It may be hard to see from this picture, but once again the new code trounced the old one. The old code got in at $89.80, as it entered at the open, and today, marked by the blue arrow, my entry was at $89.10.
I have no idea if this will be a win or a loss, but at least I am now guaranteed a smaller loss or a bigger gain than the old code. Version 2.2 is already well ahead of the 2.1 system for the year.
I also always appreciate getting back into a trade having sold out at a higher at a profit. In this case the $91.21 exit in the last trade. 🙂
This latest 2.2 code, the first change in the system in almost 2 years, was in response to the crazy volatility that happened in the last quarter of 2018. A simple idea allowing the system to perform very well in 2019. Year to date the systems are hovering around the 20% cash return for the year. Great start!
Whenever I go through a
challenging trading environment or see possibility of gains in a pattern that I
am not taking advantage of, it sends me back to the drawing board to come up
with new ideas, or to dust off some old ones and give them another go. How can
I fix this? Or how can I improve that?
I don’t know about you,
but in trading, like so many aspects of life, I seem to never learn anything
when things are going well, what incentive do I have? I learn and see opportunities when things
either don’t go my way, or I get an idea because I am frustrated about
something that happened that left too much ‘money on the table’. I know I can’t take every dime out of every
trade, and I know there are losing trades, but I am not prepared to sit by and
accept situations that I know I can squeeze more out or stop the losses.
environment of the last quarter of 2018, and December in particular, forced me
to give back many of my gains for the year.
This was frustrating and sent me to test with fury to come up with a
solution to the question – how was I going to avoid such wild market action
hurting me again?
While I am still working on a few things that may create more improvements, the first thing I am implementing (the results of which are shown in the equity curve below), is a change to my entries into a trade. It became apparent in December 2018 that Dot2Dot was vulnerable to big drops on the day of entry. Big drops have happened before, and it’s been no big deal. The difference this time is that the volatility was bigger than anyone had ever experienced (in Index daily point swings in particular), and the drops where happening in consecutive trades – a phenomena which Dot2Dot (and the whole market itself actually) had never seen. Therefore, to protect me, and anyone following my trades in the future, this had to be addressed and a solution had to be found.
research this year and based on some previous work I had already done, I am
implementing my first change to Dot2Dot in quite some time.
As you can see in the
graph, with the new version 2.2 there is a marked improvement on the equity
curve for the end of 2018, but not just that, it improves the system
overall. I must be very careful when
making changes or implementing anything new that it does not negatively affect
results in the past in order to fix a current issue. Just as version 2.1 made a huge change to the
overall results of Dot2Dot over version 2.0, it is clear the changes I have
made for version 2.2 will make a big difference to the system in the future.
What does this change
mean to subscribers following my trades?
Firstly, it means
larger gains and smaller losses. I’m
sure everyone is on board for that! I
explained the background to this strategy in detail at the February Market
Maker’s Meeting, and I will be doing so again in the meeting on March 6, so
please put that in your calendar and attend if you can. We will also be reviewing how to place these
orders, and tips and tricks for execution of the orders at that time.
Secondly, there is a
practical level of change, and this is VERY important. Anyone who has done our training has heard us
repeat regularly “Do not use Limit Orders”.
Limit Orders were out of the question in order to achieve what was
needed with Dot2Dot 2.1 or before.
Dot2Dot Version 2.2 USES LIMIT ORDERS for entries
to achieve its results, so I am afraid there will need to be a little
‘thinking’ from anyone following my trades for a while until you get used to
the new trading style.
I will be texting the limit order I am about to place instead of a buy stop order. I am using a limit order as I am trying to buy lower than the current price. However, if the price does not reach my limit order by 3:55pm EST, I will be executing a Market order to enter at that time.
Had I already had this
change in place, we would already be higher in 2019 than we already are at 30%,
so I am excited to see this fix implemented and I look forward to having a
killer 2019 no matter what the market throws my way.
Above in the picture is an S&P 500 monthly chart going
back to 2008. In the last 50 years this
indicator has closed a monthly candle below the zero line indicated by the red “X”
only 14 times. In the last 20 years it
has been hit only 6 times. 5 of those
times are on the chart above, the other time was the dotcom crash of 2000.
So, what does this chart tell us? It tells me at least, that this indicator
like all others is never fool proof and sometimes has false signals. But, when it gets it right, you really want
to be following it!
It was spot on in 2000, it was spot on in 2008, but it was
short lived in 2011 and then in 2015 and 2016.
After 2015 and 2016, I put in place an additional filter called the supertrend to allow trading to resume if the trend showed significant strength, indicating that this was maybe not a superbear, like 2008, but a larger than normal correction as 2011/2015 and 2016 turned out to be. That is what I am currently following via the algorithm. Let’s look at 2016 as an example of the supertrend allowing trading to resume while the bear market filter is still in place:
This is the beginning of 2016, the pink area indicates that the bear market filter is in place. The S&P 500 has crossed the zero line and therefore no trading can resume until the supertrend indicator allows it. It’s difficult to see on this chart what line indicates the supertrend, but suffice to say that the chart switch from pink to yellow areas means that the bear filter is still in place, but, that the supertrend indicator has signaled that the market has recovered from a significant drop and may be ready to break higher following the correction.
There are no crystal balls in trading, I have no idea if
this current bear market will continue much lower or if the worst is over. However, this bear market filter + supertrend
filter has, historically at least, been very beneficial in limiting drawdowns
and signalling that the market is going from a bearish phase back to
Dot2Dot has seen this before and will see it again. Dot2Dot is excellent at breakout trend
trading and also dip buying. However,
when the market is in a bearish phase, dip buying is very dangerous and costly,
and that is why these indicators have allowed the system to survive and limit drawdowns
in previous periods of uncertainly and fear.
This is the current picture:
As you can see, as of the first on January 2019, the chart
has turned pink indicating that we are in a bear market. The supertrend indicator level that the QLD
has to break above is in the green circle.
Therefore, right now there can be no trades in the NQ Futures or the QLD
until the market shows enough strength to say that this is not a superbear, but
just an overzealous politically driven correction.
That level in the QLD currently is $71 per share. Until then, there is nothing to do but stay in cash and stay safe. The market continues to wildly swing each way on a daily basis in point levels on the S&P 500 , Dow Jones and Nasdaq never seen before in history.
The good news is that even during bear markets the supertrend allows the systems to take chunks out of the relief rallies when they come. So, even if this is or is not a full blown superbear like 2008, we will either be back taking profits or back to normal trend trading should it fully recover.
These corrections and bear markets are good for us. They are a re-set that will allow for larger trend trades when the market is calmed by trade deals and government and business stability. For now, nothing to do, stay safe and wait for my opportunity to sweep in and ride the recovery.
This indicator was built to flag the possibility of major market declines coming ahead of time, similar to those of 2008. I am an eternal optimist when it comes to the markets, but this signal marked “X” has foretold every single bear market in history. Sure, there have been some false signals where the bear was short lived. All in all, it has shown up 4 times in the last 20 years. It was falsely triggered during the European debt crisis in 2011 and again in 2015 for a short time. Those turned out to be severe market corrections rather than a multi-year bears. However, the other 2 occasions were 2000 and 2008!
Therefore, this cannot be ignored. And unless there is one hell of a rally into year end starting with the Fed decision tomorrow, there is no cancelling this signal now and I will be forced to trade less in the coming weeks/months.
Bottom line, when this signal hits and closes on the month end under the zero line, I am only allowed to take signals when the daily trend is clearly pointing up. I use an indicator called supertrend for that. As even in the worst market declines there are large rallies in between.
At the end of the day, if you can protect yourself during bear phases, there are so many opportunities ahead. Corrections AND bear markets are good for disciplined traders. It just requires a little more patience, but it brings valuations down to being cheap so we can ride the new bull all the way up again. The trick is to not ride it down!
Let’s see where it is at on Monday, December 31st 2018
The Fed rather unusually has a Rate hike decision at 2pm today, normally it is always a Wednesday. As always we can expect fireworks.
Obviously to those in this current winning trade with me, it’s a little scary, and I, (like everyone else) am hoping to be able to hang on and survive any short term volatility.
My own take is that there will not be an increase this month and if there is going to be one more before the end of the year, they will use next month as their opportunity. I just think that given the recent market drop, I find it difficult to believe that they will decide to put further pressure on the economy and the market, call it common sense.
President Trump was very critical of the last rate hike and in fact believes the Fed should not be tightening at all. The tightening showed up this week in Mortgage applications hitting a 4 year low. However, all other metrics in the economy seem to be holding up including earnings.
If the ETF we trade (QLD) does not break below $86.50 today, then I expect it to hit $90+ tomorrow. Tech has been hit the hardest in this recent fall, and company’s have come through their recent blackout due to earnings that prevented them from doing stock buybacks. That blanket is now over and I expect we will be seeing higher prices going into the end of November, as more and more large tech companies take advantage of this recent market correction in their own equity prices and buy their own stock back.
I will follow the system no matter what, holding onto winners so that they may become really big winners remains the hardest part of trading, but that’s what makes all the difference in the end…I hope for the best!
Very disappointing trade that one. The overnight market dropped like a stone. The Nasdaq trade was actually briefly in profit yesterday, however, it was such a steep fall last night that it was one of the biggest overnight drops I have experienced in Nasdaq futures, not unheard of but brutal just the same. At the end of the day, despite being disappointed, I must accept that this is a losing trade, and in system development, there will be many. This happens to be the largest loss I have experienced this year, but I basically made the same amount on the last trade, so while I am disappointed to give it back, sometimes I have to accept that perhaps it wasn’t mine to begin with!
Risk management and capital preservation is the number one consideration. The system is right about 60% of the time, and my edge is that my winners are on average 2.5x my losses. I, and anyone who follows me, are still ahead considerably for the year, but risk management comes first, and the system told me to exit this fall and so I have, without question, without thinking about it. I know I will be trading a long time and these last two trades will one day be a blip in a back-test, and a lesson in a seminar, about why taking every trade is important. It doesn’t feel that way today though, so I wanted to send out a note to everyone to let you know that I feel your pain, but it will recover. It always has.
Let’s see what the next trade brings, we are back to being oversold and there will be a bottom soon.
Anyone who has attended our Power Up Your Investing course will remember that losses are part of the game. Time to dust off and keep playing!
Nothing will humble you like the stock market, so don’t mistake this posting as some kind of boast about how my system just nailed the turn on this current short term top. But, I also feel it would be remiss of me to not mention it and celebrate it’s awesomeness in calling the swing yet again.
I am out, everyone is flat, now I wait for the next trade, and I would love to see it dive lower still so I can do it again!
Great to see the market recover, however, I had a very strong stat that gives me reason to believe that we will see a significant bounce off the lows from last week. The indicator at the bottom of this screen is the part of the algorithm that records when the price is at an extreme oversold level after a panic.
Historically, this indicator has had a 90% probability of allowing the algorithm to enter a new order to go long and expect this to be at least a short term bottom, and that is exactly how this has played out so far.
Nobody knows how high the Nasdaq can go, but my guess is the QLD will at least be above $90 this week, possibly even today. My entry in the QLD is $85.06, so it’s looking good so far, but hoping for more.
Feast your eyes on this! The algorithm that I have spent so many long years working on is now doing things I could only dream of when I first started trading. It’s impossible to exit at the very very top of these large swings in the market, but if you can get this close on a fairly regular basis, then you will do just fine!
The results this year have been extraordinary and I am delighted to be able to share this algorithm with anyone that will listen. It gives me such joy to see other people win alongside me. All I ever wanted when I started trading was for someone to give me something that works….well this works!
There is a myth that daytrading is the most consistent and lucrative form of trading, but even if someone could put an argument together to dispel that myth, just were exactly is the FREEDOM in daytrading; stressing yourself out for a few bucks per day, staring at screens trying to scratch out a living. No thank you!
Swing trading is, and always will be one of the most, if not THEE most lucrative, freedom giving, wealth building forms of trading there is. The trick is to know when to get in and when to get out. And that has been my quest for over 10 years. What you see in the picture above is the results of that quest, and I have been doing this all year.