Daily Commentary - Posted on Monday, October 12, 2009, 4:00 PM GMT +1


Oct Monday 12

A Few Changes to the Blog (Strategy Performance)


I’ll  make a few changes to the blog, adding new features not only in order to increase the blog’s readability (e.g. a navigation strip on top of the post, new tables), but to make TRADING THE ODDS’ hypothetically performance statistically ascertainable.

From today onward I’ll add a section below the bottom line which summarizes potentially tradable edges based on those setups which were triggered on close (or might be triggered anytime during the next session provided that …) of the respective session. It regularly at least shows a long or short position (provided that at least one setup showing a statistically significant edge had been triggered) opened at the close (04:15 PM CET) of the previous session targeting a higher/lower close on the on the then following session (underlying, direction and position size will be published via Twitter a couple of minutes before the respective close). The (hypothetical) position taken on the close (04:15 PM CET) of Friday, October 9 is listed below.

This will not only give you the chance to catch on a glimpse if – and to what extent (odds / position size) – market history provides any tradable edge(s) on close of the respective session, it will make it possible (as requested by a couple of readers) to track if – and to what extend –

  • the current markent environment complies to historical probabilities and odds, and
  • TRADING THE ODDS‘  – for statistical purposes only – as a (hypothetically) actively managed portfolio based on a market timing strategy might be able to beat a buy-and-hold passive investing approach.

But please be reminded and take into accout: Under no circumstances does the data represent an advice or recommendation to buy, sell or hold any security. Past results are never an indication of future performance, and potentially trades published at the blog and at Twitter will sometimes  (may be regularly) NOT match my own trades (it might even happen that I’ll take the opposite position as a hedge due to the fact that I’m already positioned -and leveraged- in the ‘assumed favorable’ market direction, but utilizing other equity classes like European index futures, VIX futures or options, among others).

Profit and loss stats will account for (hypothetical) transaction costs, but not interest on idle balances. Although any (hypothetical) position taken will regularly target a higher/lower close on the then following session, it might be closed ahead of time (means regularly ahead of the then following session’s close, e.g. during the overnight GLOBEX session or at any time during the then following regular session before the close) – published at Twitter (so they will be time stamped, no respective Twitter update means the trade will be closed at the given time, e.g. the close) – if the respective circumstances / market environment suggest to do so.(e.g. the profit target would’ve been achieved early, the risk/reward ratio becomes unfavorable, contradictory weak/strong Asian/Europe markets, contradictory market internals / market breadth, breaking news, among others).

Consequentially (due to the statistical apporach) for position sizing Ralph Vince’s optimal f will be utilized (highly agressive, not recommended for a personal trading account). P&L stats (simple, not compounded returns) and the concrete position taken (number of contracts) will be based on a hypothetical fixed account size of $100,000 and will in particular take into account overnight / intraday margin requirements as well (therefore any overnight position will never exceed 18 contracts, and intraday position size is limited to 39 contracts).

Strategy performance / Trading history (starting 10/07/2009) can be found here.


Summary of potentially tradable edges for Monday – October 12, 2009

Pos. Size 2) 3)
10/09/2009 close E-MINI S&P 500 LONG higher close next day 1068.00 (17) $5,868

  • due to the fact that the data is intended for statistical purposes only, regularly no stop is provided (if not stated otherwise) ; the trade may be closed early if the respective market environment suggests (published via Twitter)
  • the STOP may represent a buy or a sell stop ; on a long position a STOP above the ENTRY will represent a limit order (profit target achieved), a STOP below the ENTRY a stop order ; the inverse applies to a short position respectively
2) For position sizing, optimal f (by Ralph Vince) is utilized;

optimal f = ([( win/loss ratio + 1 ) * probability of a winning trade ] – 1 ) / ( win/loss ratio ) ;
win/loss ratio = avg. gain on a winning trade / avg. loss on a losing trade ;          /% simplified version
Pos. Size (in $) = MAX [Intraday / Overnight Initial Margin ; Maximum Losing Trade (in $) / optimal f ]
(Intraday Initial Margin = $2,250 ; Overnight Initial Margin = $5,625)

3) Position size in units per $xxx of marginable equity; if the E-MINI S&P 500 is utilized, the number in brackets equates to the number of contracts, otherwise to the number of leveraged Exchange-Traded Funds (ETFs) of 300% of the (inverse) performance of the underlying index, assumed a fixed marginable equity of $100,000

Successful trading,

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

Comments (4)


  1. CarlosR says:

    Frank, these changes look very good. I was doing some of the performance tracking of your ideas on my own, but this will be much better. (and a lot less work for me!)

    I also like the “Tradable Edges” section — your blog just keeps getting better and better!

  2. Jeff Pietsch says:

    Very helpful and a good direction, thanks Frank – Jeff

  3. Gypeleate says:

    Hey there everyone i was just introduceing myself here im a first time visitor who hopes to become a daily reader!

  4. moismjede says:

    Very nice Blog, I will tell my friends about it.


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