Nat’s ‘System Trades’

For the last few months Nat has been experimenting with a new method of calculating “inflection points” — places where she thinks the price action will demonstrate some kind of significant behavior.

During the first two weeks of 2016 we’ve been applying these “inflection points” to a different kind of “system trading” and getting some phenomenal results — literally almost too good to be true.

Things that are too good to be true usually aren’t, and we’re being very cautious about this. But the initial results are much more than promising. This looks like it could be developed into a fairly simple trading system with very good potential.

We’re telling you about this now for two reasons. One is to bring to your attention a trading method you might be overlooking. These extraordinary profits are related to a big increase in daily volatility so far in 2016. That won’t last forever, and you should take advantage of it while it’s there.

The second reason is to get your insights into what is happening, and suggestions for ways to develop it further. We want your comments and advice, which is why, for the first time, we’ve added a comment box at the bottom of this post. .

What it is

These are essentially swing trades. Each morning, around 8:00 a.m. Nat posts three re-calculations of her buy and sell numbers.(She actually posts new numbers for both the S&P500 mini-futures (ES) and the oil futures, but we’ll concentrate on the ES for the moment).

Jan. 15, 2016

Jan. 15, 2016

The numbers are a Buy entry level, a Sell entry level and a Control line. Here’s a snapshot of her chart for Jan.15, 2016, showing how they appear to members first thing in the morning.

(Note that the time stamp on the bottom of the chart is Chicago time, Central Standard. 8:00 on the timeline is 9:00 in New York).

The trading strategy is simple. When the price moves to the Buy level, open a long position and hold it until the price moves to the Control line. When the price hits the Sell level, enter short and hold until the price reaches the Control line from above.

When the price is at the Control line, make a determination about which direction it will take (there will be a link here soon to a separate post discussing the details of how to do that) and hold the position until is reaches either the buy or sell level.

There are lots of refinements in terms of triggers and exit strategies but that’s the fundamental trading method, and it could not be much simpler.

But in the first two weeks of the year that strategy has produced potential profits that are staggering. Here’s a summary of some of the best days of 2016 so far:

Friday Jan. 8: Short entry at 1962, reaches buy level 1926, retraces to control line 1940, retraces back to buy level (and beyond) for the close. Profit potential from the three trades: 62 points.
Monday Jan. 11 Short entry at control line, continues to buy level at 1893.75. Profit potential: 33 points
Thursday Jan. 14 Long entry at Control line 1878, continues to Sell level 1926. Profit potential: 48 points.
Friday Jan. 15 Enter long at buy level 1855, exit at 4 pm 1875. Profit potential: 20 points

Here are links to the charts for these days, so you can see how the price movement developed.

Jan. 8

Jan. 8

Jan. 11

Jan. 11

Jan. 14

Jan. 14

Jan. 15

Jan. 15

Incidentally the oil trades, which are posted at the same time, are all profitable too, although not as spectacular as the ES..

Caveats

There are some important caveats about this.

  1. These are results for “potential profits” not actual trades, and we all know there is a huge difference between what is possible and what actually occurs. All we did was measure the price movement starting from  from where Nat’s inflection lines would have us enter. Real trading with real money will certainly be different and less profitable.
  2. All we are looking at is the first two weeks of 2016, when intraday volatility was unusually high and the average daily range was about double the daily range in a more normal trading environment. Trades that are profitable when they catch half of a 40-point move will be less exciting when they capture half of a 12-point move. We’ve experienced this before, in 2008, for example.

But still …

That said, obviously we want to develop this further. We have already asked one member to begin trading these “System Trades” (does anybody have ideas for a better name? Nat’s Secret Sauce maybe?) and the results from the first couple of days are profitable

We’ll see what the future results are, look for things to tweak, give some thought to triggers and filters and exit strategies, etc. It’s a long way from being finished, but the early signs are too promising to ignore.

Please use the comment box to let us know what you think and what we need to be careful about. We’re hoping for the kind of discussion that will help move this forward, but negative comments are as useful as kudos. Keeps us from falling in love with a project that may not merit it.

So that’s what’s up. What do you think?.

— Nat Admin

 

  • Kris says:

    Great insights.
    Some shorts and longs were triggered at Control line, instead of Buy level or Sell level. So how to determine direction?

    • dampier@sympatico.ca says:

      One of the things we’re working on. Price seems to trend once it moves away from the line, so the solution might be as easy as waiting until the price is x points from the inflection point before entering the trade. A work in progress.

  • Garry M says:

    Hi Nat, I have been working for a couple of years on a swing trading method. I am not finished with it yet but should be in the next couple months. I will let you know as I get closer.

  • Michael Jacobs says:

    Bill, the theory looks great. I have been sorta looking at her screens for this type information to confirm my trades, however usually listening to Nat works most of the time. I’m definitely a part time intra-day trader but looking to go full time soon and I look forward to monitoring this method going forward to add to my trading options.
    Thanks for including me in your email updates.

    Michael Jacobs

  • Byron M says:

    Glad to see the work you’re doing to respond to market changes.

    Will it work? I think it will take time and trying to know that.

  • Phil Nash says:

    Suggest for name “Nat’s Intraday Swing Trades”.
    I think it’s a great idea. Make sure risk to reward
    is generous eg. 2x or 3x or more, that way we just
    have to break even on the trades to be winners.
    I would like her current method of calling out trades to
    continue because it is so successful so it would be
    difficult to be doing 2 types of trading using the same
    instrument (maybe use YM for intraday swing trades or ES
    options).
    I would like to have some trading calls in the room for CL
    because it is likely to get more volatile also.
    I am exited about trying out some new trading ideas.
    Thanks for asking for feedback. Phil Nash

    • dampier@sympatico.ca says:

      Phil, we put together a little spreadsheet to see how much risk/reward and how big a winning percentage you need to make money. The “edge” you need is surprisingly small: winners bigger than losers by 15% and a 60% winning percentage is a living for day traders. Key is consistency. I’ll post it for members when I get a chance.
      — bd

  • paul r says:

    The sample is way to short. Let’s look at two years of back-testing.

    • dampier@sympatico.ca says:

      Agree re the small sample size. But we don’t have data to backtest. Nat is making these calculations day-by-day, we’ve just started accumulating results.

  • John N says:

    Bill, These inflection points intrigue me. I am looking forward to updates on the results of these trades.

  • Han says:

    Nothing wrong with identifying systems suited to “slippery” markets whenever they occur. IF backtesting restricted trade execution to daily volatily greater than 1.75 or 2x the average you could see if it is robust any in “slippery” market.

    • dampier@sympatico.ca says:

      Problem is setting the three “inflection points” each day. Levels are re-calculated early morning to reflect overnight price movements for each day. Not programmable.

      Can’t really backtest it other than by selecting the universe of “slippery” days we’re going test it on and calculating levels for each day individually. Way too much work until we find out if it remains consistently profitable.

  • Tim says:

    This may not be entirely pertinent to your post, request for comment, etc., but I’ve been following Nat et. al. via e-mail solicitations, etc., for some time now. Bottom line, I’m always looking for an edge, and, at this point, certainly haven’t discounted your service.

    At the risk of sounding stupid (albeit I’m used to it), isn’t an “intraday-day swing trade” simply “day-trading”? Also, what you describe as “could not be much simpler”, ain’t necessarily so for simple “swing-trader types” like me. Control line? I understand owning a stock long and short-selling, but don’t readily understand what it means within the context of what you’re presenting.

    I currently “do’ swing-trading (1-3 days to maybe 1-3 weeks), and “modified” position trading; i.e., I do buy some stocks intending to hold them for 12-18 months cuz I think they have a story that needs to unfold (AT&T buyng Direct T.V., for instance). In 2015, I executed (bough & sold) roughly 15 stocks. I made money or broke-even 100% of the time…no losses.

    While 2016 isn’t looking all that rosy, on paper, for the 1st two weeks of trading, I’ll be selling two position this week or next, at a profit…so life isn’t all that bad.

    Does your system provide “an edge” for someone like me and my trading strategies? Asking because I’m not 100% on what you’re tentatively offering. Thanks.

    • dampier@sympatico.ca says:

      Hi Tim. Thanks for your comment.

      No stupidity involved. It’s my fault for not being more explicit about what we do.

      We are futures traders, and primarily day-traders. Mainly we trade the S&P500 mini futures (ES) with a little oil and gold thrown in for variety.

      Most of our trades are “scalps” which last anywhere from a few minutes to an hour or so. For us, a “swing trade” is something longer than that, sometimes holding a position for the entire day session. But no matter what, at 4:15 when the futures close we are out of the market. Maybe some exceptions, but not many.

      “Scalping” requires constant attention. You have to stare at the screen until the blood forms on your forehead, so we are looking for something a little less onerous: trades you can enter in the morning with a stop-loss and target as resting orders to be executed when they are hit, while we are at the golf course. Tougher to do that it appears, and that’s why we are excited about these “inflection points” or whatever we end up calling them.

      This has nothing to do with the kind of trading you have described, and frankly I can’t see how anything we do would be of much advantage to you. Same jungle, but different animals. Sorry.

      Now if you ever see the error of you ways and develop an interest in day-trading …

      thanks again for your comment

      bill dampier
      naturus admin

  • Remora says:

    Although I am not sure how the calculations were done, this seems very similar to the Murrey Math Lines trading system which I use on a regular basis.

    • dampier@sympatico.ca says:

      Similar concept, different execution. Murrey Math i a little out of fashion now but we use it and find it helpful. We publish the Murrey Math calculations each day in our trading plan.

  • raphael says:

    Hi,

    I saw the system trades (control line methodology) : has it smtg to do with your naked short selling option strgy already shown ?

    • dampier@sympatico.ca says:

      Hi Philippe. Somewhat similar, I guess, but not really the same.

      Option trades are predicated on price not moving outside a range on a weekly basis. inflection points want to identify where price will stop and reverse (most of the time) and trade at those levels. Kind of the same idea, but a different time scale, different methods.

      When I think about it for a minute, it seems that identifying places where the price will stop and reverse is pretty much the basis for all trading on every time scale. Just happens more frequently on n intraday basis.

      • raphael says:

        option trades = a) based on forecast of where prices are unlikely to go + b) weekly frequency trading
        control line = a’) based on forecast of where prices are likely to go + b’) intraday trading frequency

        • Nat Admin says:

          I see what you mean. Not really very different.

          Incidentally, I didn’t answer your earlier question about the cost. The option trades are $9 a month, currently half off. When we say Really Cheap Membership…

          Click the “membership” link in the top menu for details.

      • King says:

        What a joy to find such clear thiiknng. Thanks for posting!