Ratio Indicator Auto Trader Update

Auto Trader Update

It has been a while since I have been able to post to the blog.  I originally started trying to write an auto trader update post several months ago.  A WordPress plugin had broken the functionality of the blog so that it was impossible to write a post.  After many attempts to copy the blog content failed using backup plugins, the back up function from inside WordPress copied my content successfully.

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Just because the blog was not being updated didn’t mean ZoneTraderPro wasn’t working.  The Auto Trader was updated to include the Ratio Indicator.    The Ratio Indicator is also available for the ZoneTraderPro indicator for all of ZoneTraderPro customers.  The indicator works like this.  It looks at the market orders being made to move the market.  A ratio that is a 1 indicates the buyers and sellers are equal.  In the example below, you see a ratio of .9 going into a short exhaustion trade.  In this instance the sellers are greater than the buyers, which is exactly what we want to see going into the trade.  Then the indicator shows ratios between 3.0 and 1.6 as the selloff begins.

Auto Trader Update with Ratio Indicator
Ratio Indicator

The low ratios for the profit taking pullbacks and the high ratios for the downward legs then continue.  The Auto Trader Update which includes the Ratio Indicator will cancel the orders to buy based on the number that set in the parameters.  The parameters for the ratio allow you to adjust where the orders get cancelled at.  The settings for this chart said it would cancel orders at 2 ticks away from the blue zone, and to look back 5 tick levels to see if the ratio was exceeded.  The strategy also allows you to exit a position if the ratio has been exceeded after you have entered a position.

Data Miner Update

The Data Miner was updated to include numbers concerning drawdown.  Here is a comparison of 3 Market Replay tests.  These tests were for a green days trading long between January 4, 2016 and March 31, 2016.  There were 21 trading days that make up these numbers.  The parameters for these tests are the same, except that the Ratio Indicator was used in two of the tests.  One test used a ratio of 1.4 and the other used 1.5.  These tests are run to gather information.  You see 4 different contract positions.  This is super important.  Contract #3 has the worst risk reward, followed by Contract #2, Contract #1, and concluding with Contract #4 which has the best risk reward.

Contract Positions
Contract Positions
Ratio Test Results
Ratio Test Results

What we see is a pretty decent profit of over $6,000 ($300 a day just trading 2 contracts long) trading without a ratio from trading 2 contracts long, one contract from position 2 and one contract for position 3.  But we took 446 trades to get there.  However with a ratio of 1.4 we could double our profit per trade.  With just 47 trades there was a $1227 profit on just 47 trades from position #1.  That profit of $1227 was made on just 10.5% the number of trades.  The drawdown for that position and ratio was also the best at $644.  By trading the same number of contracts by using leverage at Position #1 we would take our 21 day long only profit from just over $6,000 to over $12,000.

This illustrates the decisions that a user will have to make when setting up a strategy.  Do you trade 2 contracts to get to $6000 taking every trade?  Or do you filter the trades and increase the leverage to get to that same number?  It is also important to remember this is only illustrating trading long on a green day.  You will see that different strategies work better trading short and trading on a yellow day.

What is also interesting is some recent tests that showed trading long and short on a red day, was more profitable than the test shown above, without using ratios to filter the trade.  Some of this is due to the fact that there has not been severe market turmoil involving Russia and China so far this year.  That market turmoil is what leads to illiquidity in the ES.  So when the market is opening down in 2016, you do not see liquidity being pulled and the system performs like a yellow day. Contract #2 was winning at 59% with nearly a 2:1 risk reward.  As with the above set of test results, these results are from January 4, 2016 and March 31, 2016.  There were 23 trading days that make up these numbers.  Shown below are two different strategy results trading long when the market opens down.  That is why there is a different profit from Contract #2 and #3 even though they took the same number of trades.  What was the difference between the two?  The stop was 1 tick higher, for the system that performed better.

Red Day Results
Red Day Results

Currently there are results from over 110 tests.  This represents a tremendous database of information for creating a strategy.  It takes 1 computer almost 2 days to run one Market Replay  simulation to test a strategy.  So it represents a large amount of data which is used to create future trading strategies.

Lease the Auto Trader

When you purchase the ZoneTraderPro indicator you receive the Auto Trader for free for one month.  Before you start to use the indicator you will work with ZoneTraderPro and create a trading plan.  That way when you are ready with a plan, you can start trading your plan in the Sim immediately.

More information about the Auto Trader can be found here.  Besides receiving a free month, the price of the Auto Trader has dropped to just $500 a month. As with all updates, there is never charge for the auto trader update, or any update to the ZoneTraderPro indicator, such as the Ratio Indicator.

AutoTrader Performance Guarantee

AutoTrader Performance Guarantee

ZoneTraderPro is introducing a AutoTrader performance guarantee for its customers using the AutoTrader. The AutoTrader performance guarantee is not a guarantee that you will make money trading in a live market because that is beyond the control of ZoneTraderPro.  The AutoTrader performance guarantee says that using a defined set of parameters using 2 contracts on the ES market, the ZoneTraderPro AutoTrader will generate $3000 in profits after commissions using the NinjaTrader Market Replay.

ZoneTraderPro will publish the parameters used for a Green day and a Yellow day. The system will not trade on a Red day.  At the end of the month if those parameters do not produce $2000 in profits after commissions (using $3.40 as the rate) the next month is FREE.  If the system produces between $2000 and $3000, $100 will be deducted for every $200 below $3000.  For example, if the system produced a $2650 profit, then $200 would be deducted from the following months lease.

Why ZoneTraderPro doing this? There are 2 reasons.  The 1st reason is that ZoneTraderPro believes in its system.  The 2nd reason is because if market conditions cause the system to be unprofitable, ZoneTraderPro does not want to force its customers to trade in bad market conditions.  For example, during the early summer months of 2015 the market became extremely volatile due to the conditions in Greece, Russia, and China.  Because of these external news events there were a disproportionate number of red trading days during this period.  We also took losses on green and yellow trading days when news events occurred while trading.  The overnight ranges and the gaps foretold extremely volatile trading days.  ZoneTraderPro does not want its customers to make a bad decision and trade on these risky days and risk blowing up an account.

Now look at October 2015. With all of the problems of China and Greece in the rearview mirror, the market returned to normal trading as evidenced by the fall in the VIX.  The profit for ZoneTraderPro system number 27 using just 2 contracts was $11,901 for the month of October 2015.  This systems cumulative total for the year of 2015 is $47,785 after commissions.  However in May 2015 system 27 only produced a profit of $1,360 after commissions.  These cumulative numbers reflect trading all days regardless of color.  That is an average of over $4,700 per month with no optimization or bias to the type of trading day.  Trading on red days accounted for only a $1,646 profit of the $47,785 total.  There have been 52 red trading days so far in 2015. That is only $31 a day profit trading on a red day.  You would probably have better luck betting fantasy football, if they didn’t allegedly have people that used insider information to cheat.

So how would the AutoTrader performance guarantee have done in 2015?

These results are based on trading from 0945 to 1600 hours (un-optimized) and have no stop loss parameter working.  Only the 2pm Fed days trades are removed.

Monthly System Totals
Monthly System Totals
Monthly System Totals
Monthly System Totals

These results are not optimized in any way and the parameters do not represent a trading plan. Why is this not a trading plan?  The ZoneTraderPro AutoTrader has the option to timeout and not take trades 3 times during the day.  The testing has shown that there are significant drawdowns over a consistent timeframes during the day.  An optimized system would likely not trade during these known periods.  An example of this using system 27 shows that trades taken after 1535 hours EST lost $3578 during the year.

Trade Entry Times Test 27
Trade Entry Times Test 27

The 2nd reason that this is not a trading plan is because of the odds involved on green and yellow days.  On a Green day long trades are favored and on a Yellow day short trades are favored.  It would be illogical to trade the same number of contracts short on a Green day as you would trade long, and vice a versa for a Yellow day.  Below are the year to date profit results for test 27 showing a 2:1 profit advantage for trading long on a green day.  the last consideration is that there have been 70 green day and 82 yellow days.  On 12 fewer trading days the green days have made $4744 more in total profit.

Profit Totals Test 27 Green Day
Profit Totals Test 27 Green Day

Here are the profit totals for the same test on a yellow day.  We again see the same 2:1 ratio, except it is reversed in favor of the short trade.

Profit Total Test 27 Yellow Day
Profit Total Test 27 Yellow Day

The last reason this is not a trading plan is based on the above picture.  On a yellow day, trading long and short, you make over $1000 more trading from the -1 position (Postn2 on the worksheet).

The ZoneTraderPro AutoTrader Performance Guarantee rules

  1. ZoneTraderPro will publish in the blog what systems are used on a green and yellow day.
  2. There is no trading on a red day.
  3. The start and stop times for each system will be published.
  4. There are no trading timeouts.
  5. Any trades after 2 p.m. on a Federal Reserve announcement day will be disregarded.
  6. 2 contracts will be traded long and 2 contracts will be traded short each trading day.
  7. The contracts are traded from the -2 and -1 positions.
  8. A commission rate of $3.40 per round trip will be used.
  9. A $700 stop loss on each side of the trade is active.
  10. The illiquidity filter is active and set at 900.
  11. The NinjaTrader Sim Stop is active and set at 150.
  12. ZoneTraderPro will make available a trade list and trade results to all of its AutoTrader customers on a monthly basis.
  13. If the system results are less than 2000 in profit the following month is free.
  14. If the system results are between 2000-2199 there is a 500 discount the following month.
  15. If the system results are between 2200-2399 there is a 400 discount the following month.
  16. If the system results are between 2400-2599 there is a 300 discount the following month.
  17. If the system results are between 2600-2799 there is a 200 discount the following month.
  18. If the system results are between 2800-2999 there is a 100 discount the following month.
  19. There are no guarantees that using this system in a live market will generate a profit.

ZoneTraderPro reserves the right to change a trading system or parameters as new features are introduced into the AutoTrader. Any changes made will apply to the guarantee the following month and not retroactively for a current month.  For example, in the previous ZoneTraderPro blog post I talked about a new feature involving the order flow ratios being developed for the AutoTrader.  This feature could significantly change the winning percentage of the systems and would be utilized after it has been tested and when it becomes available to ZoneTraderPro AutoTrader customers.

Remember ZoneTraderPro offers a free month of the AutoTrader to all of its new customers. The AutoTrader performance guarantee even applies if you are on your free month and a new customer.  ZoneTraderPro customers also have access to all of the trading parameter tests.

Starting systems and parameters

For a Green day ZoneTraderPro AutoTrader performance guarantee will use system number 30 to trade long and system number 27 to trade short. System number 27 will start trading at 0950 hours and end at 1535 hours.  System number 30 will start trading at 0945 hours and end at 1535 hours.

For a Yellow day ZoneTraderPro AutoTrader performance guarantee will use system number 27 to trade long and system number 27 to trade short. System number short 27 will start trading at 0945 hours and end at 1535 hours.  System number 27 long will begin trading at 0945 hours and end at 1535 hours.  Below is a picture of the individual test parameters that will be utilized.

Test and Trading Parameters for the AutoTrader Performance Guarantee
Test and Trading Parameters for the AutoTrader Performance Guarantee

The AutoTrader performance guarantee is not a guarantee or representation that these systems will make money trading in a live market. The AutoTrader performance guarantee and the testing results talked about in this blog entry are hypothetical because they are tested in Market Replay. You should be aware of the hypothetical trading disclaimer found here.

AutoTrader Data Mining

AutoTrader Data Mining

One of the biggest advantages of the ZoneTraderPro AutoTrader has to been to learn about ZoneTraderPro and to be able to take what has been learned and create a workable trading plan to take advantage of statistical patterns. ZoneTraderPro was created 9 years ago to identify repeating patterns in the ES market.  I spent hours each day identifying and classifying each trend and counter trend trade, and then posting those results to the website.  Again in 2010 I did the same type of study when working out a basic trading plan.  Unfortunately the AutoTrader Data Mining project had not been created.

But the biggest advance in knowledge came when a ZoneTraderPro user (Thanks Greg) wanted to look at the use of the theory and use the value area of the market profile. That created the concept of a green, yellow, and red day.  A green day is when the market opens above the previous days value area, a yellow occurs when it opens in the value area, and a red day occurs when it opens below value area.  When the test results using NinjaTrader Market Replay were data mined, it showed that long trades were almost 2.5 times as profitable on a green day and short trades had a similar 2.5 times figure on yellow days.  Trading on a red day, while profitable, has a very small profit factor, and there are no statistical advantages.

What did it take to get there? The ZoneTraderPro AutoTrader has the ability to completely control the trades it takes.  The AutoTrader has the following features;

  1. Set the stop and profit target.
  2. Allows multiple locations for trade entry.
  3. Ability to trade short only, long only, or both trading directions.
  4. Dynamically adjust the target based on the where the intermediate zone will print.
  5. Move stop to breakeven or other defined location when you have favorable excursion.
  6. Move target in case of adverse excursion to exit the trade.
  7. Manual target controls on the chart.
  8. NinjaTrader Simulated Stop.
  9. Three time out periods.
  10. An illiquidity filter which detects illiquidity, stops trading orders and text messages the user.
  11. A stop trading feature if losses exceed your parameter. This has a long and short loss parameter.
  12. Detect Tick Divergence ES trades. Parameters also allow moving a stop or exiting a position if trade becomes non-divergent after entry.

With such a robust feature set, it has taken months to test the parameters to figure out what works and what doesn’t. And that was months using multiple computers.  It takes a day and half to test 15 months of data and do 1 test run.  All of this data is available to ZoneTraderPro customers to use to create their AutoTrader trading plan.

What can you expect from the AutoTrader Data Mining program?

The single most important thing that ZoneTraderPro offers its customers is the ability to data mine this information to determine what works and what does not. ZoneTraderPro has the ability to data mine and analyze thousands of trades to determine the best times to trade and the best days to trade.

Here’s a look at the product that is produced.

We have the ability to trade from 4 different positions and analyze each of those different positions. For each position we look at cumulative profit trade count winning percentage dollars per trade the long and short trade counts the long and short winning percentages and the long and short dollars per trade.

Here we analyze trading two contracts for the month of October 2015.  This is a system that does well short with $3894 in profit versus only $1328 in profit for the long trades. All values take into account commissions ($3.40 RT).  What is also interesting is the $5223 cumulative profit does not take into account whether the type of day was green, red, or yellow.  This particular test reflects a future enhancement to the system.  The winning % is not a very important figure because in the case of a breakeven trade, it classifies that as a loss because of the $3.40 commission.

Next we can see a monthly profit and a cumulative monthly profit for one the trading systems and how it has done in 2015.  There has been no time optimization.  There has also been nothing done to force a fill which is a NinjaTrader setting.  This setting will fill a target and stop if only one contract had traded.  In case you are wondering where are the red days, out of 52 days the total profit was $1264.  This system did over a $10,000 profit in October 2015.

Monthly Totals for 2015
Monthly Totals for 2015

Here is the equity curve for the green days.

Equity Curve for Green Days
Equity Curve for Green Days

Here is the equity curve for the yellow days.

Equity Curve for Yellow Days
Equity Curve for Yellow Days

Next we can see trade entry times 1st broken down into 30 minute time frames.  But should you trade based on a half hour analysis?  Probably not because we have 5 minute data.

 The Auto Trader Data Mining then breaks it down into 5 minute time frames.  The information includes the profit or loss, the dollars per trade the trade count and we can see this as a cumulative total and a long and short total.  The column names are the same as the picture above.  This picture is from green days which favors long trades.

5 Minute Time Frames
5 Minute Time Frames for Long Trades

It is extremely important to note that in the testing it has shown to be more profitable to use a specific set of parameters to go long and a different set of parameters to go short.  Taking this one step further, testing is also shown that you use different parameters depending on the type of day based upon the value area.

Here is the 5 minute picture from a yellow day, which favors short trades.

5 Minute Time Frames for Short Trades
5 Minute Time Frames for Short Trades

The next set of data has broken down the data based upon the day of the week, the color of the day, and the time.

Data Based on Day and Time
Data Based on Day and Time

Alongside of each trade we can also see the day’s cumulative profit and loss broken down by long and short trades.

Here is a look at the intraday profit and loss numbers.  The 1st column is what the final profit ended up as.  The next column is the maximum intraday profit and then the maximum intraday loss.  Remember these numbers are based on 2 contracts.

Intraday Max Profit and Max Loss
Intraday Max Profit and Max Loss

How powerful is the Auto Trader?

Here is that worksheet sorted based on what the maximum intraday long loss was.  This is the last column.  There are 70 trading days. 33 days had no intraday loss from long trades and another 16 had no more than 1 losing trade.  This is the last column on the right.

Days With Small or No Loss Long Trades
Days With Small or No Loss Long Trades

What does the bad days look like?  Since we are trading 2 contracts, a setting of 4 points (where the $407 is boxed) would have happened 6 out 70 times.  But here is why this is probably the hardest decision you will make.  Look at the column next to the colored percentage column.  (That is the column with -257.9 at the top.)  With the exception of the worst day (1/09/15) all of the other days saw a significant turnaround.  The day with a $407 loss turned into a $436 profit.

Days With Larger Loss Long Trades
Days With Larger Loss Long Trades

Here is what the short trades look like on a yellow day when they are favored.  A yellow day is more volatile than a green day, but there was still 23 days that had no intraday loss from short trades. Another 26 days had less than a two point loss per contract. Look at the column “Final S Intra Day Prof” for the end of day profit total.

Days With Small or No Loss Short Trades
Days With Small or No Loss Short Trades

This is extremely helpful for determining a stop trading strategy for a losing day.  The software has separate parameters for long and short stop loss values.  This is because the testing has shown that while one side of the trade may be losing, the other side is doing quite well so it is illogical to shut down the entire strategy unless duty illiquidity and volatility both sides of the trade are consistently losing.

The next thing that is looked at is a day by day recap which includes the values for the overnight gap, the overnight range, the overnight volume, the opening 15 minute range and candle body, the opening 30 minute range and candle body, the type of day, the statistics for the long trades that day, the statistics for the short trades that day, and the maximum intraday profit and the maximum intraday loss for each side of the trade.  Here we can see its not going to be an easy day with a large negative gap and overnight range.

Gap and Range Data
Gap and Range Data

We can then look at some different statistics concerning the overnight gap, the overnight range, the opening 15 minute bar and the opening 30 minute bar. A list of the historical dates with the matching data is then provided so that the user can quickly compare the current historical overnight chart for clues to the type of day and volatility that lay ahead.

Gap and Range and 15 Minute Candle Bar Data
Gap and Range and 15 Minute Candle Bar Data

What is next?

There are two improvements being made to the software.  The first involves the Point of Control, which is another Market Profile indicator.  Trades are excluded if they are significantly below the POC.  The other advantage is that there are significantly fewer trades.  This system did $5223 profit in 23 days.

Point of Control Statistics from the AutoTrader Data Mining
Point of Control Statistics from the AutoTrader Data Mining

The second improvement that shows a bigger promise to reduce losing trades is using order flow.  The idea is to monitor the order flow for momentum and cancel trades when the bid/ask ratios are unfavorable.

In this losing short trade we see where we lost a short trade.  Where you see the 389 on the ask is the entry point of the trade.  The price ladder below the entry shows order flow colored in green and blue.  That means the ratio of buyers to sellers on market orders was at least 2:1 or greater.

Ratios from a Short Losing Trade
Ratios from a Short Losing Trade

Similar on a losing long except the market orders selling on the bid are in red.

Ratios from a Long Losing Trade
Ratios from a Long Losing Trade

Here is what we want to see, equal number od buyers and sellers with no advantage.  Here is the ZoneTraderPro chart with two winning short trades.

Winning ZoneTraderPro Trades
Winning ZoneTraderPro Trades

And what those two trades looked like showing order flow.  There is very little green and OFA showed the volume clusters in red as being bearish.

Winning ZoneTraderPro Trades from the OFA Chart
Winning ZoneTraderPro Trades from the OFA Chart

The order flow charts are from Order Flow Analytics and are not part of the ZoneTraderPro software.  The ZoneTraderPro software will determine and print the ratio on the chart and shut down the pending orders if it is too high.

Because these results are based on the NinjaTrader Market Replay, you should understand the hypothetical performance disclaimer.

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.

ZN Bond Trading Using the AutoTrader

ZN Bond Trading Using the AutoTrader

“The ZN system is firing on all cylinders today.” Sean H.

Sean couldn’t have said it better.  The profit from the 5 days of trading just the ZN Counter trend trade pattern was $2171 from two contracts.  That was one contract at -1 adverse excursion and 1 contract at 0 adverse excursion.

We are going to take a look over the last week of trades from the AutoTrader Strategy and also the trend trades that occurred. The logic for trend trades has not been added, so it is being done manually right now.  Beta testing is going to start next week of the strategy.  More on that at the end of the post.

Quick Lesson

What is a trend and counter trend trade?  These two patterns form the basis of the ZoneTraderPro theory.  As price reacts between the zones of support and resistance we form patterns.  The simplest of the patterns is the counter trend trade, because we are just trading at the light blue support or resistance zone.  The trend trade pattern occurs when we have a retracement to intermediate support or resistance.  In this picture we have a long counter trend trade and a short trend trade.

Statistics
How statistics are figured

A reversal pattern forms when we have adverse excursion of a trend trade.  Here is a perfect reversal in the ES from yesterday.

ES Reversal 50115
ES Reversal 50115

Friday 4/24/15

Friday saw 7 counter trend wins totaling 29 ticks taken by the auto trader, 3 trend trade wins totaling 35 ticks, and two trend trade losses for 8 ticks.  Unfortunately the 11 tick trend trade win likely would not have been filled, since there was not enough contracts to fill and exit the short trade before it.

Friday 42415 Chart 1
Friday 42415 Chart 1

The only real trading commentary concerns the short counter trend trade which only nets two ticks.  There were not enough contracts to fill the target and we bounced and re-tested the high.  At this point I clicked the adjust target button on the chart and the new target adjusted to where the new intermediate zone would print.  Why would you do this in real time?  The last thing you want is to be stuck in the short trade in an up trending market is the first answer.  Second if you are stuck in that first trade, then you cannot enter the 5 tick winner at 0938 hours.  Another way to handle this would have been to use the auto breakeven feature which would also have gotten you out of the trade with a small 1 tick win.  Either way, you are out of a trade that didn’t go as expected.

What are all those lines on the charts?

A major advantage that ZoneTraderPro offers is the ability to get our order in as soon as possible, both in and out. So where the pink lines draw, that is where our order was first placed. In the picture below, you see them cancelling and replacing as the numbers change. The dark blue line represents where your target is currently at for that bar.  If you have set a parameter which causes your target to move, then the blue line redraws on that bar.  Once you are in a trade the logic will allow you to set a parameter that will move the target to exactly the intermediate zone.  There are also buttons on the top of the chart that will allow the target to be reset to a minor zone and a button to reset it to a intermediate zone, without having to disable the strategy.

Friday 52415 Chart 2
Friday 52415 Chart 2

In the late morning we saw a long trend trade take us down into a counter trend long trade, which ended up being a wash.  Then in the afternoon, we entered a short trend trade that went against us all afternoon until the close mercifully ended the position. But an excellent trading day, with only 1 real difficult decision.

The P&L from the simulator was $750 and that was only trading the counter trend trades.

Friday Profit
Friday Profit

Monday 4/27/15

On Monday we had just 4 counter trend trades, 3 wins for 13 ticks and 1 end of day loss for a 1 tick.  There were 2 trend trade wins for 15 ticks and one trend trade loss for 4 ticks.

Monday 52715 Chart
Monday 52715 Chart

And the P&L from the simulator for the counter trend trades.

Monday Profit and Loss
Monday Profit and Loss

Tuesday 4/28/15

On Tuesday there were 4 counter trend winning trades totaling 18 ticks, two trades that were exited at breakeven, one loss, and one trade that would have won but we didn’t get a fill.  There were 4 trend trade wins worth 30 ticks and no losses.

Tuesday 52815 Chart 1
Tuesday 52815 Chart 1

 

Tuesday 42815 Chart 2
Tuesday 42815 Chart 2

And the P&L from the simulator for the counter trend trades.

Tuesday Profit
Tuesday Profit

Wednesday 4/29/15

If you traded on Wednesday after the big GDP number miss and then into the Fed Meeting announcement you have more guts and money than I do.  A system like this does not like news, especially about interest rates, because it is the news moving the charts, and not the trading algorithms.  Good day for the beach.  Commentary is useless because the only thing that you would have learned is that you lost money on a day where there was multiple major news events.

Thursday 4/30/15

I included the chart of the overnight session, because you see the same patterns in that session.  Why?  The liquidity for the overnight session is usually 3-4 times what the liquidity is for the ES during the day.  That makes for stable patterns.  What happens if there is news?  There is logic built in to disable trading and exit a position if the liquidity falls below a number that you preset.

Following the big news day, there was a lot of volatility,  There were 9 winning counter trend trades worth 41 ticks, 4 counter trend trades that broke even, and two losses for 14 ticks.  There were 3 trend trade wins for 26 ticks, and 1 trend trade loss.

Thursday 53015 Chart 1
Thursday 53015 Chart 1

 

Thursday 43015 Chart 2
Thursday 43015 Chart 2
Thursday 43015 Chart 3
Thursday 43015 Chart 3
Thursday 43015 Chart 4
Thursday 43015 Chart 4

Reversal Trade

On the chart above you also see a trend trade that is neither a win or a loss.  The reason is that I do not have a clear trading plan yet for the trend trade, and I do not know if I want to be stopped out, or just exit at breakeven.  This forms the basis for a perfect reversal short trade at 1046 hours.

Thursday 53015 Chart 4
Thursday 53015 Chart 4

And the counter trend trade profit.

Thursday Profit
Thursday Profit

Friday 5/01/15

Friday saw a much quieter day with only 4 counter trend wins for 18 ticks.  The loss was not counted as it was at a major news release.  There were two trend trade wins for 10 ticks and two trend trades, that cannot be properly judged to be wins or losses.  After 12 noon, there was a successful reversal trading pattern.

Friday 50115 Chart1
Friday 50115 Chart1
 Again there is reversal trade from the trend trade that had adverse excursion.
Friday 50115 Chart 2
Friday 50115 Chart 2

 

Friday 50115 Profit
Friday 50115 Profit

AutoTrader Beta Testers Needed

Sometime next week I expect to have the beta available for release to customers who are interested in using the software.  In order to be a beta tester you must have purchased the ZoneTraderPro software, sign a release, and place a non-refundable deposit of $1000 for the 1st month.  That will give you free use of the software until no bugs are being reported and the software appears stable.  Expect that to last at least 30 days.  After that the deposit will be your first 30 days for the lease of the software and you will not be re-billed.  You will be given a Paypal link to sign up for a recurring monthly lease payment.

The software will also work for the Tick Divergence trade and I will be making a similar post with results next week.  The results I have seen with Tick Divergence, are similar to the ZN.  There are more trades, both wins and losses.  The Tick Divergence logic was added this week.  I currently have 1 issue (a bug) that is being worked on.  When that is fixed, the ZN trend trade will be added.  It will actually be added as a completely separate strategy, so as to stop adding complexity to the counter trend strategy and actually give more control over the trend strategy.

Limited number of ZN/ES Licenses for the AutoTrader

These first customers are all guaranteed AutoTrader licenses that will trade both the ZN and ES, or anything else that has proper liquidity and patterns (think German Bonds).  However there will only a total of 10 licenses available.  There will be a different strategy that will only be able to trade the ES Tick Divergence using AutoTrader.

What should you be doing now?

Without a doubt you should be making a trading plan based on statistics.  Call me and I will help you with that.  The next post will deal with all of the options and will feature a downloadable manual for the strategy.  But if you do not start this process now, you are wasting valuable time to play with the strategy for free.  Additionally this is not Tradestation.  It would be a mistake to assume that you can set the defaults, run it, make changes and optimize.

Lastly you should be using NinjaTrader to download and save market replay data.  Downloading the ES and ZN from the Download Market Replay function will only go back so many days.  But I have seen that there is a small difference between the actual values of the $TICK on the live chart and what Download Market Replay gives you.  I would guess this is because there are different servers and one server recorded it one way and the live server you were on gave you a different number.  So you should have the Market Replay recorder running from 930 to 1600 to get this data and know that it is right.  When the NYSE is closed, download the ZN and ES data so that you have the full day of data.  Do not overwrite the $TICK.

The full risk disclosure can be found here.

Auto Trade Strategy

Auto Trade Strategy

ZoneTraderPro has developed auto trade strategy that will be able to be used for the ES Tick Divergence trade and the ZN 10 year bond that has been talked about in previous posts.  The auto trade strategy is in its final stages of development, with almost all of the features now added.

One huge advantage of the auto trade strategy is its ability to always have your orders in the queue and ready to trade.  It does not matter where the price currently is, ZoneTraderPro knows where the blue counter trend zones are at all times.  Because of that you will always have pending orders, so that your orders have a greater chance of being filled.

In the SuperDom pictured below, you notice that the Stop Market order is 13 ticks away from the price.  This is because the strategy is using the NinjaTrader Simulated Stop, which you do not see in the SuperDom, but is seen on the chart.  The order in the SuperDom is a hard stop in case you lose internet connectivity and the simulated stop can not be triggered.

SuperDom with Orders
SuperDom with Orders
Short Bond Trade
Short Bond Trade

 

The pink lines on the chart represent the resting orders.  When the pink line starts to print, that’s the bar where your order was in place.

Then when you are filled, ZoneTraderPro can set automatically set a target at the intermediate zone, or at a specific profit target.  In this trade, because of the adverse excursion, the green intermediate support zone painted just 4 ticks from your entry.  If you have a profit target of 5 or more, you were not filled.  5 was the original profit target, but when the adverse excursion occurred the profit target adjusted to 4.  You can see this in the dark blue line.  The dark blue line moves from 129.145 to 129.150 and you have a successful trade.  This also works if the intermediate zone is 6-7 ticks away.

Exit from Short Trade
Exit from Short Trade

 

 

The auto trade  also has the ability to adjust target and stops based on what the pattern is telling you.

You have the ability to move a stop to breakeven (and offset it) when you have favorable excursion.  In addition the NinjaTrader simulated stop has also been programmed as an option to the auto trade strategy.  Here we have a trade that went 4 ticks favorable but stopped at breakeven -1.

Auto Trade Strategy Breakeven Logic
Auto Trade Strategy Breakeven Logic

 

If you have adverse excursion you can exit at either breakeven, or at minor support/resistance.  In this trade we have the adverse excursion set to 6 and to exit at minor support.  The reason for this is that in a strong trend, as defined as the market trading at the pink strong trend resistance zone, we expect a small amount of profit taking and a retracement to minor support.  If you had set this function to exit at breakeven, that was the wrong answer.  This illustrates how important it is to completely understand the ZoneTraderPro strategy and how important it is to do your homework before using real money.

 

News Events – Known and Unknown

If there is a known news event, you can program the auto trade strategy to turn off and exit your position. However the auto trade strategy has logic to exit your position in case of an unknown news event.  Here we have an illiquidity (and a loss) due to a news event.

 

Here is that same trade using illiquidity filter.  The pink lines stop printing on the bar where the illiquidity alarm was triggered.

Bond Chart from News Events
Bond Chart from News Events

 

I have preset the filter so that if liquidity droops below 1500 contracts on either the bid or the ask, all orders are cancelled.  The logic will then prevent any orders from being placed for the time that you prescribe, in this case 5 minutes.  I have also the email function so that if the liquidity alert is triggered you can get either a email or a text message sent to your phone.  I have set up mine to send the alert immediately to my cell phone.  If the illiquidity continues while the auto trade strategy is in timeout, the 5 minute clock resets.

Auto Trade Strategy Illiquidity Trigger
Auto Trade Strategy Illiquidity Trigger

 

The 1348 contracts on the bid sets off the trigger when the price was at 129.035 and the intermediate zone had not even printed yet.

Illiquidity Trigger Chart
Illiquidity Trigger Chart

 

The software also features 3 buttons on the top of the chart to give you even more control.

Software Buttons
Software Buttons

 

The 1st button, Trade (Enabled) allows you to temporarily close open orders without killing the strategy and doing a re-start.  The reason you would use this is that if you are listening to the news, and you hear that the Fed Chairman is set to give a speech in 20 minutes, that you did not know about at the beginning of the day.  You can click the button and wait until after the news event is over.

The green Adjust Target button moves the target to the intermediate zone.  You could use this if you had set a profit target at 5, but intermediate draws at 2-3.

The red Close All closes everything and disables the strategy.

Purchasing the Auto Trade Strategy

The auto trade strategy will be available as a monthly lease.  There will only be a limited number of licenses available that will be able to trade the ZN.  Those ZN licenses will also be able to trade the ES also.  The reason is that we will be in direct competition to get our orders filled on the ZN, which is a very liquid market to begin with.  The ES strategy only for the TICK Divergence trade will be priced less.  The strategy was very expensive to develop and pricing will be based upon the final costs.  You will be given two free weeks with the purchase in order to test your specific strategy in the SIM and replay mode.  You have to have purchased a NinjaTrader Lifetime License to be eligible for the Auto Trade Strategy license.

What you should be doing now

You should be downloading the ES and ZN replay data every day.  This is found under the File-Utilities menu of the Control Center.  Then you should be building a database of all of the trades which includes a screen shot picture of the trade.  This database needs to account for all of the trade handling abilities of the auto trade strategy.  These abilities will be published in a future post.  In the meantime, contact me and I will show you the strategy and its features.

NinjaTrader Web Event

On Wednesday April 22 I will be hosting a NinjaTrader Ecosystem web event at 1100 AM EST.  I will be showing some additional examples of the Auto Trader Strategy and the real time indicators I use.  If you would like to attend here is a link to sign up.

https://ninjatrader.omnovia.com/register/30461429302765

If you are not a current ZoneTraderPro customer, there will be a special discount pricing of $500 which will be available for just 48 hours.