SPX Has Topped For The Year Or Pabst Will Leave ET

Raystonn · Oct 5, 2006

This isn't based on sentiment or my own personal feelings, Optioncoach. I am not a discretionary trader. This is based on my automated trading strategy. I am not going to override the system just because there is news tomorrow.

Note: The stop loss you quoted has been updated due to a copy/paste error.

-Raystonn

El OchoCinco · Oct 5, 2006

85 point stop loss on ES short? You think the S&P can jump 6% in the next 2 weeks? How far do you expect it to fall with that big of a stop loss?

Curious questions, not criticizing..

Raystonn · Oct 5, 2006

For this system:

Losing trades that go beyond that point tend to keep going in the same direction. Losing trades that never reach that point tend to curve back and cut much of its losses, or even go profitable. Cutting out of a trade earlier tends to get you out with a larger loss or smaller gain. The stop loss is set to protect against the largest historical drawdown in a series of Monte Carlo tests. It is not anticipated that it will actually get hit. It's simply there to keep Mr. Taleb from taking too much of our money, to cushion drawdowns without hurting system profitability much.

If the system incurs a maximum peak-to-peak drawdown of 160 ES points or more, then trading of it should be stopped. That is the uncle point. Adjust your initial capital per contract traded depending on your level of acceptable risk. Over the last 5.5 years, the system averages about 9 ES points per trade, each trade lasting an average of 9.5 days.

-Raystonn

HGTrader · Oct 5, 2006

the last time Pabst pedicted a "Crash is Upon Us" <<--was the thread title-- he basically warned anyone believing the market would go up is "living in denial" and the SPX would be "under 1200 by this time next week." (July 21/06) (see http://www.elitetrader.com/vb/showthread.php?s=&threadid=73234&perpage=6&pagenumber=1)

From that very day the call was made, the SPX did not even fall a few points below the July 21st closing price, and had steadily moved up 100 points in the 2 and a half months since.

That makes his current "I wll leave Elite Trader forever" condition to his prediction all the more baffling.

Raystonn · Oct 5, 2006

Fyi, the system's maximum historical peak-to-peak drawdown is just under 107 ES points. The 160 figure was obtained through Monte Carlo simulation as an unlikely drawdown point. If it reaches there then you know it's definately broken.

-Raystonn

Vol · Oct 5, 2006

Quote from Raystonn:

Fyi, the system's maximum historical peak-to-peak drawdown is just under 107 ES points. The 160 figure was obtained through Monte Carlo simulation as an unlikely drawdown point. If it reaches there then you know it's definately broken.

-Raystonn

This system of which you speak, how can we be sure it's derivation is pure?

And please give me a little longer than 0930est. I need time to get to the bank to open 2nd mortgage so I can play this move.

So what do you think: interest only or 50 yr ARM?

Raystonn · Oct 5, 2006

This system of which you speak, how can we be sure it's derivation is pure?

It says "100% pure" on the side of the can.

And please give me a little longer than 0930est. I need time to get to the bank to open 2nd mortgage so I can play this move.

So what do you think: interest only or 50 yr ARM?

Honestly, don't risk anything you can't afford to lose if the system hits the terminal drawdown amount. If you trade 1 contract for every $12,000 you have, the system will halt when you are down to 1/3 of the maximum equity level of the system, or about $4000 per contract if you keep adding more contracts every $12,000. Adjust the initial capital per contract upward if a 66% drawdown is unacceptable to you. Your risk, and reward, will decrease.

A single contract is averaging about $12,000 profit per year over the last 5.5 years. If you are comfortable with the drawdowns you can double your money in one year without adjusting your position size. If you want a 33% maximum possible system drawdown instead, then you could make 50% annually with $24,000 initial capital per contract. It all depends on your risk profile.

-Raystonn

krazykarl · Oct 5, 2006

Quote from Vol:

bank to open 2nd mortgage so I can play this move.

So what do you think: interest only or 50 yr ARM?

50-yr option ARM - this is a sure thing man........

krazykarl · Oct 5, 2006

Quote from Raystonn:

This isn't based on sentiment or my own personal feelings, Optioncoach. I am not a discretionary trader. This is based on my automated trading strategy. I am not going to override the system just because there is news tomorrow.

that is EXACTLY when you should not trade a system - you have another varriable in the model with a HUGE coefficent - take the day off.

think about it - does your system predict world events? with an 80% probability, does it know the following:

1. will something good/bad happen?
2. will the market dive/idle/spike on #1?

for a system to be effective it needs to know #1 AND #2. we know your system does not call world events, so #1 is out, making it inaccurate unless you remove _most_ instances of #1: don't trade when you know there is an event coming.

A lot of systems know #2 - sentiment is really not hard to call when you call a trend.

if the jobs number is good, we will rally.

if the jobs number is bad and we dive, party's over.

if the jobs number is bad, and we run-in-place, the bulls are in control and we will go up next week because the fed will hold.

bjg · Oct 5, 2006

Assuming news has any major effect on markets...

Nevertheless a mechanical system doesn't care about news when tested; why should it now?