Auto Trader Update

Auto Trader Update

The ZoneTraderPro Auto Trader strategy was completed approximately 2 months ago. In the past 2 months I have been back testing, running in the simulated mode with live data, and making live trades using real money.

What was interesting about the Auto Trader back testing was that it confirmed statistical data that had been obtained in 2007-2008 and again in 2010. It was not a surprise to see that during periods of market turmoil concerning Greece and China, the system lost its statistical advantage. But even with losing its statistical advantage on volatile days, the system still made approximately $2000 per contract per month over the 7 month period if you turned it on every day and let it work. So the task became how do you define the days when you should not trade and increase profits. The second task became to create a “prescription” of Auto Trader parameters for the type of day you are expecting.

2/03/15 Trades
2/03/15 Trades

The answers came in 2 forms and they all involve the overnight data. What we do not want to see is a huge overnight range and the gap down. These days were associated with the Greek banking crisis and the Chinese stock market and currency problems. What we wanted to see are charts with little overnight volatility and a positive gap up. So that gives us 2 data points to look at. A 3rd data point to look at is the 1st 15 minutes after the open. A big down red bar for that 1st 15 minutes was generally a bad thing.

The 2nd answer came in the form of the daily value area of the ES. The Value Area is a measure of where heavy trading volume takes place and is used in trading to determine potential areas of support and resistance. The trading range from the last session can offer up a key area for traders to observe – the Value Area. Find that range of prices and find the key to the potential for the following session. 70% of the day’s price action is conducted inside the Value Area.

An open in the previous days value area indicates a yellow day
An open in the previous days value area indicates a yellow day

The trading days were broken up into 3 categories, Green, Yellow and Red. A Green Day occurs when price opens above the previous days Value Area. The Yellow Day occurs when price opens in the value area, and a Red Day occurs when price opens below the previous day’s value area. Out of 133 days in the test period, 45 of the days green, 54 were yellow, and 34 were red.

For the back testing two contracts were used, one at the -1 position and one at the -2 position. Other positions were tested but these 2 were consistently the most profitable. For the 45 days of green day trading, the systems profit after commissions was $13,225, or approximately $294 per day. The long trades made $7356 and the short trades made $5869.

Entry Definition
Entry Definition

For the yellow days the Auto Trader system made $12,355 or approximately $229 per day. The long trades were not as profitable when compared to the green days and they only made $3958. The short trades on a yellow day were the most profitable and made $8397.

For the red days the Auto Trader system made $3888 or approximately $114 a day. There is actually a big difference though in the system on red days. On red days, the system parameters that performed the best involved using very tight controls in the tick divergence strategy. Because of these tighter controls fewer trades were taken and a higher per trade profit was seen. The tighter controls involve canceling orders if the tick became non-divergent and tightening the stop if the red dot tick filter was hit. Using this system for all trading days, we saw 30 trading days that hit 100% of the long trades, and 71 days that traded at or above 66.7% long wins. From the short side there were 39 days that hit 100% of the short trades and 75 days that traded at or above 66.7% short wins.

The testing showed that these tighter controls were not necessary and reduced the profits on the yellow and green days. However they do result in a higher winning percentage. One of the other interesting test runs saw a 75% winning rate if you only traded during the 0945-1030 and 1500-1600 time periods. But again fewer trades were taken so you made less money on 2 contracts.

The ZoneTraderPro Auto Trader strategy allows you to place the strategy on his many charts as you wish. So it is possible to run the more restrictive Tick Divergence Strategy with more contracts during that hour and 45 minute period and continue to run a different strategy the rest of the day. The strategy would also allow you to set a specific set of parameters for long only, and a different set of parameters for short only. This testing that has been going on since June has only involved the ES Tick Divergence and ES Counter Trend trades. I have not started testing the trend trade pattern on the ES and I have not done any testing with the ZN 10 year bond.

This is an example of an overnight chart that you want to see and it is from 02/03/15. The overnight range was 21 and the gap was a positive 6 3/4 points and we opened 3/4 of a point above the value area. The trades from that day resulted in a $1943 profit from your 2 contracts.

Overnight Chart from 2/03/15 indicating a Green Day open
Overnight Chart from 2/03/15 indicating a Green Day open

This is an overnight chart from 02/12/15. You will note that it looks remarkably similar to 02/03/15. This is again what we want to see and the trades from that day made a profit of $1028 on 2 contracts.

Overnight Chart from 2/12/15 indicating a Green Day open
Overnight Chart from 2/12/15 indicating a Green Day open

Here is an overnight chart from 03/26/15 however it is inverted from the 2 charts that gave us nice profits. The day opened with a negative gap of 8 ½ points and an overnight range of -23 ¼ points. We lost over $1200 going long and almost $300 going short.

Overnight chart from 3/26/15
Overnight chart from 3/26/15

So what is this all about? For those of you that of talk to me on the phone you know that one of the things that I reference is a book by Dr. Edward Thorpe who is the Godfather of card counting for blackjack. Dr. Thorpe was the MIT math professor that realized that he could put the odds of winning at blackjack in his favor by counting the number of tens left in a deck. You can buy the book “Beat the Dealer” for $2 on Amazon. Dr. Thorpe also realized that when the odds were in his favor he increased the size of his bet. When everything was in his favor the odds of his winning was 61%. This strategy allowed him to make millions from the casinos. After being banned from the casinos he went to Chicago and made billions.

That is what any type of trading is about in the market. Traders make a bet based on what they believe are odds that put them at an advantage to the other traders based on information they have. Successful traders employ both a trading plan and a risk management strategy. The ZoneTraderPro Auto Trader does the same.

When I start trading at the beginning of the day I have no idea if I’m going to have a profit or loss, just like Dr. Thorpe did not know if he would receive 2 tens, or a 10 and a 6 for the hand he was dealt. I only know that the statistical probability is on my side and if I make smart decisions I can increase my profit. That smart decision could be simply going to the beach on a red day and varying your bet based on the conditions of a yellow or green day.

Auto Trader Data

Every time ZoneTraderPro analyzes a set of parameters, data is collected and analyzed. The data is combined for all types days, and specifically analyzed based on the specific type of day. Other data that is gathered includes analysis of the opening 15 minute range, the overnight range, and the overnight gap. The dates for all these analysis are included so that you can compare the current picture to the historical data. ZoneTraderPro is not going to post these excel worksheets because unless you have an understanding of what the parameters were to obtain the settings, there is no way to judge whether a particular system is a good fit. For example if you simply looked at the best-performing system on a red day and saw that it only made $4000 for the 6 month period, you might say that that is a horrible system. But what you don’t understand just from the Excel worksheet analysis is that it took a fraction of the trades that the other systems took. So if you’d like to see some of this data please contact me and arrange an appointment.

Here is an example about what the data tells us about a set of parameters.  First we are looking at the entries from the -1 and -2.  In this example -2 is Position 3.  Then the trade entry times, the profit or loss, number of trades, and the winning percentage.  We can then look at the day of the week and the times.

Data from worksheets
Data from worksheets

Next we can look at the Auto Trader daily statistics.

Data from worksheets
Data from worksheets

Then we can look at the gap, overnight range and first 15 minute candle bar information and the date that the matching information occurred.

Data from worksheets
Data from worksheets

Then we can analyze the specific gap and overnight range combination.

Auto Trader Data from worksheets
Auto Trader Data from worksheets
Auto Trader Data from worksheets
Auto Trader Data from worksheets

There is a great deal of information available to help make the daily trading decisions.

ZoneTraderPro is giving new customers a free month of the Auto Trader with the purchase of the ZoneTraderPro NinjaTrader indicator, currently on sale for $2495, and that is a $400 discount. The Auto Trader month doesn’t start when you receive the software. The month starts when you want it to start after you understand the system. You can take this time to analyze the overnight charts and worksheets containing data about each parameter that ZoneTraderPro provides.

Existing customers of ZoneTraderPro can get a free 2 week trial of the Auto Trader software or receive a free month with a one-month subscription.

NinjaTrader Event August 24

As a trader, I don’t have to tell you how quickly hidden fees and additional costs can add up on your statements. On top of that, navigating the clearing fees, technology fees, routing fees can be confusing to say the least.  As our preferred future and Forex broker, NinjaTrader Brokerage has a simple and clear pricing approach that I’m confident can save you some money based on what you’re currently paying.

NinjaTrader Brokerages discount commissions reduce your trading costs starting at just $.53 per futures contract or $.04 per 1K FX lot without volume tiers. On top of that, these rates already include your technology and clearing fees.

Join us Monday, August 24th at 11am ET to learn more about the exclusive benefits available to traders using NinjaTrader Brokerage and a short demonstration of NinjaTrader 8.  As an added bonus, all attendees will have the opportunity to receive up to $200 off a NinjaTrader Live License.

http://ninjatrader.omnovia.com/register/21181439325952

If you have a few minutes to jump on a call, that’s even better. I can have my contacts and NinjaTrader Brokerage fill you on some other recent developments including the launch of NinjaTrader 8 beta.