Ziggy Update

I let Ziggy, my automated futures-trading program, trade one SPX futures contract (ES) all week. It finished with a $297 profit. Here is the equity-curve chart for the week (click to enlarge):

ziggy-7-31-09

And here are the daily totals:

ziggy-7-31-09-2

As you can see, Monday and Tuesday were a disaster. There are two reason for that. First, both days were “reversal days” where prices glided down in the morning, and glided back up in the afternoon. Those are the worst days for Ziggy. Fortunately, they only occur once a month or so, but I had the bad luck of getting hit with two of them to start the week.

The second reason for the losses was slippage. My initial tests showed that Ziggy could do OK with market orders, but it turns out that that was a wrong conclusion. Ziggy got nickled-and-dimed to death with bad fills on Monday and Tuesday to the tune of about $300.

So, on Tuesday night, I re-tooled for limit orders, which is a big deal because it complicates the program’s logic. I don’t have an ideal solution to the problem of un-filled orders yet, but the new version works much better in the real world. As you can see on the “7/29/2009 – 7/31/2009” line of the table above, Ziggy v2.00 made $979 from Wednesday to Friday, with a 60% batting average.

Wednesday was the big day. That was the type of day that I had in mind when I first started working on the program. The SPX barely moved, but the intra-day action was wonderfully volatile. Watching Ziggy on Wednesday was like watching a John Deere combine harvesting the crop.

So, even though the week started out with an industrial accident, I’m very happy with how it finished up. It’s not easy to watch your computer makes trades. It requires a lot of discipline to resist the urge to “help” it. I only did that three times over the entire week, and without my “help”, Ziggy would have made another $100 or so.

It’s a funny thing; while I have coded my trading rules into software, the software is a much better trader than I am. Ziggy always follows its trading rules, it trades without emotion, like a robot, and it has perfect concentration. The latter is very important for scalping, which is sort of like driving a race car: if you doze off for just a few seconds, you might crash and burn.

Ziggy can make enough money to pay for its own electricity now, so it’s earning its keep. If it can prove itself over the next couple of weeks by building up enough equity, I will let it trade two contracts. At that point, I can start working on code that scales into, and out of, positions to get better average prices.

Caruso-Cabrera – Dumb as Bag of Hammers

In this video, you can see CNBC talking head Michelle Caruso-Cabrera saying that it’s OK for manufacturing jobs to be sent to Asia because they are beneath Americans. Her position is that Joe Sixpack should stop hitting things with hammers inside of factories and go work as a scientist at a bio-tech firm.

OK, there are plenty of smart people who work in factories. And maybe Caruso-Cabrera is right; maybe they should be turned out of their jobs, and forced to go through ten years of higher education to prepare for their new careers as rocket scientists.

But what about the dumb people? Not everybody is smart, you know. Not everybody can “use their brain” to “move up the job value chain.” The fact is that repetitive assembly-line jobs that don’t require higher thought are an ideal way for dumb people to earn a living.

Note to Caruso-Cabrera: when you go to small town, take its only factory and send it to China, THE DUMB PEOPLE DO NOT GO WITH IT. What do you suggest they do for a living now that you have applied your economic genius to their town?

In addition to advocating the export of factory jobs while the USA suffers double-digit unemployment, Caruso-Cabrera also advocates the importation of engineers and programmers via H1-B visas. Brilliant strategy: export jobs, import workers.

Speaking of H1-B visas, isn’t it time that CNBC was outsourced? Why not start with Caruso-Cabrera? She works on the stock-market channel and can’t even pronounce the word “stock”. Instead, she says “stalk”, like she is talking about celery or something. Shouldn’t CNBC bring over an Indian woman on an H1-B visa to replace Caruso-Cabrera? I’m sure that a smart, young, attractive Indian woman who can pronounce “stock” could easily be found. And she will work for 10% of what Caruso-Cabrera makes. C’mon GE, its time to boost your profits some more with another “cost control”.

Also in the video, they are carrying on about how their boss GE CEO Jeff Immelt made some comments about how the USA should do more manufacturing. The talking heads even “challenged” the professor guest to figure out a way to do it. Can you imagine the hypocrisy? It was Corporate America that rammed the free-trade laws with low-wage countries like China and India through Congress in unconstitutional “fast track” style for the sole purpose of exporting jobs. Now GE/CNBC is acting like they are some sort of champion for American workers.

Please.

Reversals

Both Monday and Tuesday were reversal days, however, they were sort-of lackluster. Take a look at this 60-minute chart of the futures (click to enlarge):

es-reversals

The futures peaked overnight Monday and Tuesday. The market bottomed and reversed Monday and Tuesday afternoon. However, both daytime sessions failed to approach the overnight highs, and were somewhat lacking in spirit. (The blue lines connect the overnight peaks to the closes of the daytime sessions.)

The shorts selling those peaks made more money than the longs buying those dips. Both made money, but we might wonder if the dip-buyers are happy with their meager gains, and willing to step up and buy the next dip. If they go to the sidelines, we could have a downtrend day.

Tuesday’s Trading 7/28/09

I wrote this back here:

“Imagine IBM rolling across America, buying up smaller software companies, firing all the American programmers and shipping the jobs to India.”

…and IBM has just taken over two more software companies.

Note to SPSS and Ounce Labs employees: get your resumes in order because your jobs are going to India.

Note to American college students: forget about studying computer science. IBM will see to it that the investment that you make in yourself will have a market value of zero.

God save the global economy!

Lies! Lies! Lies and Propaganda!

Here is a CNBC story with the most egregious lies and propaganda I have ever seen. Everybody knows that hemlines go up during good times and down during hard times. And now CNBC is trying to tell us that the opposite is true; that one-piece, retro swimsuits replacing bikinis in Miami Beach is a “return to happier times.”

Ridiculous. Blatant lies and propaganda.

The ladies are covering up to look more conservative so that they can land the “marrying kind” of man. They think that the marrying-kind likes a less flirty type of girl because she will be more faithful. Why do women want the marrying-kind? Because he has a job, and such things are scarce these days.

Happy, prosperous ladies with well-paying jobs do not go to the beach in gigantic, frumpy, one-piece swimsuits from the 1930’s. Seeing Brazilian bikini-makers doing land-office business in “cover ups” should send a chill down your spine.

This is not cause for celebration. This is a frightening social trend, and CNBC needs to broadcast a retraction.

Monday’s Trading – 7/27/09

Last week, the SPX hit resistance in the 979 area and then closed at 979.26. And that was only 0.02 points away from the 979.22 Fibonacci level that I calculated back in the Box of Miracles almost two months ago. How’s that for accuracy? Since the market is still respecting those Fib levels, the next three should prove important also if the SPX continues to rally.

Ziggy Takes Baby Steps

I let Ziggy, my futures scalping program, trade with real money this afternoon. I turned it loose in my account around 1:30pm and let it run until the end of the day. It had full authority to make trades and didn’t ask me if I approved or not.

Ziggy made 9 scalps with 6 wins and 3 losses in a nearly flatlined market, and made a total profit of $66.10. So it made $26.40 per hour, which is much better than minimum wage. And that was with one ES contract. With 10 contracts the profit would have been $661, and if I had sold my condo and given it 100 contacts to trade, it would have been $6,661. 🙂

So, we have proof of concept: Ziggy will work in the real world. But a problem has surfaced. Should Ziggy use market orders or limit orders? Good fills are very important for a scalping program like Ziggy because it is like a discount retailer: working on razor-thin margins and making it up on volume.

At first glance, you would want to use limit orders to get the price that you have calculated to be a bargain for the recent price action. But limit orders also guarantee that you will miss trades, especially when the market is moving fast and runs away from your price. Market orders will always get filled, but the prices that you get will often be slightly worse than with limit orders. The good thing about the futures market is that I have never seen a bad tick. The ES never trades at some absurd price for one tick like you see SPY doing frequently, especially outside of regular trading hours. Because of that, you can use market orders with futures and not worry about getting pole-axed.

The frustrating thing is that back-testing and optimization can’t help your with making the limit-or-market order decision because no back-testing technology can precisely simulate a real market.

So, I think I will have Ziggy use market orders for now. The results it achieves will be less than those projected by my back-testing. However, I continue to make improvements and the back-testing results keep getting better and better, so while Ziggy’s transition into trading with real money won’t be completely smooth, I’m confident that it will be profitable.

(Note: I am not ignoring your comments, but I am pretty much coding around the clock and barely have time to read my own blog. So, don’t feel like I’m ignoring you.)