Feet-up Strategy

[jmreeve]

To add to to the collection of simple profitable systems on T2W, here is a simple strategy to time the FTSE 100.

I don't trade this system as a system but use it as part of my arsenal of long term market direction indicators. However, it can be used as a profitable system in its own right.
Hope you enjoy investigating it and would be interested in any suggested improvements.

THIS THREAD IS NOT INTENDED AND SHOULD NOT BE READ AS GIVING INVESTMENT ADVICE.


FTSE Feet-up Strategy
-------------------------------------------------------

Tired of looking at a quote screen all day?
Tired of trading getting in the way of holidays?

Here is a strategy that will allow you to put your feet up but still out-perform
the FTSE100 index over the long term. The strategy uses weekly OHLC bar charts of the FTSE100 cash index and is always invested long or short. It makes a trading decision once a month giving plenty of time for rest and relaxation in between.

The rules for putting your feet up are simple:

1) Calculate the average range:
Take the range(H-L) of each of the last 20 weekly bars, add them up, divide by 20.

2) Determine if the bar is first trading week (FTW) of each month.
The first trading week is the first week of a new month containing at least 4 trading days from the new month.

3) The entries
if the close of the FTW is greater than the open
and the range of the FTW is greater than the average range
then BUY the market at the close of the week.

if the close of the FTW is less than the open
and the range of the FTW is greater than the average range
then SELL SHORT the market at the close of the week.

The results below are for trading the index with £100 per point over the last decade from 1994 - 2004.
This simple strategy had a near 70% accuracy of predicting the major market turns and a total
profit over 4X greater than the total losses. By timing the market once a month, the strategy
returned £500K for a 170% return on investment.

Despite a secular bull market in this period, an equivalent buy and hold investment of £300K in 1994 would now be worth £450K; a meagre 50% return on investment.


TradeStation Strategy Performance Report - FeetUp UKX.L-Weekly

Performance Summary: All Trades

Total Net Profit $512,431.81 Open position P/L $0.00
Gross Profit $674,645.63 Gross Loss ($162,213.81)

Total # of trades 23 Percent profitable 69.57%
Number winning trades16 Number losing trades 7

Largest winning trade $116,206.60 Largest losing trade ($56,533.40)
Average winning trade $42,165.35 Average losing trade ($23,173.40)
Ratio avg win/avg loss 1.82 Avg trade (win & loss) $22,279.64

Max consec. Winners 5 Max consec. losers 1
Avg # bars in winners 23 Avg # bars in losers 15

Max intraday drawdown ($101,483.41)
Profit Factor 4.16 Max # contracts held 10
Account size required $101,483.41 Return on account 504.94%


So why does it pay to put your feet up?

New money often enters the market at the beginning of the month.
When this money moves the market (range > average range)
we go with the money and enter in the same direction.


If you are a private investor and find this strategy useful/profitable,
please add me to your Christmas list.

If you are a lurking fund manager and find this strategy useful/profitable, please
a) send me a Christmas bonus or
b) hire me for a vast salary and I will tell you about some more profitable strategies.

If you are a lurking economist and think the market is efficent and can't be timed,
THINK AGAIN.

 

[JonnyT]

Hi Jim,

The return over the period is too poor to be traded IMHO.

150% per annum then maybe.

JonnyT

 

[jmreeve]

It all depends on how much money you are starting with.

The strategy here can be traded in size i.e £50-100 Million and so is capable of producing much bigger profits than most short term systems that can't be traded with big positions.

It also requires very little work for results that significantly outperform buy and hold.

 

[TWI]

Have you tried applying these rules to shorter time frames in FTSE or indeed other markets?
May be a case of identifying significant dates such as around non-farm figure or aound FOMC/MPC announcements...

 

[jmreeve]

twalker-

Not quite sure how you would go about applying it in a shorter time frame as the phenomena is largely monthly and linked to cash inflows into funds which mark-to-market on a monthly timeframe.

The point of a strategy that lets you put your feet up is that it doesn't trade too often and as a result is scalable and can be traded with big positions.

I realise this system won't appeal to shallow pockets looking for a quick buck but for people that are well capitalised and don't want to be too distracted from sailing thier yachts around the med, it might be of interest.

I haven't tried it on other markets yet.
Maybe someone else will do this and post the results.

 

[tradertim]

What strategy do you suggest for exiting "feet-up" trades? On last day of month?

 

[jmreeve]

The strategy is always in the market.
Hence you exit a short by going long or exit a long by going short.

 

[Orion]

If your system is based on the logic that new money at the start of the month moves the market, doesn't that imply that this new money is earmarked as bullish money? That begs the question that how can such a method apply equally during a bear market. Otherwise, are you suggesting that new money during a bear market (i.e. the monthly pension fund cheques which drop through the Prudential letter box month in, month out) is used by the institutions to short the market as opposed to leaving it on deposit? That doesn't quite square with me. Surely, the mainstream institutions are essentially only long the market, and short the market only as a hedge rather than as an investment.

 

[jmreeve]

Money exits the market as well as going in.
Long fund selling has a negative effect on the market and this tends to make it work in a bear market.

However, what you are saying is essentially correct and the strategy works better on the long side which is where it made most of its profit. It is quite valid just to trade the long side of the system which has a better %win and superb profit factor.

I like being a bear and as the short trades made money I included them -see below.



Performance Summary: Long Trades

Total Net Profit $320,589.18 Open position P/L $0.00
Gross Profit $362,699.38 Gross Loss ($42,110.20)

Total # of trades 12 Percent profitable 75.00%
Number winning trades 9 Number losing trades 3

Largest winning trade $80,696.60 Largest losing trade ($21,523.40)
Average winning trade $40,299.93 Average losing trade ($14,036.73)
Ratio avg win/avg loss 2.87 Avg trade (win & loss) $26,715.76

Max consec. Winners 8 Max consec. losers 3
Avg # bars in winners 27 Avg # bars in losers 14

Max intraday drawdown ($65,470.00)
Profit Factor 8.61 Max # contracts held 10
Account size required $65,470.00 Return on account 489.67%

Performance Summary: Short Trades

Total Net Profit $191,842.62 Open position P/L $0.00
Gross Profit $311,946.22 Gross Loss ($120,103.60)

Total # of trades 11 Percent profitable 63.64%
Number winning trades 7 Number losing trades 4

Largest winning trade $116,206.60 Largest losing trade ($56,533.40)
Average winning trade $44,563.75 Average losing trade ($30,025.90)
Ratio avg win/avg loss 1.48 Avg trade (win & loss) $17,440.24

Max consec. Winners 4 Max consec. losers 2
Avg # bars in winners 18 Avg # bars in losers 15

Max intraday drawdown ($85,883.41)
Profit Factor 2.60 Max # contracts held 10
Account size required $85,883.41 Return on account 223.38%

 

[Daniel]

Hi Jim,

The return over the period is too poor to be traded IMHO.

150% per annum then maybe.

JonnyT

Hi Johnny

Do long term trading strategies with returns like this exist?

 

[ZigZag]

Hi JIm,
Interesting method. One point ocurred to me though. If you are identyifying money flow would not volume be a more accurate gauge to confirm your logic. Wide days measure volatility. Of course volume usually follows but not always. Im not advocating changing a winning system but adding an additional volume filter may act as a confirmation signal. Thanks for sharing your method. When I find time I will apply it to the DAX.

 

[tradertim]

The maximum drawdowns on your Performance Summary seem to be very high in percentage terms. Do I take it that you never use Stops with this system? Is that not courting disaster, given that unforseen events like 9/11 can occur?

 

[jmreeve]

Zig Zag-
The strategy was actually derived from analysis of market volume but the method presented turned out to be the simplest way to capture the behaviour.
I would endorse using other indicators, fundamental, economic and technical to strengthen the analysis.

tradertim-
Please feel free to modify the system to meet your own risk limits. If you fiind a modification that improves the overall trading performance then please share the changes and testing results on this board.

 

[TWI]

Jim,
Are you able to post an equity curve for this strategy? It just makes drawdown and flat periods a lot more clear seeing that.
T/.

 

[jmreeve]

twalker-

Equity curve attached