Trading the Moon, Mechanically

Trading the Moon, Mechanically

Why on Earth would anyone want to trade moon cycles?

Trader 1: Because there is no stock market on Mars!
Trader 2: Because trading the Jupiter cycle would be too boring!

Attempts at jokes aside, frankly it’s beyond me why anyone would think that distant celestial bodies actually have an effect on the behavior of stock market participants. After all, if you like trend lines and you draw enough of them on a chart, some of them are bound to hit some turning points. The same thing with cycles of planetary motion – if you consider enough planets, moons, cycles and degrees from Jupiter, etc., you’re bound to find some correlations.

The thing is that for the past 20 years or so, if you had bought on the full moon, held for approximately two weeks, sold on the new moon, and then sat out of the market for the next 2 weeks until the next full moon, you would have approximately matched the broader stock market’s return (or handily have beat it depending on your starting date), and for now there are no signs of that trend abating. When you consider that the “moon strategy” produced those returns with markedly less drawdown and about half the exposure, well my stargazing friends, grab your telescopes because that deserves a closer look!

On WealthSignals, Moon Phaser employs the Nasdaq 100 triple-Qs (QQQ) as its trading vehicle. Nonetheless, you can elect to trade any broader-market ETF proxy that you prefer in a live account: QQQ, SPY (S&P 500), IWD (Russell 1000 Value), IWN (Russell 2000 Value). We’re all aware that it’s plain easier to continue trading a strategy if your equity isn’t taking big hits only to have to recover to attain the level already achieved. In the case of SPY, the 2008 bear market drawdown for buy & hold was over (56%). Compare that to less than (35%) for SPY or IWD trading the moon cycle. And for those who can handle significant risk, blast off with QLD or SSO (2x QQQ or 2x SPY, respectively). Their moon-phase drawdowns compare favorably with trading their “1x” counterparts but produced significantly greater returns.

Check out the chart below that compares hypothetical Moon Phaser returns of $100K starting capital and re-investing 100% of equity and dividends (no commissions or taxes) for QQQ, QLD, and TQQQ (3x QQQ) since 1 March 2010, the session after TQQQ was first introduced to the market – and as chance would have it, the day of a full moon! From that starting date, buy and hold (B&H) turns out to be the mildly better strategy in terms of annual returns (APR), but the Moon Phaser strategy was able capture the lion share of gain with half the exposure and significantly less drawdown.

Moon Phaser captures up to 96% of market gain with significantly less drawdown and half the exposure of Buy & Hold

Moon Phaser captures up to 96% of market gain with significantly less drawdown and half the exposure of Buy & Hold.

Considering that leveraged ETFs are generally meant to be used as short-term trading vehicle and not as buy & hold instruments, employing them with a strategy like Moon Phaser to a small portfolio allocation looks attractive. Another trading option is, well, [in-the-money] options – but for now we’ll just let that idea simmer in the cosmos.

Have we mentioned that you’re sitting in cash about half of the time while howling at – I mean trading – the moon? (We did since that’s what meant by 50% exposure.) Sometimes holding cash is a good strategy; sometimes you’re left holding the bag while the rocket ship leaves orbit. And, other times it’s what you do with that cash that can make a difference. We don’t recommend allocating an entire portfolio to only one trading strategy or instrument, consequently Moon Phaser provides the flexibility to employ unused cash in other short-term, swing trading strategies.

Let’s recap: Moon Phaser…

  • is the oldest strategy on WealthSignals – more than 16 years since its appearance on Wealth-Lab.com.
  • has returned 10.7% annualized in the out-of-sample WealthSignals test period.
  • produces similar gains as buy and hold with far less drawdown and exposure
  • is very easy to trade: only 2 signals approximately every 4 weeks.

Even if you don’t actually trade the moon cycles, sign up for Moon Phaser signals anyway. If you’re sitting on the discretionary trading fence for whether to buy or sell, maybe the tidal forces can bump you one way or the other!

self-directed investing

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Disclaimer
WealthSignals™ information is based on hypothetical performance results which have certain limitations. They do not represent actual trading and therefore do not have financial risk. Any interpretation of data presented that leads to an investment is at your own risk and WealthSignals™ or its affiliates will not be responsible for any losses that occur from such investments. Past performance is no guarantee of future returns.

Interview with BWO – ETF Pairs Arbitrage – Mechanical Trading System

BWO is an author of one of the leading strategies on WealthSignals.

His strategy “ETF Pairs Arbitrage” is around for over 4 years by now

and has gained over 500% during this time.

Beau, your strategy ETF Pairs Arbitrage (EPA) has been one of the top performers on WealthSignals.com for several years now. Congratulations on this achievement! How did you get started as a quant, and how long have you been developing trading systems?

 Hi, WealthSignals, I have been a quantitative developer and analyst since May 2003. At that time, I was taking a Course called Theory of Investments at Centre College in my Financial Economics Bachelor of Science Mathematics Minor.. And, then my family decided to compete in the financial markets with me as General Partner of what we called The Nexial Investment Club Partnership, split equally amongst the immediate members of my family.

 

What is the history of EPA?

I realized that I was going to inherit some money that could become a fantastic fortune within 10-15 years and so six to eight months after QID and QLD began trading around July 2006 on March 21st 2007 I perfected Pairs Trading QID QLD Scalper. I was already looking for algorithms to use and found them at an undisclosed location on the web long since gone are its explanations and histories… however, since my Majors in High School were Mathematics, Science, and Computer Programming, I knew that either of these two strategies would deliver significant wealth to me and my family when deployed accurately. After a spat with my broker/dealer about offering these types of strategies, I went to what I believed was a more compliant web service through Interactive Brokers called Covestor. Then I went to World Cup to be an Advisor and CTA and was a trade leader at both. Although I had an outstanding record there, when I made the decision to join WealthSignals I had to terminate that relationship and that is why I am here earning way more than I did on any other site offering the types of mechanical and statistical strategies that are like what WealthSignals offers, just EOD for now, but that will likely change to RT in the near future..

If EPA fully mechanical in nature, or do you allow any of your own intuition in the signals?

There is no intuition to the Primary Alpha, which is my WealthSignal to trade. It uses Chebyshev’s Theorem of 1865 and the 1895 Empirical Rule of Statistics to compute either of the three possible ranges of values for the market:
  1. Fair Value Question: When does fair value happen? The answer is after Normalization so this is a Normalized Volatility Based Overbought Oversold Threshold,
  2. Overvalued and our favorite,
  3. Undervalued. The only intuition I really have is to take Armageddon Events seriously.. and, if one were to open I have a failsafe overlay to just exit the position and wait for Normalysis to take its power over the market once again. Emotion plays no part in my WealthSignals.

I tend to approach trading system development in a scientific fashion, starting out with a hypothesis such as “piggyback a strong breakout” or “prices revert to the mean”. What assumption did you intend to validate when developing EPA?

 Mathematics from my Associates equivalent at Centre College explained that these two Theorems named above (Tchebychev 1865 and Empirical Rule of 1895), show the percentage of data above and below the mean.. This would only be intuitive to someone like myself, but, not to be glib, it was not exactly “prices revert to the mean” or “mean reversion” but it was “mean reversion through Normalization”or “Prices Revert to the Mean by Normalysis” so that was what I was trying to prove along with my Linear Regression Analysis Tricks.

We noticed that often in WealthSignals.com, a publisher will submit backtest performance for their trading system, but then over time the actual performance will not live up to the backtest results. This could be due to overoptimization, survivorship bias, or other reasons. EPA, on the other hand, has actually shown a higher out-of-sample performance.

Do you have any insights into why?

Yes, I do! It’s from incorrect data pulls and the amount of data involved in each simulation an Author submits to WealthSignals. The only reason it takes tens of seconds for me to issue the EPA WealthSignal Strategy Orders is because I have to make sure the data is correct before I submit my decision to WealthSignals, and for me it comes down to whether the prices are the same as my Terminal in Active Trader Pro. Every trading day I have to check data before submitting signals and on days when I have signals to issue orders to WealthSignals I use the Order Entry Publisher from WealthSignals at 97% of equity and then a numeric value to sell and/or reverse.

 

Do you optimize or tweak EPA periodically, or has it remained “as is” since its inception?

Basically syntax only, no logic changes in 5 degrees of freedom out of 6500 bars when combining QID with QLD and some Linear Regression Analysis similar to that used in every one of my publications. I used to be nexial_1002002 on the old wl4.w-l site and it was on there that I found fame through my Presentation to the Kentucky Math Association in May 2005 at my Alma Matre as a Junior entitled Dip Buying using Bollinger Bands. Regretfully, until about one month ago, I had to declare that the strategy could not be implemented due to technological infeasibility. (This has changed with the advent of Quantacula). And this infeasibility declaration was also true for many years of people who counted my algo out as I was watching it accumulate massive 30% quarters nearly every quarter which is what it feels like to me when I see my TQQQ and SQQQ Returns.

 

ETF Pairs Arbitrage, as its name implies, is traded on a pair of ETFs. Have you tested the logic on any other assets, different ETFs, international ETFs, stocks, futures? If so, how did it perform?

Yes, They have to be perfectly negatively correlated instruments to be pairs first off, and second, if you were to use these models on SSO/SDS. MVV/MZZ. DDM/DDZ…etc… Yes! I’ve tested on all of them from wl4 but not the current .Net version and they were very good performers. It’s just that S&P500 was always dip buying mostly due to oil and very correlated with the Dollar Index so after simulating a hypothetical $1600 backprice on QID and a $1 starting price on QLD the system does have validity back to 1985 and that’s as far as I can see CBOE’s NDX when these instruments became possible to simulate.
Are you developing any new trading systems that you’d like to mention?
Only one, and one of my favorite achievements: SUPERBANDS: I’d like you guys to visit my Facebook Algo Shop at KCCMBWO’s Page So You can compare the two algorithms my Family Trades and Plans to Trade and offer forever as these will have the backtested equity curve that can now be followed through WeathSignals.

I was instrumental in the development of the Quantacula Studio WealthSignals Broker Adapter which I think is a magnificent step forward for the industry I’m a part of.. 

 

Finally, do you have any advice to EU residents who want to trade “EPA” but cannot due to trading restrictions on U.S. Exchange Trades Products?

Guys, Double Leverage Just Means 2x Leverage. And 3x Leverage to convert from 2x leverage is the 2x return raised to the three halves (3/2) power and you can go up to 5.63 to 1 to get the returns that I get in Futures Markets if you remember these procedures:
  1. Compute your Delta Hedge Leveraged Factor:
    • Q: What is a Delta Hedged Leveraged Factor?
    • A: Say you have $140,000 and NQ Is trading at 7,000. These are equivalent and so when NQ loses 70 points your equity will drop by $1400 because 70 points times $20 per point is that value and is equivalent to 1%. So by Dividing $140,000 if NQ is at 7,000 will require you to divide $140,000 by 5.63 as the amount per contract you can trade in futures.
      NEWS FLASH: CME is going to begin offering Micro Contracts on NASDAQ-100 and this same process can be used on them with even smaller amounts of capital required for margin!!
  2. Place Trade at the right time which is 9:30 AM EST for EPA and I will only buy in SuperBands during the day and just sell at market the next day on the open, too.

WealthSignals.com at https://www.wealthsignals.com/Strategy/Detail/ETFPairsArbitrage-9IP7Vx

That’s my Whole Algo Shop with Equity Curves Shown again, at https://www.facebook.com/pg/KCCMBWO/shop

See My YouTube Channel at https://www.youtube.com/channel/UCA_6TkmtuUo71Gpp3pjmnvQ
And My Companies Youtube Channel KCCMBWO at https://www.youtube.com/channel/UC5eGEhOS1CiE1jNapjU-tOA

Also see my twitter at https://www.twitter.com/BWorldOmnimedia
And my CV on LinkedIn at https://www.linkedin.com/in/kccmbwo
And My Company’s LinkedIn Page at https://www.linkedin.com/company/890241/

Your Best Market Place Trading Systems Provider of 2018 & 2019 by Wealth and Finance International Magazine:

Beau Wolinsky

President and SRO CEO, SEC Exempt IA, CFTC Exempt CTA, CPO
KCCMBWO
KC Capital Management Beau World Omnimedia KCSE
Kansas City Stock Exchange

MLGP
Master Limited General Partner Energy Farms US Partners MLP
MLGP

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When a mechanical trading system is having a drawdown what do you do?

When a mechanical trading system is having a drawdown what do you do?

Suppose you’ve subscribed to a “star” system and one day find your broker account losing money as the system has entered a drawdown. Volatile markets expose trend-following systems to a higher chance of false moves which lead to losing trades. You’re tempted to unsubscribe. Ironically, it’s when we give up on such system it frequently comes back with a big winning trade that pulls it out of its drawdown.

So should you pull the plug now or perhaps there might be a smarter option?

Sophisticated money managers use methods which seek to extract extra profits during a system’s down phase. For example, moving averages can be applied to a system’s equity curve. Called trading the equity curve, this technique marks the system out of sync with market conditions when its short-term average of the equity curve gets below above a longer-term average. “Paper trading” during this phase increases your odds of not taking trades which are likely to turn out losers.

ETF Pairs Aribitrage mechanical trading system

If you’re a WealthSignals subscriber, staying on the sidelines is not your only choice. As the odds of the winner trade appearing soon are increasing, the trade size can be added to each time a losing trade occurs. While this sounds counter-intuitive, backtesting suggests that variations of this Martingale money management may actually improve performance:

Losing streaks: After each losing trade, slightly increase the next trade’s position size step by step until some upper limit is reached. Stop the increase if the losing streak gets too big, and get back to original size after a winning trade.

Reverse trade: When the next trade has a higher chance of failure, be it a losing streak or system’s equity staying “under water”, don’t suspend trading. Instead, execute the signal in reverse — go short when a buy signal occurs and vice versa. Those with appetite for risk may increase the trade size.

Not every type of system can be “reverse traded” like that, and “over managing” is a double edged sword. Professional traders know that for a robust system with positive mathematical expectation, every losing streak or drawdown will eventually end. If a WealthSignals system has a proven track record, an equity dip may give you the edge and offer a lucrative opportunity to subscribe!

The odds on having an upturn are increasing every day!

What is a drawdown?
What is a drawdown?
Drawdowns are important for measuring the historical risk of a mechancial trading strategy, comparing fund performance, or monitoring personal trading performance…
Any Questions?
Our Support Team is here for you. Feel free to use our live chat or contact us via email.
Disclaimer
WealthSignals™ information is based on hypothetical performance results which have certain limitations. They do not represent actual trading and therefore do not have financial risk. Any interpretation of data presented that leads to an investment is at your own risk and WealthSignals™ or its affiliates will not be responsible for any losses that occur from such investments. Past performance is no guarantee of future returns.

How to Make More Money Using Purely Mechanical Stock Trading

How to Make More Money Using Purely Mechanical Stock Trading

ETF Pairs Arbitrage is one of the best long standing strategies we have ever seen, earning over 560% compounded return since 3 March 2015!

Meet a goose that lays golden eggs

ETF Pairs Arbitrage (EPA), developed and published by Beau Wolinsky (BWO), is fully mechanical in nature – that means it takes the human equation out of trading and produces trading signals through pure technical analysis by mathematically analyzing stock market data.

 

TAKE A LOOK AT THESE STATS:

  • All time profit approaching 600% with current 54.36% APR
  • Its best year earned 91.69% in 2018 when the S&P 500 was down -6.24%
  • YTD is 22.05%
  • It averages 2.5 trades per month – incredibly easy to trade!
  • BWO’s average forum response time to subscriber questions is less than 12 hours.
  • Actual trading results for the last 5 years have beaten research results going back 10 years.
  • Award winning Best Robo Advisor three years in a row.

Bottomline: MAKE MORE. WORK LESS.

A technical word on ETF Pairs Arbitrage (EPA) from BWO…

EPA uses Chebyshev’s Theorem of 1865 and the 1895 Empirical Rule of Statistics to compute one of the three possible ranges of values for the market:
  • Fair Value Question: When does fair value happen? The answer is after Normalization. So this is a Normalized Volatility Based Overbought Oversold Threshold,
  • Overvalued, and our favorite,
  • Undervalued.

The only [human] intuition I really have is to take Armageddon Events seriously, and, if one were to appear, I have a failsafe overlay to just exit the position and wait for Normalysis to take its power over the market once again. Emotion plays no part in my WealthSignals.

Check out your next mechanical Strategy's Performance Details

Where would you rather put your money?

A $10,000 investment following the S&P 500 since EPA’s 3 March 2015 starting date would have compounded to approximately $13,024 today, but the same allocation of capital following the EPA Strategy would be worth $63,188That’s 17.59 times greater return on investment!

Compare the S&P 500 vs ETF Pairs Arbitrage (EPA)
Returns by year S&P 500 EPA Missed out
2015 -1.58% 33.60% 35.18%
2016 11.89% 34.70% 22.81%
2017 21.53% 50.10% 28.57%
2018 -4.54% 91.70% 96.24%
2019 10.30% 22.05% 11.75%
Compounded 30.57% 531.88% 501.31%
Annualized 6.49% 54.36% 47.87%

Frequently Asked Questions

What is WealthSignals?

WealthSignals is a marketplace for strategy authors to sell their trading alerts to subscribers without giving away their intellectual property – the strategy itself.

Are WealthSignals results real?

Signaling is “live”, but WealthSignals displays hypothetical results based on real market data. In practice, if you trade a market-order EOD strategy like ETF Pairs Arbitrage, you can duplicate trading entries and exits by placing “Market On Open” orders with your broker.

How does EPA deliver signals?

EPA signaling usually occurs shortly after the market’s close. WealthSignals transmits signals and updates to Subscribers by email. Subscribers can also access signals by logging in to the system’s page.

What is EPA’s average investment size?

When you subscribe to a WealthSignals strategy, you will enter the allocation of capital that you intend to use to trade the system. This allows WeathSignals to send you the correct position size for signals. Allocation entered by subscribers varies greatly from $10K to more than $400K, averaging approximately $50K.

What makes us experts?
The same team who created Wealth-Lab, one of the top-rated technical analysis software in the world (now owned by Fidelity Investments, but still supported by us) also created WealthSignals. For nearly 20 years we have been rubbing shoulders with mechanical trading system authors from all over the world: problem solving, creating new charting extensions, analysis tools and data solutions, and just improving financial data research. Making WealthSignals.com was a way for us to encourage End-of-Day (EOD) system authors to share their talents with the world. We expected great things, and we weren’t disappointed.

Check out your next mechanical Strategy's Performance Details


Mechanical Investing
Mechanical investing is any one of a number of ways of buying and selling stocks according to pre-set criteria or triggers…
Any Questions?
Our Support Team is here for you. Feel free to use our live chat or contact us via email.
Disclaimer
WealthSignals™ information is based on hypothetical performance results which have certain limitations. They do not represent actual trading and therefore do not have financial risk. Any interpretation of data presented that leads to an investment is at your own risk and WealthSignals™ or its affiliates will not be responsible for any losses that occur from such investments. Past performance is no guarantee of future returns.