12/10 Daily Summary

Today I started two new positions: MNX Iron Butterfly and RUT Iron Condor. As we approach the end of 2009 I want to spend a few hours a day refining my trading business plan. My goal is to start 2010 with a well defined and detailed plan in place.

Part of the plan will be a review of the blog, note what makes sense and what doesn't, and the best way to maintain records for my positions.

For Today, here are the price action and current positions profile:

12/09 Daily Summary

The markets continue to be range-bound. I plan on entering a few positions either by the end of day Tomorrow or mid-day Friday.

12/08 Daily Summary

It sure looks like the market is behaving very well for income trades in the past few weeks. Notice the non-directional stand on the 5-day price spike.

12/07 Daily Summary

Today I re-start my trading business. I spent a couple of weeks totally flat and without any time to really watch the market and manage positions. As we approach the 35 days to expiration for the JAN contracts I want to start gearing up to enter my JAN/10 trades.

Bellow is Today's price action chart, one can easily see a quiet period on the 5-day price spike, however, that wasn't so quiet on a day-to-day basis as you can see on the 1-day price spike, we have had quite a few 1+ st. deviation swings recently.

11/25 Weekly update

This is still a busy week for me, moving was good but now without Internet Connection it feels like I'm in an island.. One way or the other, the market was good to me this month and my RUT condor got to its profit target without any major worries. I closed the position Yesterday for about 17% ROI, not bad for a set and forget trade..

Should have Internet connection next Monday, so far I don't have any open trades, will wait for the next cycle.

Cheers!
Gustavo

11/16 Daily Summary (short posting)

Will be very brief Today, and likely to not have any postings for the next couple of days, as I'm preparing to leave my home away from home (Brazil) and return to my home (Pacifica/California). So, in preparations for the trip, I still have to run around Today and will very very limited time. I'm keeping contingent orders for my current positions, and if time allows I plan on entering my MNX DEC iron butterfly this week.

The bullish indications of the VerticalSolution profile were a signal that I had to work my MNX iron butterfly and "get out of the way" sort of speak. I remove most of my short call contracts and left only one. Right now the position is down about 16%. The RUT Iron Condor was affected but no action needed thus far, the 5-day price spikes for RUT are not telling me to exit yet.

Here are the graphs and profiles for the couple positions I have on.

11/16 Simple study on Iron Condors

A few weeks ago I started to dissect the market price action and looking for early signs of trouble, what could indicate the beginning of a thunderstorm, even if it was a quick one.. I looked at price action, and more specifically at the 5-day price spike charts, It was my feeling that this one chart could give me some early warning.

So, after looking at those charts for quite some time, I realized that in several occasions, the 5-day price spikes would give me a heads up of a potential trend developing. Like any trend following signal, there are false alarms, but I felt there were enough good signals to warrant further investigating.

So, I started backtesting a simple Iron Condor strategy coupled with the 5-day charts: The following were my testing rules:

1) Entry
1.1) Enter 1/2 of the position with 35 days to expiration
1.2) Enter the second 1/2 on the same day if, and only if, you don't have 2 or more days in a row of strong action on the 5-day profile

2) Exit:
2.1) Exit as soon as 15% or more is reached
2.2) Exit if down by 15%
2.3) Exit after 2 days in a row of strong action in the 5-day profile

I defined "strong action" as any price spike of +/- 0.5 on the 5-day chart. I've updated the profile I post every day to show those days in orange.

Here is the summary of my testing results from 2007 to 2009:
Total trades: 35
Total wins: 26 (74%)
Average win: 13%
Average loss: -8%
Win : Loss ratio = 1.5 to 1

These were very exciting results, if you win 74% of the time, and if your average win is 1.5 times your average loss, you certainly have a positive edge strategy. Now, because you place only one trade per month, this is a long-term strategy, and one must be able to stick to it and weather the ups and downs. Granted, the universe of the test is also limited due to limited time availability and the fact that this is one trade per month.

One could always improve these results by implementing some adjusting strategies. Because TOS's backtesting feature is limited, I was limited to exit at max loss for risk management. A more detailed backtesting system would allow to implement some intra-day testing rules to avoid taking losses when the position got in trouble.

That being said, I decided to implement this strategy on my portfolio. Hence the live Iron Condor for DEC.

Here is a log of my backtesting results: