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Saturday, February 02, 2013

NFP REPORT AND OUR SCOREBOARD

7.9%

Would it really have mattered what this number was for stocks Friday?

The answer to that in my opinion is a resounding no. I have been saying this and will continue to do so, fundamentals are not driving the stock market in any way shape or form. It is okay folks. It is better this way. We all spend time trying to figure out what is going to happen next. The FED has given us back some of our lives in that now we don't have to bother studying the stock indexes. All we have to do is follow what the FED is doing and call it a day. The biggest risk to stocks is most likely when the economy improves. It might seem counter intuitive but that is my view. Once we reach that point, the FED will back off a little on the manipulation and we will probably see a decline. Corporate profits are in most cases better due to the low interest rates and the financial aspects of things. They are not generally due to big top end revenue growth. Companies have been forced to get leaner and have done so. At some point all the juice will have been squeezed out of the orange.

I saw a clip on CBS the other night where the commentator was saying it was not a problem that 4th quarter GDP dipped because the economy is growing and it was likely it might be revised higher next quarter? Holy mackerel I never thought the media would ever get this bad. By definition the economy is not growing if GDP declined, it is the measurement of the growth or lack thereof in the economy.

GOOD GRIEF

My short term oscillators steered me wrong yesterday they were saying the bias was down in the ES and up in Bonds. We never got a break of any lows in the ES so I did not make any trades there. As for Bonds the system has us in a trade that got kicked back and forth yesterday 3 times and I do not use oscillators in that system. As a result the tool was wrong but did not cost me any money which is good. My mechanical system for the ES is generating sell signals for Monday so we will see if any of the orders get filled. I think it is a layup that the all time highs get exceeded here before anything meaningful on the down side takes place. Those who get the Newsletter know we do have something potentially brewing here but I can't go through that too much in here. For now price is on multi-year highs and there is no reason to fight this. Please don't get your view too framed by negative web sites that tell you every day why bad things have to or are going to happen. Once again they have missed the boat on a huge rally and they ALWAYS DO. ALWAYS.

We will know when the break happens once it does be it a week or 5 years from now. It will be as clear as day just like it was last time. I hope I am short when it happens. Just look at a stock chart for the last 100 years, does it really make sense to always be bearish? I think not! But the deficit, but the spending but, but, but..... PLEASE.

SCOREBOARD

Our trading signals last month were profitable in both services, here are the results:

Swing Trading Signals                                          +$1,650
Bond Trading Signals                                           +$2,750

There are open trades in each, this represents the closed out trades and is how I always have and will present the results. Open trades once they close go in as part of the month they close in.

Review

We put a couple a crappy trades in during the last few days of the month in the Swing signals which brought us back down the the number above. Such is trading. Although far from great, it was a profitable month and that is always the goal. The Bond system started off the year with two gang busters trades, took one loss then finished with two winners, to get us back to where we want to be with it. People have been coming and going in the Bond system and that is a mistake. We now have had 6 months of public trading with it, 5 of them were profitable and one was a losing month. There are some who exited right at the end of the only losing month and just missed a good month. There are those that exited mid month and I can only guess but I am sure they likely took the only closed out losing trade last month and missed the wins.

This is why I tell people trading systems is not for everyone.You have to follow all the rules, if you don't you will not do well with them. If you are someone who is not disciplined systems are not for you. They are not the answer for you acting incorrectly. The answer for you is that you should not be a trader. Let me explain this further.

Many people who try to become traders are drawn to the freedom it can bring and the fact that you are not reliant upon a boss or anyone else in your daily activities. All of this is true. However, if you are someone who is prone to over reacting emotionally to things, trying to overcome your short comings by using a trading system is a mistake. You will handle it like you do everything else. You will make irrational emotional decisions with it just like you do everything else. The style of trading for you is either not to trade, or to trade with a Caddyshack style. 

Caddyshack is what I call random, wild, emotional trading, just like the scene in the movie where the caddies take over the pool. If your tendency is to be like that find a profession where that is a fit for what you are doing, trading is not that profession.

We are not trading advisors so good ole uncle sam tells me I can't give trading advice, so I will tell you what I do. I follow the signals in the system without question, PERIOD. I lose money during losing months, I make money during winning months like this last one. The is the whole point. I don't try to beat or out smart the system. I take the trades as they come up one after another. I don't study them to see which aspect of the system is generating the trade even though I created it. I don't care. There are some that could argue that they can't follow something they don't understand. Why not?

Look at the overall results these signals have generated since last August, who cares what is behind them? Would understanding everything that is in this help someone get a different result? NO. I know all of that and it does not help me one red cent. The only aspect of it that helps me is if a part of it goes awry for some reason and requires a repair. This happens once a year, in December as prep for the next year. I am probably going to change the subscription to quarterly in the future, perhaps this will help people help themselves? 

If you are considering a system from me or anyone else for that matter, here is how I proceed with such things. First, watch the results and paper trade them for a month to make sure you are comfortable with how they work. If you are not cancel. If you decide to actually trade the signals, establish a plan and stick to it. If that plan is you will quit on the first losing trade save yourself the aggravation and don't subscribe. If you plan on giving it 6 months then give it 6 months, 1 month whatever that time frame might be. If you have a dollar amount of draw down you want to limit this to stick by and it quit if it is reached.

Here is what not to do. Do not go against the rules in the signals. If the system says to get out get out. If it says to stay in stay in. I got an email from someone who I thought was going to be a long time user of the system who is a pretty good sized trader and was becoming one of my favorite clients through email exchanges. He had taken on a position and added to it as the market went against him and was asking what I thought he should do since he was upside down on the trade. He had referenced a bad trade we had on. My initial thought was that he had taken one of the signals and added to it when it went against us. However, the system at the time showed a flat position with the last trade having been a closed out winning trade. I could not figure out what was being referred to and since I can't give trading advice directly thanks to regulations, I told him so. He cancelled and is likely upset with me.

This trading system has a bias for very short term time frames, no larger bias is implied. It is designed to get us in and out quickly and this is how I use it. If I am looking for a larger move in a particular direction and there is a system trade in that direction all that tells me is that the day of entry and perhaps the next one, have a good probability of going in the direction of the larger move. Beyond that the system provides no bias because if it is correct, the trade will be exited after that first day that is profitable. People are free to use the signals any way they want and there are probably experienced traders who can use them better than I do. However, I am just explaining what they are designed for. There is certainly no way of implying any bias in the system one way when the system itself is flat. I am the creator and I don't know if a buy or sell signal is coming in a few days any more than anyone else using it. I am sad to see him go because I was looking forward to getting to know him better, but hopefully this is a lesson learned for others. I have learned all these lessons myself the hard way and I am just trying to help. Readers know I followed trading signals from someone last year for awhile and I discussed it in here at the time. They were supposedly based on a tool I was studying so I thought I might be able to learn something. They reached a point of 18 losses in 20 trades. The equity draw down was immense and hit my pre-established uncle exit point so I quit and never looked back.

With our signals they are net very profitable yet have each had one losing month. I think we are hitting our goals pretty well.

I hope this all comes across as an attempt to be helpful.


GOOD TRADING




5 comments:

PD Quig said...

Hi Chris,

Congrats on another good month. I think I am one of the people you referred to that cannot follow a system they don't understand. I meant that was true only for myself--not as a general principle. I know people who are just fine taking signals from other people's mechanical system without any temptation to second guess. In some ways I envy them, but I have to be honest with myself that it just doesn't work for me personally. I've tried twice now--it just ain't for me.

Recently I finished coding and testing my own mechanical system that I trade exclusively now. I had observed a phenomenon in the markets for years, but had struggled to find the means to exploit it. After many months of work and difficulties, I finally succeeded in writing the code to automate the setup, entries, stops, and exits. It is not the Holy Grail but, as you know, doesn't have to be. Because I know why and how it works I have no problem taking its signals.

I signed up for the bond system when I was still flailing and failing to bring my own system on line. The bond system didn't work for me for the reason noted above. Ironically, I even made a small amount money on your system during its losing month by applying my own rules to the entries and exits--including completely skipping the largest upside down trade of that month. This, of course, is ridiculous as you've explained at length--and that is why I quit. I was not using your system, but rather a hybrid. I just recognized the mismatch between my personal trading style and following a black box system. Again, I only meant to be speaking for myself.

Best always,

PDQ

Chris Johnston said...

congrats on your system. It actually is not ridiculous if you were able to dodge the worst trade. I personally can't see to be able to do that consistently when I try coaching the signals so I gave up on that long ago.

Anonymous said...

hi Chris,

It seems the Bond System has outperformed the Swing service consistently for a few months now although previously we all expected the Swing service to do better. Are we missing out something with the Swing service?

I noticed that for last month, Jan 2013, the swing service did ok, but nowhere to near the dream goal of 100%/year. Also, i noticed your Swing Service partner has recorded a 20%+ gain during the same month in the world cup of trading. Thus, somehow i feel the service has not run at its full potential. Do you have any comment?

TraderJ

(I am a Swing service subscriber. You may choose not to publish my question in public. my email: traderj12@gmail.com)

Vikas said...

Responding to the above comment - we made money in the swing system in December while the bond system had a net losing month. I think this is expected of any trend trading system, results would vary month to month. And I also think we're on track for a close to 100% return on capital in the swing system, 11 months to go!

Chris Johnston said...

This is incorrect. Over the last two months the net profit the Swing Trades have generated is $4647 where the bonds over the same period have made a net of $750, so that is a huge edge to the Swing Trades.

It was never stated by me anywhere that my goal for the year in the Swing trades was 100%. I stated the goal for my trading accounts is 100%. I use all sorts of different techniques in my trading accounts including experimenting with new ideas all the time.

Michael is using much more aggressive techniques trying to create a ridiculous return in a trading contest. This is a lot different than conducting a trading service for clients. Whether or not we will ever make those public or not or if they will continue to work is unknown at this point. Those results do not correlate in any way to what we are doing with our services. They are experimental techniques we are trying with real money to see what happens.

I feel very good that for a few hundred dollars these trades just trading one contract have generated almost $5000 the last two months. I would say that is a pretty good return on a few hundred dollars.

We are doing our best to make these trades profitable and that is all we can do. Please read the disclaimer because this is addressed in there fully.