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Hello and Welcome,
Welcome to the new Trizen Systems newsletter. This will be the new format for discussing our algorithmic trading systems and other information. Weekly updates will include Actual Profits/Losses, Commitment of Traders, Articles and Actual Trading screen shots. Pass this along to anyone that you feel would like to understand more about the financial markets, derivatives, and how to trade them successfully. Year to Date (YTD) Performance vs. the S&P 500:
Return on Initial Capital: +19.86% We are currently above the S&P index by 23.75% |
| Market Action
Weekly Profit (P/L): 85 | | It was a disturbing week with a large rally early on and then a sell off from Thursday's jobless claims and Philly Fed announcements. The market continues to struggle in a range from various buckets of 1080-1120 to as low as 1000-1100 and as high as 1105-1130. With little conviction either way and with Friday's near positive close coming off of 1065, we might see an early uptick to 1080 early in the week, some weakness in the middle and with GDP estimates and consumer sentiment on Friday it will be all about the numbers at the end of the week.
As we gear up for September, most of Wall Street should be back from vacation and ready to go into the final quarter. They will be evaluating their positions. As we will explain in the COT section, the conviction is clearly to the downside as far as holdings.
As for our trading systems, for the second week in a row we were caught unhedged and it took all our profits for the week. This represents over $1600 in the last two weeks alone. It is clear that the hedging strategy, while good at protecting capital for the most part is not doing its job during overnight hours. Overnight hours are absolutely decimating our extra profits as European and Asian players move the S&P 500 with little resistance. We will modify the hedging component rules over the next couple of weeks.
The day sessions are working just fine, but the overnight sessions and hedging strategies are currently having a difficult time with light volume and sharp moves in overnight hours
On another note, I have begun examining the EuroFX future, USD/EUR FX and the Eurodollar instruments as the S&P has floundered to produce any results in the last two months. These instruments have been evaluated against our macro models and would have added significantly to our current performance.
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| Commitment of Traders
Bulls-n-Bears | | The COT, or Commitment of Traders, represents a government report that collects all the open positions for all traders in the futures market. It breaks it out into Hedgers, Professionals, and Small Traders. Hedgers maintain large portfolio positions and will hedge their positions using the S&P (so they can protect against falling markets). Professionals speculate and tend to be on the right side of the market opposite the hedgers. In most cases the Small trader (Green) is a contrarian indicator.
Analysis: Lets review last week's COT analysis:
The COT continues to show a SHORT bias for the short term but the longer term is starting to turn around in the "pit" contract though it too is showing a short bias albeit a small one (but declining in conviction and becoming less bearish). With market participants seeing the 1080 mark again, look for buyers to come into the market as reward in treasuries is very little other than a safe-haven to "not lose money."
A strong rally early in the week was wiped out on Thursday as the market didn't like the 500,000 in new jobless claims as well as a Philly Fed numbers that was negative. The short bias in the Pit traded contract has increased significantly this past week while the short term electronic has actually turned positive. It looks as though we might have another run to 1100 again in the short term, but longer term the market is expecting lower numbers at least through expiration in early September.
An early test of 1080 early into the week with a late week sell-off if the numbers come in bad for GDP and consumer sentiment is highly probable. We also have housing numbers early in the week, but these shouldn't be unexpected if they come in poor.
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| Models vs. Subjectivity
Trusting the system |  We are above the S&P by over 20% and yet I continue to struggle with the trading system at times. Yes, it has done well, but I have the hardest time letting the system "do its thing" during the day, especially during hedging periods. It is obvious now that the system, if flawed, is flawed on the hedging. Can we do options? Sure, but these are actually less effective then simply doing a "Long/Short" strategy in the same instrument (I have analyzed this for a long time). When looking at a SHORT entry at 1065 near the close this last week, my conviction was that the system made a mistake. When the market closed near 1070, that mistake was obvious. The "floor" was 1065 for most of the week and we profited down to this mark. The problem wasn't the entry, the problem was the profit target. The profit target was then moved down to 1055 on a week in which there was a clear line drawn at 1065 and there was little news to move the market lower and on an expiration day. The entry was good but the reward was too little. For hedging this makes all the difference which is different than if the system was SHORT only. In general, the hedging strategy does well when profit targets are in line with various areas of easily identifiable resistance points (resistance being any point in which the market can't move through it). When looking back, this makes sense since we are hedging for a reason: There is uncertainty. When there is uncertainty, then resistance becomes a "herd" mentality and must be observed. I have zero conviction on which way the market will go, but I absolutely believe that the profit targets need to be adjusted when hedging that play to the uncertainty of direction (and the reason we are hedging). |
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Sincerely,
Edward Zaremba
Trizen Systems, Inc.
Commodity Trading Advisor
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| | BladeTrader Version 3.6 | | Version 3.6 and 3.3 have been released. We will have four accounts for each side and version and seperate percentages. |
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U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN. |
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