A Witch’s Brew 9/30/12

William Shakespeare – Macbeth. All the Witches –

 “Double, Double toil and trouble

Fire burn and caldron bubble”

Why do I feel that the work I am doing to develop my NASDAQ futures trading system is like making witches brew? There is nothing evil about it but there is no elegance in it either. Not so far anyway. Yet this is what comes to mind this morning as I stir up the “the charmed pot”. My first attempt with a base system this morning was weak and disappointing. Over a large time frame 2002-2006 it yielded a 33% win rate and produced a paltry 6% return – with 8 losses in a row during sideways movement of the QQQ. And although the system did much better out of period, this is not acceptable to me and I realize that if it was that easy to make money in the markets we would not be needing the high priced Quants coming out of the MITs and IITs… oops, I forgot I am from IIT says my dulled brain.

2-3 hours lost on a Sunday in bed with my laptop, cranking out a winning system. Not so easy the market wizards say and so say my data. Not a real US dollar wasted trying to find out. This is why I like back testing. I can take different portions of the market activity and simulate how my system would have done. It prepares me like the athletes who practice and practice and run the race through their mind many times before going to center stage.

I am still positive that good will come out of these efforts. The answer is in primary and secondary systems embedded in each other, willing to take risks that are real but likely to be less based on pinning down the markets mood first. The market stays positive for long stretches and then seems to lose its wings and gets morose, and eventually depressed over a period of time. However the price action during the down periods is much faster and quicker. This system will be capable of making monies in up and down markets. It has to be quick and agile, not slow like a big airliner. More like a fast, fighter plane able to turn instantly. It will be the alternative most average people will need to balance their losses in down periods. It is a system I will want to try out myself for a long while before I pull anyone else into it. Nothing like live testing your own bullet proof vest by having a few shots fired at it while wearing it yourself, before selling it to someone else!! Yes – that should be the requirement of Financial Advisors.  Show that you have managed your own money using the system for 3-4 years and been successful at it before you take anyone else’s money. Wonder why they don’t have to do that now?

Meanwhile as Shakespeare put it, I have to find an

Eye of newt, and toe of frog,
            Wool of bat, and tongue of -,
            Adder's fork, and blind-worm's sting,
            Lizard's leg, and owlet's wing,—
            For a charm of powerful trouble,
            Like a hell-broth boil and bubble.