LiveTradingSystem Free Weekly Report
Highlights (Sunday, September 16, 2023)
- We lost 0.46% this week with some setback.
- We are holding cash and waiting for the next move.
Live Trade – Investing Angles has opened a discord room.
Hosted by David Lee (Twitter ID: SimpleMoneyZone).
See a brief explanation of the strategy and results.
Live Trading System: hosted by David Lee (Twitter ID: SimpleMoneyZone).
Trading System Review:
Copied from last week’s report:
“We closed our long position on September 5, 2023 (Tuesday), which was initiated on August 22, 2023, with a +2.56% profit. Following that, we have been holding cash for the rest of the week because the timing model blocked the short trade. I have been working on extending the short signals to the timing model blocked situations. Although a +2.56% trade profit may seem small, over time, it will steadily increase my long-term trading account with minimal drawdown, unlike many who are seeking higher-risk short-term gains.”
What’s happening this week:
We initiated a short trade on September 12, 2023 (Tuesday) using 50% of the $SH position. Unfortunately, we closed this trade on September 14, 2023 (Thursday) with a 0.46% loss. Short trades inherently carry more risk than long trades. This is because there’s little room for doubt when a short trade goes against you, even briefly. The trading system operates within strict limits when it comes to bearish trades.
This particular short trade was based on some newly implemented short rules. These new rules had already shown an 8% improvement over the last 10 years during backtesting. I was eager to push for an additional 2% return by making these rules slightly more aggressive. However, going forward, I’ve decided to continue using the newly added short rules but with a more conservative approach.
My philosophy is that we don’t necessarily need to catch the very beginning of a short trade, such as the move from SPX 4500 to 4400, even if it offers a good risk-reward ratio but has a lower probability and involves choppy price movement. Instead, we can remain in cash and focus on capturing the core decline of a trend based on a more conservative setting, like the move from SPX 4400 to 4200, where the probability is higher, even though the risk-reward ratio may not be as favorable at that point. I believe that playing a more conservative game with a higher probability of success is crucial for long-term success and emotional stability.
System Status and Market Outlook:
Copied from last week’s report:
“Last week, I mentioned that we were anticipating a much easier sell signal this week. We did indeed get the sell signal on September 5, 2023 (Tuesday). Currently, I am awaiting a Type-A long signal to set up for the coming week. However, as of now, the market has not even entered the Type-A oversold zone. It seems like the market is seeking a bounce followed by another leg down. I am actively working on short signals that will function regardless of the timing model. Therefore, we may have a short trade setup next week, potentially followed by a Type-A long trade. Conversely, if the market demonstrates significant advances and improvements, we may also see a Type-B long signal triggered in the near future.”
What I anticipate for the coming week:
We may have another opportunity to enter a short trade early next week. Hopefully, this time, we will see the more conservative shorting rules align when the timing model is not in agreement. Additionally, the option data might influence the timing model to turn short next week.
However, if the timing model doesn’t align next week or if the more conservative shorting rules aren’t met when the timing model is not aligned, we will continue to hold cash. We won’t succumb to FOMO when it comes to shorting. We can enter a short trade late as long as we exit before the music stops.
On the flip side, the market has spent quite a few days without entering the Type-A oversold zone. It’s possible that we’ll finally dip into this zone next week, followed by a reversal with good market strength. In such a scenario, we will trigger the Type-A (oversold) long next week.
It’s also possible that we’ll have a short trade first, followed by a Type-A (oversold) long. I’m not certain whether this potential short trade will be a winner, even with the conservative rule satisfied for this single trade. However, in the long run, I believe that these types of short trades will be profitable with a high likelihood. In this kind of market, it’s important to stay relaxed and simply follow the rules, no matter what unfolds.
Wishing everyone a great weekend!
The Psychology of Our Live Trading:
This week, our focus was on identifying a potential sell signal. I previously mentioned that triggering a sell signal this week would be relatively easier compared to the previous week. The positive news is that the bullish momentum carried forward, aligning with our Type-A (oversold) long trading signal. So, after all, we are still holding our long position without triggering any sell signal.
At present, it appears even more feasible to initiate a sell signal next week compared to the current week. Let me clarify this point further. If the bullish trend persists in the upcoming week and gains more traction, the situation could become more intricate. This scenario might lead to an even more straightforward sell signal. Concurrently, we might also encounter a Type-B (breakout) long signal. The intricacy of trading emerges from these nuanced shifts between bullish and bearish trends, each offering optimal risk-reward ratios.
To sum up, our focus remains on identifying increasingly feasible sell signals. However, if such a signal fails to materialize or occurs later than anticipated, the overarching trend could turn even more bullish. If we eventually trigger the Type-B long signal, it could be short-lived, potentially marking the final peak before transitioning back to cash. I hope this clarifies the situation for you.
It’s important to emphasize that no trade is inherently easy. At times, a seemingly tough trade can turn out to be straightforward. If you are a paid subscriber and find challenges in executing these trades effectively, please feel free to contact me for a Zoom meeting. We can discuss strategies to overcome these challenges and delve deeper into understanding the trading system by examining its intricacies together.
Trading System Backtesting Statistics
- I just reviewed the backtesting statistics of the system and found that it holds cash for about 25% of the time, with 60% of the time allocated to long positions and 15% of the time allocated to short positions. This is a low-frequency swing trading system that averages about 2 trades per month. Over the past decade, the system has generated a simple interest return of approximately 400%, with the potential for even higher compound interest returns.
- The win/loss ratio for long positions is around 4:1, while for short positions, it’s around 2:1. This suggests that the system may hold cash for roughly one week per month. As such, patience and confidence in the system are key to long-term success. The overall win rate for the system is around 80%, with a 75% win rate for long positions and an 85% win rate for short positions. It’s worth noting that the maximum drawdown for the long position is around 5%, while for short positions, it’s 7.5%. Therefore, to avoid significant drawdowns and potential damage to your trading psychology, it may be beneficial going long using 100% $SPY and going short using 50% $SH.
- Regarding holding periods, the long position for Type-A (oversold) lasts around 8 trading days, while Type-B (breakout) long positions last around 16 trading days. Short positions typically last around 5 trading days. Therefore, patience and discipline are critical in achieving long-term returns. However, it’s important to note that these time periods do not take into account stop-out cases.
- Overall, the system has been performing well in recent months, but it’s important to continue monitoring its performance in real-time.
How to follow the Trading System:
- It is very user friendly and time friendly to follow our Trading System.
- Live Trading Signals are sent as soon as they are confirmed.
- Trade changes occur only at market closing price or shortly after, if the signals cannot be confirmed until market closing price.
- This ensures that everyone has the same entry and exit price.
- I am using MOC order myself (TOS or Fidelty has it)
- I also have extended hours trading available.
- Stops are set in advance. Intra-day stop out alerts may not be sent.
- Stops are updated every night if necessary.
Trading Strategies:
I have been reading Sun Tzu’s “The Art of War” and would like to emphasize its three core ideas: 1) use strength to defeat weakness, which means taking easy trades over difficult ones, 2) be patient and wait for the right moment to strike, and 3) calculate potential losses and avoid failure.
The job of the system is to find the easiest way to make money once the market shows its hand. My job is to take all the trades as long as the system gives a signal. Your job is to acknowledge that we only have an 70%-80% win rate and 2~3:1 win/loss ratio based on backtesting only and be responsible for your own trade once the signal is triggered by the system. We won’t have a 100% win rate forever, that’s for sure. But I have the courage to take all the trades 100% as they come, and I will be responsible for my own trades 100% as they come, whether they result in a win or not.
Please retweet my pinned tweet at the top of my profile. Thank you for your support!
Disclaimer: Trading stocks involves high risks, and you can lose money. You are responsible for your own investment decisions.
Live Trading System: hosted by David Lee (Twitter ID: SimpleMoneyZone).
Fresh signals coming soon! Don’t miss out. #trading $SPX $SPY $SH $QQQ.
