FTSE system

[smccreedy]

Would you like me to set up an account, provide the capital and trade it for you too?

I think most of it is self explanatory, looking at the formulae used might clear up any questions.

Stephen McCreedy

 

[JTrader]

Would you like me to set up an account, provide the capital and trade it for you too?

 

[new_trader]

Would you like me to set up an account, provide the capital and trade it for you too?

I think most of it is self explanatory, looking at the formulae used might clear up any questions.

Stephen McCreedy

No, I’d rather use your money as toilet paper because it would be put to better use than trading this strategy. I have tested many breakout strategies and your isn’t any different. If you honestly think that 1 month worth of good results is enough then be prepared for a nasty surprise.

 

[smccreedy]

If you don't like my system please don't feel obliged to trade it.

If you have ideas why you don't feel it will succeed please share it with everyone following this thread.

I put it up here to be pulled apart and appreciate any help to do that.

Stephen McCreedy

 

[new_trader]

If you don't like my system please don't feel obliged to trade it.

If you have ideas why you don't feel it will succeed please share it with everyone following this thread.

I put it up here to be pulled apart and appreciate any help to do that.

Stephen McCreedy

I tried to help you and you gave me a sarcastic reply. Now, would you like my input or not? If so, then please explain clearly HOW you back tested this strategy for overnight trades?

 

[new_trader]

Hi, i've been following this thread with interest and have a few thoughts/questions:



4) Basic question - given that we would be trading the daily cash FTSE100, and the SBs base their price on the futures, at what stage do the two prices actually coincide? I assume they must be equal at the close? JTtrader, you say they coincide 10 mins after the open? If so, could we not take that value as our 'previous days close price' and work out the entry criteria from that point. i.e. place the trade at approx. 8.10 every day?

The Futures Index and Cash index only come close to coinciding when the Futures contract is near expiry. The Cash index that SB companies quote follow the Futures index precisely as far as price action is concerned. Futures Contracts are a way of hedging investments in the Cash index, that is why they carry a premium.

So, I will repeat, as far as price action is concerned, The Futures Index and Cash Index move in absolute harmony. ie/ The difference in points of the daily range (High - Low) is identicle. In other words, a breakout stategy based on the Cash Index and Futures index will yield exactly the same results if the Spread is the same, such as IG index who offer a Daily Cash S&P500, and Daily Futures S&P500 at 0.7 points spread.

 

[smccreedy]

The cash and the future are always moving towards convergence at a slow rate.

The diff between cash and future is actually a figure based on the dividends taken from the market during that time less the cost of financing the cash untill the Future expiry. They do follow each in direction on a daily basis but the gap will close nearing expiry.

If you have no finance cost the Future spread bet can be free premium ie I am short the DJIA March Fut from a level when it was 40 points above cash, it's now around 30 and will continue to converge untill exp when they will be equal. This in itself allows me to short the future and buy daily contracts when i feel the market will bounce. The fact that the future has to fall 40 points more than the cash over six weeks, be that it rises 40 points less or falls 40 points more, there is a small edge to play with, also pycologically I find it mentally easier to be short or long one instrument and hedge with another than going short to long by reversing a whole position.

Back to the system.

I haven't tested what you term overnight trades as there aren't any. It will open or close a trade between 8.00am and 4.30pm.

The stops so far away from the market I don't even know if I'd have orders in over night at the right levels, maybe just an emergency stop way below the level I want to trade at.

Generally bad overnight news excaberates an existing move rather than reverses it and as such I feel most large out of hours moves will work to my advantage.

It is simple, if the market reaches a certain level today I'll exit my long (6330) if it doesn't I'm still long untill my order is triggered.

As time goes buy the level of my stop will change along with the strategy and if between the hours of 8.00 and 4.30pm that level is reached my trade will be made.

I see no need for any more than crude OHLC date.

Stephen McCreedy

 

[JTrader]

The Futures Index and Cash index only come close to coinciding when the Futures contract is near expiry. The Cash index that SB companies quote follow the Futures index precisely as far as price action is concerned. Futures Contracts are a way of hedging investments in the Cash index, that is why they carry a premium.

So, I will repeat, as far as price action is concerned, The Futures Index and Cash Index move in absolute harmony. ie/ The difference in points of the daily range (High - Low) is identicle. In other words, a breakout stategy based on the Cash Index and Futures index will yield exactly the same results if the Spread is the same, such as IG index who offer a Daily Cash S&P500, and Daily Futures S&P500 at 0.7 points spread.

Hi

Hi this is not so.

WS are quoting 6347-48 on the rolling FTSE future down 36p, and 6362-64 on the FTSE daily cash down 20p, right now.

 

[Hoggums]

If you don't like my system please don't feel obliged to trade it.

If you have ideas why you don't feel it will succeed please share it with everyone following this thread.

I put it up here to be pulled apart and appreciate any help to do that.

Stephen McCreedy

The problem I have with this strategy is that it clearly doesn't work with DJI & S&P. If this was a truely successful strategy not subject to curve-fitting then it would work with ALL indices. I see no-one trying to explain why it doesn't work with DJI/S&P - because it is not unreasonable to suppose that the FTSE & DAX may start behaving like them. Past performance is not a guarantee of future performance.....

Perhaps if you can identify the shortcomings of the strategy with respect to these 2 indices and adapt it accordingly then you are truely on your way to having a profitable system.

 

[JTrader]

The problem I have with this strategy is that it clearly doesn't work with DJI & S&P. If this was a truely successful strategy not subject to curve-fitting then it would work with ALL indices. I see no-one trying to explain why it doesn't work with DJI/S&P - because it is not unreasonable to suppose that the FTSE & DAX may start behaving like them. Past performance is not a guarantee of future performance.....

Perhaps if you can identify the shortcomings of the strategy with respect to these 2 indices and adapt it accordingly then you are truely on your way to having a profitable system.

Its hard to curve fit any strategy over 9 years of data, and still be profitable during each and every year, without coming to the conclusion that the basis of the strategy is fairly solid.

Explaining why it doesn't work with DJIA and SP500 would be useful.
I can see why it may not work on DJIA, as the intraday range is bigger than with the FTSE and the value of the index is higher, meaning the stop-loss will be further away.
However, with SP500, the value of the index is lower than FTSE/DAX, and the intraday price movements are smaller (i think). Therefore I did expect it to work well on SP500, until i tested the various %'s on RTN's spreadsheet data .

 

[smccreedy]

Hoggums,

Are you refering to the +.25% strategy?

It's a while back but I though it did ok on Dax and S&P?

The 3 day high low close does better on S&P and Dax than FTSE but I can't test Dow as Yahoo OHLC can't be used on this average.

I believe the reason the Dow doesn't often work in line with others is more to do with the way it is calculated.

The DJIA is weighted by share price rather than market cap, ie a share that moves from $100 to $105 has a greater effect to the index than a share that moves from $50 to $60.

This leads to it behaving differently to the FTSE, S&P, DAX and NASDAQ in subtle ways, certainly it's great average true range and generally volatility.

This has always been my theory on it and why Dow strategy doesn't often cross to other instruments, you might find this works well on gold, oil, fx etc (albeit with different parameters) but never on the DJIA.

Not conclusive but my idea why the Dow always generates systems that work well on it but nothing else and doesn't fit in to decent stratagies that work on other instruments.

Stephen McCreedy

 

[new_trader]

Hi

Hi this is not so.

WS are quoting 6347-48 on the rolling FTSE future down 36p, and 6362-64 on the FTSE daily cash down 20p, right now.

If the rolling FTSE Futures has different opening and closing times there will be a difference between the daily rise and declines.

I negelected to mentionthat you need to select the same time frame.
ie/ between 8am-4.30pm the difference between the High and Low of the futures and daily will be the same.

 

[new_trader]

The problem I have with this strategy is that it clearly doesn't work with DJI & S&P. If this was a truely successful strategy not subject to curve-fitting then it would work with ALL indices. .

Exactly. A simple mechanical system, as this purports to be, should work equally well across all instruments. People are investing and trading their money in the same way, ie/ to make a profit.

 

[JTrader]

If the rolling FTSE Futures has different opening and closing times there will be a difference bewteen the daily rise and declines.

I negelected to mentionthat you need to select the same time frame.
ie/ between 8am-4.30pm the difference bewteen the High and Low of the futures and daily will be the same.

Right now the cash ftse is at 6362 and WS are quoting 6360-62 on the daily cash FTSE.

The impression i get is that for the majority of the time, the (WS) daily cash quotes will be more or less on the level of the actual FTSE cash index, during the course of the day.
Only when there is a significant intraday difference between the futures market and the cash market, on any given day, should the daily cash bet move further away from the actual cash index price, by more than a few points, and towards the futures price.

 

[smccreedy]

I'm afraid that view is a little simplistic as many markets have individual traits that will make them behave differently. Your assertion that everyone is investing in a direction to make profit is simply not true in all cases. Take for one the case of central banks defending key areas in FX for political reasons rather than trading reasons.

Think over some of these too:

The DJIA has only 30 stocks compared to the S&P500 and FTSE100 that of course makes it more volatile to the moves on one or two companies.


The DJIA isn't opened or closed by auction like the FTSE but using SOQ that places a value of the open after it's opened buy looking at prices after the first five mins of trade. The same on the close, it isn't an equilibrium like the FTSE of buyers and sellers it's a formula for what prices stocks traded at. This sounds fussy but does make a difference to how you read the data compared to say FTSE open and close figures.


FX trades nearly 24/7 as such strategy would have to take into account these extended hours.


FX also is needed in the real world, unlike say Vodafone stock so certain transactions have to take place regardless of price. Some participants aren't there to predict price direction but to hedge real world needs, these leads to what you might call non-rational traders which you don't have in stocks as generally people buying stock expect it to go up, sellers expect it to go down.


Commodities too are bought or sold to respond to real world needs rather than pure speculation / investment which makes them behave differently.


The notion of limit up and limit down in commodities would make a good stock strategy useless for them.


Some stocks are played by day traders which might make and end of day reversal as winners book profits to go home flat more likely or smaller stocks that are open to manipulation from the floor 'trying to hit stops' that is less seen in larger harder to move stocks.


This example cracks me up! Some US traders even now still see going short as unpatriotic and definitely impacts action there during wars and disasters more than it would in the UK.


Small emerging markets are moved by there lame currency than we are by move in the £.


Oil producing markets move more in line with the oil price and are probably best traded off that than there own merit.


Margin and open interest reporting and limitations in some markets impact some markets more and options expiry are much bigger deals in some markets ie gold than they are to say the FTSE.

When stocks on DJIA go ex dividend the index is repriced to take this in to account so after the dividend is paid the index and stock remain the same price. In the FTSE ex divs can knock up to 20 points a week of the index during Bank dividend season. This partly accounts for the apparent out performance of the DJIA over the years in % terms.

All these small differences give different volatility profiles in different ways in different times and give the need for different tactics at times.

It isn't fair to say that because one size doesn't fit all it isn't workable.

Stephen McCreedy

 

[new_trader]

"Don't let the fact it is simple but effective put you off. I think often a lot of people only believe the most complicated systems can work."

True, but simple systems should work across a wide range of instruments.

"My theory is that like any system it is the ability to blindly follow it that will let it down and the trader behind it not the system."

Easy to say, hard to do.

"This year alone it's run up to +155 points and back to+55 points, quite hard to take but over the long term no reason to think you won't see a return."

No, but it might be a VERY long time. How many people will continue to trade a system that is still in a drawdown after 300+ trades? Don't think it can happen? Think again.

"I'm also interested in how many people think easy systems that can work eventually will be ruined by the operator."

Me, for one. I thoroughly tested a breakout strategy for the S&P500, and I mean thoroughly, 100's of hours. Sure, over the long term it made money if you stuck with it. It looked wonderful between 2002-2006. So I decided to back test it from 1982 and to my horror I discovered that it was in a draw down period that lasted more than 500+ trades. That would mean trading the system everyday for over 2.5 years just to get back to my original equity.

"The worst draw down in this period was around 5% of the account."

How LONG did it last?

I use the 'Daily FTSE' product offered by Cantor Index that is settled against the cash market not the futures.

No real difference in the performance when day trading.

Was up 141 in first week and this is what the problem is, to keep on pulling the trigger because you know the system works when you have rough weeks.

Rough weeks...try rough months, possibly years.

"You have to watch the days like yesterday to make sure you get the +100 points three times a year to pay for all the small losers."

Lets suppose you are trading this system and you've had a string of losses and NEED that 100 point move. Now there is an enormous amount of pressure to ensure you don't miss it because as you say, they may only happen 3 times/year. Do you go on a holiday? What about visiting your sick mother in hospital? What do you do? Remember, you have been in a drawdown for weeks now and that 100 point move that you keep waiting for hasn't come yet.

Ignore what you read about the advantages of trading a mechanical system. It all changes when those losses start kicking in.

 

[Hoggums]

Hoggums,

Are you refering to the +.25% strategy?

It's a while back but I though it did ok on Dax and S&P?

The 3 day high low close does better on S&P and Dax than FTSE but I can't test Dow as Yahoo OHLC can't be used on this average.

I believe the reason the Dow doesn't often work in line with others is more to do with the way it is calculated.

The DJIA is weighted by share price rather than market cap, ie a share that moves from $100 to $105 has a greater effect to the index than a share that moves from $50 to $60.

This leads to it behaving differently to the FTSE, S&P, DAX and NASDAQ in subtle ways, certainly it's great average true range and generally volatility.

This has always been my theory on it and why Dow strategy doesn't often cross to other instruments, you might find this works well on gold, oil, fx etc (albeit with different parameters) but never on the DJIA.

Not conclusive but my idea why the Dow always generates systems that work well on it but nothing else and doesn't fit in to decent stratagies that work on other instruments.

Stephen McCreedy

I've been through a lot of this myself - this is actually relevant to me because I'm developing an auto-FX system which trades the 10 min bars in a similar fashion. I've got the system to a point where it can remain at least breakeven on unseen historical data however I'm trying to sort out the drawdowns at present. I'm just going to throw some ideas at you now which I have found increases the probability of success...

How about changing the system so it enters based on the previous days high/low rather than close. Try adjusting these entry points by a % (both positive and negative)
Instead of relying on the opposite entry point to stop out your loss - what about using a separate stoploss somewhere in between the entry points.
How about using a limit to lock in a fixed profit.. With a small % move to entry this means you could profit from the way up and the way down....
Instead of removing old orders every day - keep old ones that haven't been triggered open for a while...
Do not close your open positions at the end of the day - let them run on to a set limit or raise the stop. (I suspect this will not be profitable)
How about going short if the higher entry is hit and long if the lower is hit.... or go both long and short with limits either side...

I'm not sure all of this can be applied to daily indices because the behaviour is very different to 10 min FX bars.

I strongly suggest you divide your test data into 2 also. Test/optimise it with one half of the data then run your system on the other half without tweaking it.

Have fun.

 

[smccreedy]

Thanks Hoggums some good tips and also an acknowledgement that markets behave differently and the fact that one works for one but not another doesn't mean it can't work over time. Like the idea of optimizing half and testing on the other half, common sense but never heard of it before.

I've never got bollinger bands to work well on indexes but most Fx guys swear by them. Fib numbers I believe are good for Fx too this goes some way to 'prove' that one size won't fit any well.

New_trader.

I think the best way to sumarise this is that there are many different traders with many different goals and aims and needs to meet. There is no definitive right or wrong in trading and if there was the game would end. When I buy a stock and see it rise I've made money off the guy I bought it from, but he's banked a ten year profit to pay for his son's education, was he wrong to sell? Quite subjective.

I don't wish to 'day trade' as such and have found a way to make money that suits me and my life, that's all I can ask for.

I put ideas up here in the hope that other people can get ideas and give me ideas through comment on them.

No one is saying this little excel s.sheet is the future of trading for everyone but it might meet my needs with some tweaks.

Buzzy Schwartz and Ed Seykota probably disgree about everything about trading but both have done very well and seem on the surface to be happy in life in general.

Buzzy treats the market like a cash maching, skims off everything over say £100k margin each week and buys gold bars and art with it.

Ed Seykota wants to make 30% a year in a way that fits his ideals and can be used to trade £1,000,000,000 if the wants.

Far from me to say systems are right, day trading is wrong to either of these guys.

I know what's right for me and that's what I'm going to do.

My aim is to make around 27% a year after my salary, this will let me ten fold my money each decade. £1,000,000 by 30, £10 million by 40 £100 million by 50 and so on.

Sounds pie in the sky but can be done with strict planning, hard work and a little luck.

These means that a one or two or three year drawdown in a system I believe in is no problem.

If it has done an average of 30% per annum for decades I'll take the bad times and wait for the good times to come back.

This is different from have £5k in a sbet account and trying to make enough to live. I've tried that, it's nice easy and in my experience f*cks with your head!

Stephen McCreedy

 

[smccreedy]

Thanks Hoggums some good tips and also an acknowledgement that markets behave differently and the fact that one works for one but not another doesn't mean it can't work over time. Like the idea of optimizing half and testing on the other half, common sense but never heard of it before.

I've never got bollinger bands to work well on indexes but most Fx guys swear by them. Fib numbers I believe are good for Fx too this goes some way to 'prove' that one size won't fit any well.

New_trader.

I think the best way to sumarise this is that there are many different traders with many different goals and aims and needs to meet. There is no definitive right or wrong in trading and if there was the game would end. When I buy a stock and see it rise I've made money off the guy I bought it from, but he's banked a ten year profit to pay for his son's education, was he wrong to sell? Quite subjective.

I don't wish to 'day trade' as such and have found a way to make money that suits me and my life, that's all I can ask for.

I put ideas up here in the hope that other people can get ideas and give me ideas through comment on them.

No one is saying this little excel s.sheet is the future of trading for everyone but it might meet my needs with some tweaks.

Buzzy Schwartz and Ed Seykota probably disgree about everything about trading but both have done very well and seem on the surface to be happy in life in general.

Buzzy treats the market like a cash maching, skims off everything over say £100k margin each week and buys gold bars and art with it.

Ed Seykota wants to make 30% a year in a way that fits his ideals and can be used to trade £1,000,000,000 if the wants.

Far from me to say systems are right, day trading is wrong to either of these guys.

I know what's right for me and that's what I'm going to do.

My aim is to make around 27% a year after my salary, this will let me ten fold my money each decade. £1,000,000 by 30, £10 million by 40 £100 million by 50 and so on.

Sounds pie in the sky but can be done with strict planning, hard work and a little luck.

These means that a one or two or three year drawdown in a system I believe in is no problem.

If it has done an average of 30% per annum for decades I'll take the bad times and wait for the good times to come back.

This is different from have £5k in a sbet account and trying to make enough to live. I've tried that, it's nice easy and in my experience f*cks with your head!

Stephen McCreedy

Sorry last line should read it's not* easy. Being short term, for me at least, was not easy at all, cost me a few quid and really wrecked my head at times! Girls, drink etc all because trading went badly (Happy times indeed!) Now I'm too clean living and profitable for my own good!

 

[JTrader]

Why are the results in RTN's spreadsheet so bad when this strat is applied to SP500?

I can see why it would not work well on the Dow due to the higher index value, volatility and larger swings than FTSE/DAX, but would have thought it would work well on SP500.

Any ideas?

Thanks.