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Realtraders:
Below is the first "real time" posting of Trendy Updates of our
proprietary neural net models. By way of very brief explanation, there are
three Models reported on in the updates. Both the "DayTrade Model" and the
"Hybrid Model" are based exclusively on the Trendy Neural Net. The "AT"
Model is not based at all the neural net but instead is designed to be a
trend following model based on adaptive moving averages. Everything is
fully explained and documented at our web site, which is free except for
these "real time" updates, which for awhile will be free and posted to this
forum, usually before 9:00PM EDT.
I am providing rather long but necessary description of our Hybrid Model,
as copied directly from the web site. Trendy's Update for Monday's trading
follows this description.
Allan P. Harris
http://www.TrendySystems.com
S&P Hybrid Model
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SUMMARY:
Basis of Trading Algorithm: NeuralTrend neural net
Nominal NeuralTrend thresholds: BUY @ 0.92 or above, SELL @ 0.05 or below
Does RunAway Mode dynamically alter these signaling thresholds?: yes
If yes, what are the altered levels?: Up, BUY @ 0.55 / Down, SELL @ 0.45
Average trade length: 1.5 days (with some variability)
Percentage of time in the market: Roughly 50%
Type of INTRAday Protection STOP: dynamic, percentage-based
Value of INTRAday Protection STOP: 1.5% of original trade price
Does the Protection STOP "trail"?: yes
Does the trading simulator hold overnight?: yes
Does the trading simulator use 10p GLOBEX?: yes
Does the trading simulator use the Next Day's Open?: no
Does the trading simulator use the Next Day's Close?: no
The Trendy S&P Hybrid model, released June 16, 1997, is basically an
alternate way of trading the NeuralTrend neural net. Instead of waiting for
the next day's Open to enter a new trade (like the DayTrade model), when
signals are issued the Hybrid model hypothetically enters the market that
same evening using GLOBEX, and holds the trade for at least 24 hours.
The trade is thus held overnight and all during the next day, and is not
automatically exited MOC (as is the case with DayTrade). It will be at
tomorrow's 10pm GLOBEX "trade time" that the Hybrid model's two Trading
Simulations will either liquidate their trades (if tomorrow's NT is
neutral), Reverse their trades (if NT issues an opposing signal), or
continue to hold the original trade (if NT issues a repeat signal). The
Hybrid model is thus like a "Mini Position" model in its operation. Its
advantage is two-fold over the DayTrade model. First, trades are entered
using GLOBEX at 10p, usually resulting in a better price than is available
at the next day's Open. Second, in situations where NeuralTrend remains on
a Buy or a Sell for more than one day, the Hybrid model simply continues to
hold the trade, thus avoiding multiple commissions and slippage losses.
The Protection STOP used in this model is a fixed PERCENTAGE of the trade
price. The current INTRAday Protection STOP percentage for this model is
1.5%. By example, if a particular trade entry price is 900, then the
Protection STOP value for that trade would be 13.5 points. Implementing
STOPs in this fashion suggests that risk as a percentage of market value
will remain constant, and that the model will appropriately adapt to
changing prices and conditions. As is the case with the Position model,
the Hybrid model's STOP "trails" during the course of the trade to protect
profits.
The average length of a Hybrid model trade is 1.5 days, although this
value has some variability. The Hybrid model's performance reports and
statistics are quoted in terms of Close to Close, and the model is in the
market roughly 50% of the time.
One additional feature is included in this model which is not implemented
in either the S&P Position or S&P DayTrade models. Results of previous
work going back a few years suggest that during times of protracted
market rise or fall, it can be desirable to loosen the thresholds used to
signal trades in the direction of the move. This feature, implemented in
the Hybrid model, uses our "RunAway Mode" indicator to dynamically loosen
the NeuralTrend signaling thresholds during these times of significant
market movement. During "RunAway Up Mode", the NeuralTrend Buy threshold
is relaxed from its normal value of 0.92, to a more liberal 0.55.
Conversely, during "RunAway Down Mode", the Sell threshold is moved from
0.05 to 0.45.
The "RunAway" feature has the effect of making it easier for the Hybrid
model to go Long in strongly rising markets, and Short in continuously
falling markets. "RunAway Mode" is entered when the market has closed
above (or below) its 21-day SMA for 35 of the past 40 days, and when a
few other simple criteria are met. It is, therefore, a medium-term
adaptive component to the algorithm. Within Trendy, RunAway Mode is
indicated on the graph by the SMA line changing from thin gray to thick
Green or Red. The specific elements of Trendy's RunAway Mode are fully
disclosed on our FAQ page.
Two Trading Simulations are presented for the Hybrid model. One
hypothetically trades a single full-sized S&P contract, while the other
trades two of the new S&P E-Mini contracts. Relative performance of the
E-Mini simulation is less than that of the full-sized contract simulation,
because slippage is assumed to be greater, and commission fees represent a
proportionately larger percentage of the equity at risk.
Be advised that the Chicago Mercantile Exchange which sponsors the E-Mini
contract at present does not accept "STOP" orders, but rather only
Limit orders. To work around this situation, as a special service to their
customers, most brokerage firms will accept "Virtual STOP" orders,
whereby the brokerage firm watches their computer screens during the day
and fires off a tight Limit order into the exchange if the market moves
through a customer's STOP price, thereby liquidating the customer's
position. During normal market conditions this Virtual STOP method should
work nearly as well as a true exchange-based STOP order. The possibility
exists, however, for the market to move so quickly, or to gap, so as to
prevent the execution of the Virtual STOP's Limit order. In such cases the
customer's position would NOT be liquidated, and losses would mount as the
market continued to move in the adverse direction. The potential for the
trader to become "trapped" in this fashion is perhaps the most serious
drawback of the new E-Mini contract.
The Trendy Brokerage Simulation which hypothetically trades the E-Mini
contract does not take this potential real-world flaw into account. It
assumes that if a STOP activation price was encountered, that the trade was
liquidated at that price, minus slippage.
Trendy Update published Fri evening, 11/7/97
-------------------------------------------------------------------------
December S&P Futures Close: 931.30 down 10.8 / RA Mode: NotArmed
NeuralTrend (NT), our proprietary zero to one neural net: 0.71
NeuralTrendII (NTII), an experimental zero to one neural net: 0.34
S&P and E-Mini Hybrid Model Status: Interday STOP, now flat
Current Trade Profit/Loss: just-closed trade won 10.7 points
1.5% INTRAday Protection STOP: [model flat]
FullSP BrokerageSimulator Action: Buy 1 by 10p Sun GLOBEX; going flat
E-Mini BrokerageSimulator Action: Buy 2 by 10p Sun GLOBEX; going flat
S&P DayTrade Model Status: flat for Mon
Current Trade Profit/Loss: Fri's trade lost 4.1 points, Open to Close
1.5% INTRAday Protection STOP: [model flat]
BrokerageSimulator Action: none
S&P Adaptive Trend Position Model Status: SELL from flat
Current Trade Profit/Loss: (new trade)
1.5% INTRAday Protection STOP: Buy at 945.30
BrokerageSimulator Action: Sell 1 by 10p Sun GLOBEX; going Net Short 1
Discussion: NeuralTrend came in at 0.71, so the two NT-driven models have
moved to flat. The AT Position model has issued a new Sell. Fri's NT Short
trades were significantly ahead for much of the day, before the market
floated up in the last hour to close near its best levels. The market closed
firmly below all shorter-term SMAs, with the 90-day 10 points above at 941,
the 21-day 13 above at 944, and the 50-day 16 above at 947. To the downside,
the 150-day SMA is 31 points below at 900, and the 250-day -- the level of
the 10/27/97 spike intraday low -- will cross on Monday at 850, 79 points
below. Fri's late-day moderation seemed surprising given the terrible NYSE
internals, worldwide market turmoil, surprising employment strength, and
threats of imminent middle east military engagement.
Joseph Prewitt, Ph.D., Trendy Systems, LLC -- http://www.TrendySystems.com --
This Trendy Update document is distributed based on the condition that its
use signifies acknowledgement by the recipient that he has read, understands,
and accepts the warnings, terms and conditions set forth in the "Disclaimer"
text printed at the bottom of each page of the Trendy Systems LLC web site.
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