surge ends and reverses back into the green before late in the trading day. 

 

I am doing my little experiment with the RYDHX fund this year to test how well the system will perform when limited to end of day only trades.  This should be a very tough test since this year I believe the key to success will be avoiding the flash crashes that I fear are in store for the stock market.

 

Happy New Year,

Douglas

[kssmibotm]

At the heart of my system are three elements: a trend detector, a risk of reversal detector and a set of buy/sell stops.  For example, the reversal detector gave a buy signal after the close last Friday which was confirmed by a weakening of the down trend detector.  Note that this signal clashes with my risk window for Tuesday which expects severe tax loss selling.  As a result the risk window will act like a stop and control the trade in that it will only take place if the tax loss selling surge ends and reverses back into the green before late in the trading day. 

That is a common problem with systems using multiple elements.  One element often clashes with another.  My suggestion is to take the reversal and trend signals to go long and hedge with short term puts when a risk window comes into play.  In the case of RYDHX, you could hedge with weekly DIA puts.