Rule-Based Trading Systems

[capt_jmj]

TMG Update...

As has been noted on other boards, the live trading strategy on C2 was changed as of ~ mid-October. We now use full margin, 4% of QQQQ price stops, and may include cash positions at times. The following is an update of the System Description:

TMG is an Excel-based quantitative analysis trading program that utilizes a proprietary rule weighted algorithm consisting of numerous price-based and breadth-based technical indicators to generate a daily signal for trading the Powershares QQQ ETF (Symbol: QQQQ, formerly Nasdaq 100 Trust) and related derivatives. The system backtesting maximizes the historical and statistical correlation to Truth for optimal performance for a once daily EOD signal/NDO trade against the NDX since Jan 2000. More simply stated, the system algorithm is designed to capture the actual movement of the NDX over the backtest period as closely as possible and to take Long and Short positions at each day's open that would have been most beneficial based on the previous day's end of day signal. Due to any number of exogenous influences, there is never a guarantee that the market will react exactly the same to a similar set of circumstances the next time, but this approach results in a daily signal that is accurate ~ 2 out of 3 times over the backtest period, and which produces profitable trades (entry to exit) at slightly greater percentages. Signal length varies from one to several days, and over the back test period, there have been 873 round trip trades, so commission costs, while not reflected in the above numbers, should not be excessive. Algorithm enhancements are made periodically as a part of an ongoing continuous process improvement program. System returns are characterized by normal statistical variations over the backtest period and therefore going forward are non-deterministic. What this means to a potential subscriber is that over any arbitrary time frame that you might choose (e.g. the period of your membership), returns may be greater or less than the statistical norms. To avoid unrealistic or unrealized expectations, every prospective subscriber should carefully consider whether or not they possess the patience and discipline to stick with the system through flat-to-down periods that the historical statistics virtually guarantee will occur.

The equity curve shown is the result of actual trades since going live ~ one year ago, and do not reflect the benefit of several improvements that have been made in the algorithm in the intervening time. In stating the system performance, we believe it is more important to focus on the backtested returns of the current version, since those should be more representative of performance going forward. The downturns we have experienced have been primarily the result of periods of extreme short term volatility characterized by successive daily or more frequent market reversals that have followed major disturbances in the market, and with which any once-a-day signal/trade system is simply not designed to cope. Even though similar periods have occurred previously in the backtest and the system has always recovered, there appears to be little or no tolerance by subscribers for trading through them in real time with real money, so if you are not prepared to deal with those, you should save yourself the trouble of subscribing. In almost eight years of backtesting, there have been 2 instances of 5 incorrect signals in a row, while there have been 115 instances of 5 or more correct signals in a row, including 1 correct string of 23. By logical extension of the Nyquist/Shannon Sampling Theorem, one must sample (and be willing to trade if necessary) at twice the highest frequency of the market reversals in order to capture them accurately, which of course is simply not possible with a once-a-day signal/trade approach. Going forward, when these periods of high volatility are detected, the signal will still be published, but a recommendation will be made to go to Cash until the period of extreme short term volatility has subsided.

In spite of the charges and accusations of a few disgruntled subscribers who do not understand the statistical realities and only demand that the system performance match the backtested returns over any arbitrary time frame of their choosing, the numbers we have published relative to backtested returns are absolutely true and accurate. Moreover, we are willing to make a backtested trades file available to anyone who requests it in advance of their signing up so that they may verify the numbers for themselves. Also, please note that the system on C2 offers a performance guarantee (i.e. if the system as per the official trades is not profitable, your next month is free, but if you should choose to trade it differently, the guarantee of course would not apply).

We maintain a Members Only community forum for all TMG subscribers at http://finance.groups.yahoo.com/group/themerlingroup/. Members have devised several profitable methods to trade the signal which are tailored to the specific investment vehicle of their choice.

For anyone desiring more information on the system, there are historical trade lists and an extensive FAQ link provided at:

http://www.investorshub.com/boards/board.asp?board_id=7383 (click on "Show Board Info")

or you may send an email with a specific question to [e-mail]. Due to privacy issues, we prefer not to use the message functions provided here to communicate with you. As a C2 subscriber, you will receive the C2-generated TMG trade notifications and access to other features that C2 offers. Once you are signed up, you will be able to view the most recent trades list to determine the current signal/position, and then whenever there is a signal change and trades are entered, you will receive the automatically generated C2 notifications. If there is no signal change and no trades are necessary, you will receive no notifications. It is your sole responsibility to access the trades list whenever you need to and to determine what to do with the information. We will reply as soon as possible via private email to messages posted here.

The monthly subscription rate posted on C2 is for individual traders only, and by subscribing here you are indicating that you understand and agree to these provisions. Your privacy will be strictly protected, but in order to subscribe to TMG you must provide your real name, not just initials or any other assumed identity. Please see the C2 TOS for registration requirements. We reserve the right to deny subscriptions summarily to non-individuals and to reject or cancel any subscriptions obtained under fraudulent means or false identities, including seeking legal remedies if necessary and appropriate. If you are a money manager, hedge fund, institution, reseller, investment professional, or other commercial entity, please contact us at [e-mail] to discuss options.