To understand this setup please first read this .
"Momentum Meter" is an indicator that displays momentum in select instrumentsa. listed on my Momentum Block. The indicator displays momentum in Equities & VIX futures, and currency markets using hourly bars. A value of +3 and above coincides with gains in E-mini, while a value of -3 or less with losses. Following panels show how this indicator helped to capture major down falls in each of last three years, including the infamous flash crash of 2010, and water fall decline of 2011.
As this setup has the tendency to repaint last few bars real time signal may get adjusted after the initial trigger. This problem may result in adjustment of initial signal by +/- few hours normally but can be up to several hours. Why several hours? Because one of the element of this setup is Volatility Futures which only trade during CBOE open hours. So if the signal from volatility is adjusted to prior day close, it will reslus in revision of Momentum Meter reading since last day's close.
ES points gained after "Momentum Meter" rises to +5, 2nd time when in long trade.
Since 1/1/2010, Meter reached +50 levels while system was in long trade 10 times. Afterward system logged an average of 42.3 ES points before exiting the trade (meter dropping to -30).
A trading strategy that took a long position in E-mini when indicator reached +30 from being below and flipping to short side when indicator drops to -30, with a 2% stop loss could have made a fortune as shown in the table belowb. Please note the profits are based on gains in ES points.
If you find this stuff enticing, please familiarize yourself with the setup as I plan to make this setup a regular part of my "Morning Take".
b. Past performance is no guarantee of the future.
Thank you Harapa for sharing this! I am a member of Cobra's blog and a big fan of your work.
ReplyDeleteporto
Thank you, Harapa for sharing your momentum meter.
ReplyDeleteHarapa's MM >= 3 ..................LONG
Harapa's MM <=-3 ..................CASH or SHORT
But what about
Harapa's MM between 2 and -2 ......REDUCE HOLDING? DAY TRADE?
or what would you suggest???
Short answer do nothing.
DeleteThe STATs I provided are for trading ES round the clock. I use this meter as a mean to gauge the direction of cash markets before open or during the day.
I don't trade ES but here is an observation for someone who trades ES. If you short ES when this meter hits -3 you have 83% chance of grabbing 10 ES points or 92% chance of grabbing 5 ES points till the next go long signal.
Getting back to your question system wobble a lot in +/- 2 zone, so is not useful as a timing device for trading.
Harapa,
ReplyDeleteThank you kindly for your clarification.
For what it's worth, your absence is a great loss to Cobra's forum. You are one of the very few who have been consistently
right.
Best regards.
The situation on that forum was not a practical way to share my research. There apparently was no way to consolidate my contributions in one place. With this blog I can do that.
DeleteI appreciate questions/comments, so continue to do this as this helps me to improve my presentations.
Also, you are free to share this blog with any one you wish.
Harapa - do you log the MM somewhere on your site? That is, would it be helpful to know the trend of MM?
ReplyDeleteMuch thanks for this site - it gave me a lot of new ideas for my own trading equation!
FB
I suppose by MM you mean Money Market. Unfortunately, I don't. MM balances in the last few years hasn't been a good tool to time the market. Looks like people with assets are at two extremes. One group is extremely conservative and have their money parked in Bonds/MM. Other group is very aggressive and they are the one chasing the stocks like crazy (look at the Margin Debt figure).
DeleteTake a look at this post, if you haven't already.
http://harapainvesting.blogspot.com/2013/05/do-you-think-sky-is-going-to-fall-soon.html
Thank you for sharing your incredible work.
ReplyDeleteCould you clarify one thing for me? I'm trying to understand your stat box above, so, to help the mathematically challenged, could you tell me what the profit/loss would have been trading one ES contract? In other words, using the trading conditions (+3 = buy; -3 = short) and the time period described above, what would the profit/loss look like for one ES contract (in ES points or in $)?
Thank you,
Alex
Table used ES points gained/lost expressed in $. As stated many times, I don't trade ES so I don't have any data how a single contract trade would have performed (nor do I have time to do this). You will need to figure this out by yourself.
DeleteAnother way to ask my question: does the average P/L per trade (411) represent dollars or ES points?
ReplyDeleteThe calculations assumed an initial investment of $10,000. This hypothetical calculation used cumulative value of PF and ES value at the time of each trade to open a position and % gain/loss to adjust PF value when the position was closed. The end PF value is thus cumulative (i.e. as PF value grew, more of ES was bought). The table is probably not the best way to evaluate an actual trading strategy...just an illustration..
ReplyDelete