SPX, 1195.18. FV, 1064.5. OFV, 1088.65. POFVF, 1223.00. Note the addition of a new number, POFVF. POFVF stands for Predicted Optimistic Fair Value Future. It is the theory of when to take profits. Out last two units 1195.15, +120 handles. Total on three trades +172 handles. I know that I left 70 handles on the table by not having this theory, but what can I do? I learn as I go along and I amend the model. In the future, profit taking will make more sense in the face of POFVF. One thing that I will note here. POFVF will probably become more dynamic as I understand the theory of future influences on these FVs. Right now, it is hard wired in, but I already understand how to improve it. For now, this will have to do. Also note that I chose to override OFV in favor of POFVF. There is a very strong reason for that, and while it is not in the model in a quantitative way, it is in the spirit of the model, at least in a qualitative way. At this point, model is 450 ish handles in the green for the year using three units, or 150 handles per unit. And that is only for the last part of the year since about August when the model really "got it." Not bad at all. If you were trading once contract = 1 unit, that would be $22,500/Year. On 10 contracts per unit, which is where a trader that wants to do this for a living needs to get to imo, that would be ~$225,000/Year. And that is without the full theory for the first part of the year, so lots of money left on table. Extrapolating to a full year, it could be double that. Adding a fourth or even a fifth unit could get to the magic $1M mark, but that is for the very well capitalized traders since risk goes way up. All computations are excluding commissions, but this system is nowhere near commission intensive. Another way to increase profits is to use this system on world markets, particularly the Hang Seng. Trading nearly 18 hour days would easily get you to the $1M mark. Most "trading" is managing positions, since this is a slow system. Volatility dictates profits, and units should also be dynamic. As volatility decreases, your contract per units needs to go up, and as volatility goes up, you can get more bang for less contracts per unit.
For those following at home here are the real numbers of the FV system: 10-05-11 03:34 PM S SPX 1140.65 10-07-11 08:31 AM Added S equivalent of SPX pre-market 1172 10-12-11 03:02 PM Short third unit 1220 SPX Average short trades = 1177 11-23-11 10:29 AM Took one unit off at SPX 1168. 11-28-11 11:34 AM Out last two units 1195.15 Average closing trades = 1186 Net loss = 25 handles
The next entry is when OFV and POFVF coincide (or if FV coincides with OFV and both go above SPX, but that is extremely unlikely at this time). It could be to the upside or downside, but I wager 10:1 it will be another short trade. So, OFV is a pivot to go long or short whether it is above or below FV and SPX. POFVF allows profit taking, and needs to reset OFV by coinciding with it in relation to SPX. So if POFVF goes below SPX, and OFV is below SPX, we go short again. In order to go long, both OFV and FV have to go above SPX, but I may do away with FV altogether and just use OFV and POFVF.
SPX, 1191.76. FV, 1061.08. OFV, 1085.62. POFVF, 1219.58. Just an update. It is interesting to watch the values as the market changes.
SIFs (ES) down 7 on this news after hours: http://www.cnbc.com/id/45482560 That is serious, but the market has an upward bias (just look at POFVF) and I doubt it implodes the way it would had this news come out at some other time (with POFVF neutral or below SPX) . Therefore, I say, short if you must, imo just be nimble.
You should get a box of cubans just for figuring this out, I got lost many pages ago. So much for keeping it simple, Nitro why do you keep adding values, simplify. Have as many inputs as you like, the only output should be entry and maybe exit, just my .0000000000000000000000000000000000000000000000000000000000000000002 centavos.
I guess I should be more accommodating. I do this only for myself not anyone else, but I suppose that if I am going to post, I may as well post the results in a more cogent way. Therefore the numbers are just as important to me as the entries, as I can look back and see what my thinking was at the time. Starting next year (assuming I still have the desire to post entries next year), I will try to do a HTML: table with entries so that it is easier to follow. Maybe the best thing is just to upload a spreadsheet too. The numbers I quoted are accurate, FWIW.
I can't understand the discounting mechanism, obviously something in the model is discounting a lower future value. I mean is fair value what the mkt should be based on todays price or what it should trade at in some future point?