Monday, February 25, 2019

Delta Neutral Update...4 year returns......02.25.2019

I've edited the performance metrics a bit to reflect 4 year results.  This system works best in periods of volatility as can be seen by the varying slope of the DN equity curve over 4 years.  Low volatility equals flat performance....which can extend for months...but when volatility kicks in we start to mint money with little of the risk exposure that a directionally biased move would create.
The volatility trigger (SET LIMIT STOP)  has been set at 1.9%... a value that can fluctuate significantly depending on the current volatility environment.  During the course of the past couple years we've seen the BEST ODDS LIMIT STOP range from a high of 3.8 to a low of 1.0 ...close to the current level.  If we adjust the SET LIMIT STOP value lower we generate more trade triggers, greater returns BUT a greater risk of reversal drawdowns.......that;s just the tradeoff inherent in using this methodology.  For now we'll stick with 1.9% in anticipation of a volatility pop and a big payday.
Note that back on the Feb 5th post of the DN model trades were triggered 169 out of 250 days (68%) while in a longer lookback of 1000 days trades were triggered only 533 or 50% of the time.

Sunday, February 10, 2019

PONZO Updates for SPY, QQQ and TLT....02.10.2019

Here are the February PONZO forecasts for our index targets...SPY, QQQ and TLT.
Comparing the new forecasts to last month suggest a weakening market in both equities and bonds for the next few months.  This has been somewhat supported by the generally weak tone and forward guidance of recent earnings reports, especially in some of the big tech names.  Industrials are also under pressure while the FED remains the 800 pound gorilla in the bond/treasury market.

Tuesday, February 5, 2019

Delta Neutral S&P model with Schwab inputs....02.05.2019

Here's a way for Schwab users to trade an S&P based DN model and only incur modest commission fees as SCHB (the SPY ETF proxy in Schwab) trades commission free.  Schwab doesn't have an SH proxy (the inverse for SPY) so for now we still have to use the ProShares ETF. 
Performance metrics of this model precisely match those of a SPY/SH pairing so save a few bucks and use this version instead. Max drawdown is extremely low compared to the benchmark.

Sunday, February 3, 2019

Delta Neutral Update for QLD/QID and a dollar/euro pair study

As mentioned previously, the recent decline in volatile as reflected in the ATR and OC spreads has limited our delta neutral equity curve.  We can get back in the game by simply lowering the limit stop per our "best odds" value and, really, the only risk we incur is opportunity costs when the market opens above/below our limit stop and the trades never get triggered.  For now we'll hedge our bets a bit and stick with a slightly elevated limit stop value as compared to the "best odds'.

Also, see below, an update to our classic dollar/euro pair trade using the Z-score analytics.
This is not strictly an either/or trading model...we just look for which side of the trade has the greatest probability of reversing and assume (generally correctly) that the the other side of the pair will react inversely. Pretty good odds on this model with a lookback of 6 months we've had 23 trades, 18 of which have been winners. so a 18/5 win/loss with only minimal drawdown.
Click on chart to enlarge.