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# atlus1432's  Instablog

atlus1432
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trader and Excel based software developer of risk management software
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• ##### Scaling or legging out of a winning trade - the empirical evidence using the NEW "Equity Curve" worksheet in the m3 modeler

In my original m3 platform on the "EquityCurve" worksheet, I allow the user to "check off" which equity curve he or she wishes to see

m3 - Equity Curve Check Boxes
http://www.screencast.com/t/NzY0NGUwY2 (Click to enlarge)

I have addressed this challenge with new programming. In the pic below you will see 2 equity curves.

Random vs. Single Exit

http://www.screencast.com/t/YjFkYzg0OTgt (Click to enlarge)

The 1st seen in a burgundy/red colour is the "SingleExit" equity curve and the white is the "RandomEquity" curve. This new and improved Monte Carlo simulation is superior in every metric. The "SingleExit" equity curve is self explanatory. This is for traders who feel that exiting at a single, pre-defined profit objective is the superior way to go. The results speak for themselves. The "RandomEquity" curve now incorporates lossesin conjunctionwith wins and the wins can be any of the 3 possible outcomes - profit target 1, profit target 2 and profit target 3. Not only can the random outcome be any of the 3 winning profit objectives or losses but the winning outcomes have now been weighted to reflect the probability of reaching any of the winning profit targets. So, a loss is still denoted with a -1 but a win could be any of your 3 profit point objectives and most importantly when a win occurs the probability of which leg will  be reached reflects the user inputs. Given some of the complexities in this explanation I have attached a 5 minute web tutorial highlighting this new and very important dimension to the m3. This is the empirical evidence proving that to scale out of a winning position incrementally with stop loss adjustments is the superior way to go over a large enough sample size.

One final feature that has been added to this latest platform is one you wont see but the capabilities of this new functionality can not be stressed enough. As before the tapping of the F9 on your keyboard engage the RAND or RANDbetween function which is basically a Monte Carlo simulation. Now, with the "DataTables" function added into the mix, a SINGLE tap of the F9 button automatically runs 1000 iterations of your settings. This saves you the user massive amounts of time knowing that result has been crunched repeatedly to produce the final results. You still have the ability to repeatedly use the F9 key but just remember that each result is as if you tapped the F9 1000 times. Here is the screen shot below where I have highlighted the formula.

Data Tables

http://www.screencast.com/t/NGZjMWUwN2E (Click to enlarge)

Enjoy the web tutorial and hopefully this will change the way you approach your trading endeavours going forward.

http://www.screencast.com/t/YmQ2NWIxMGIt (Click to play)

Nov 24 1:24 PM | Link | Comment!
• ##### \$SPY - Probable forecast and and how to capitalize with double digit returns over the next 12 weeks with options
Using the F-Shift Forecaster, I wanted to get an idea - a PROBABLE idea as to where we are headed in the overall market. I downloaded WEEKLY historical data courtesy of Yahoo Finance and populated the forecaster to produce an unbiased probable outcome 12 weeks from today. Its easy to say "higher" given the current rally we are in but I needed something more specific than that to hang my hat on. The results are are probably going to make you re-think any opinions you may have. I know I did although even though I did and still DO have an opinion on the market - I trade only what I see and NOT what I believe.

F- Shift Forecaster - The Breakdown
Lets drill down into the "break down"  seen in the 2nd screen shot above.  As the pic. says, there is both the numeric value and the graphic representation for you to analyze. Personally I believe a picture tells the story a whole lot better so lets turn to the graphs.
The 1st thing that jumps right out at me is the distribution of probable outcomes. There are 4 possible outcomes and they are as follows;

1) Greater than (>) 10% from today's start value
2) Between 0-10% from today's start value
3) Between 0-(-10%) from today's start value
4) Less than (<)-10%  from today's start value
^
The 1st pair of columns - both black and grey - show us the probability of a value exceeding 10% from today's start value which by the way is 111.34 as of yesterdays close November 17,2009. There is a 34.5% weighted probability of that happening while under the non-weighted forecast there is only a 28.10% chance of occurrence. This is a difference of 22.78% between the weighted and non-weighted probability of occurrence - certainly noteworthy.
^
The 2nd pair of columns reflect the probability of the SPY's finishing between 0-10%. Here discrepancy is much tighter with the NON - weighted outcome having the edge with 20.70% of occurrence relative to its weighted outcome counterpart which reads 18.20%. A difference of -12.08% from the weighted to the NON- weighted.
^
The 3rd pair of columns reflect the probability of the SPY's finishing between 0-(-10%). The readings are 22.10% probability of occurrence for the NON - weighted relative to 17.80% for the weighted. Again a percentile difference of -19.46% from weighted to NON - weighted.
^
Finally the 4th pair of columns reflect the probability of the SPY's finishing not only positively, but ending with a value less than (<) 10% from the start value ( 111.34). The weighted results at 29.50% are almost identical to the NON-weighted results which came in at 29.10%. The percentile difference between the two probable outcomes was only 1.37% from weighted to the NON- weighted readings.
^
So what does all of this tell us? That the 12 week probable outcome is pretty evenly distributed with a bias to EITHER a large move  higher (greater than 10% from today's start value) or a rather large pullback of -10% or more from today's start value. Armed with this knowledge of the probable outcomes, how can we devise a trading strategy that will capitalize on this outlook? Its called trading a double diagonal options strategy which offers a WIDE range for profit potential from three (3) separate metrics;
• 1) a rise in implied volatility levels from the current yearly lows
• 2) Theta or time decay
• 3) as mentioned above a WIDE price range allowing the UI (underlying Instrument - SPY's) to move up,down or stay neutral
Look for part 2 of this 3 part series later today or tomorrow and I will walk you through a trade that may turn out to be the only once you would have to make in 2010 !

Nov 18 2:24 PM | Link | Comment!
• ##### Using margin - a double edged sword

Having the ability to trade on margin is a powerful leveraging mechanism if it used correctly - but one MUST also be aware of the potential dangers. The greater the margin that is afforded you through your brokerage, the greater the potential damage one can unknowingly do their capital. Lets take a look using the m3 - Money Management Modeler. The reason I chose this topic to blog about was due to a client of mine who had requested that I expand the margin levels from the standard 2x that I had built into the platform. He requested that I allow for 10x margin! I shook my head in disbelief but I made the changes changes as per his request - I'm just not so sure this particular client realizes how damaging that could be to his account balance should the trade move against him. Below is a screen shot of a hypothetical trading account with a start value of \$50,000.

m3 - Money Management Modeler - the risks of margin
http://www.screencast.com/t/NjFlNTk3NmM (Click to enlarge)