The SPY system will sell tomorrow at open after a down day.
And yet, it was my understanding the system sold into
strength. Of course, there might be a gap up or a gap down
tomorrow morning, but no one can know that. So, could Matt or
someone explain why the system is selling into weakness.
Posted by burkmere on 16th of May 2011 at 05:47 pm
Well,
1. We won't know if it is until after tomorrow's open.
2. The spy only needs to gain .3 of 1% to make a profit.
(approximately)
3. The multi-entry system has to gain less than that for a
total "trade" gain.
4. If we get a big gap up at the open, it will be selling
into strength..especially if one took a multi-entry spy long trade
at the close today.
and....
5. 100% of the trades aren't going to be profitable.
This may be one of those that's not.
All this said, it would be interesting to see how the trades
work around options expiry, but there's been 16 years of options
expiry before today and the system is very profitable.
But the signal was generated today. The system can't
"know" or guess what happens overnight. It can't base a
signal today on what
mighthappen overnight. At least that's my
understanding. If I'm wrong, then, well, I've been educated
and, like I said, this is an educational question. I
don't expect the system to be always profitable, so I'm not
concerned if this trade is a loser. I just want to undertand
the system better.
Posted by cwa82675 on 16th of May 2011 at 10:28 pm
I would first like to say that I am extremely grateful to Matt
for posting this system for the average guy to use. I know it
is causing him a lot more headaches than the hedge fund route
would, but Matt there are many of us out here that truly appreciate
the work you have done - with myself being one of them!
With that said I wanted to try and explain the current closing
trade from my perspective with the hopes it will help to explain
the current trade and also keep matt from having to answer a few
questions (he is busy enough with a little one at home).
DISCLAIMER: I do not know any more about the system than anyone
else on this board.
Matt said his system buys oversold conditions and sells on
overbought conditions. One important part of this statement
is these are for the entries not the exits. The system
detects in some form or fashion an overbought condition and then
takes a long position. Once the position is established it
then has rules for exits. One of the rules for an exit is a
profit target, another rule is if the system then detects the
market is changing directions, and another is if the condition of
overbought no longer exists - which I imagine is the reason for the
current cllosing trade. When the system bought it thought the
market was oversold and believed the path of least resistance was
to the upside. That entry was seven trading days ago and the
market has not made a decent move to the upside since then.
My guess is the system no longer detects the market is oversold and
is therefore closing out the position and will wait for a better
opportunity.
Just think in terms of a moving average, if a stock gets too far
away from a moving average it is said to be overbought or oversold
based on the degrees of separation from itself to the moving
average, but if that stock sits at that price for a period of time
the moving average will move towards that stocks price even if this
stocks price does not fluctuate (thereby removing the overbought or
oversold condition) Hope this helps.
Posted by burkmere on 16th of May 2011 at 07:03 pm
It's probably useless speculating about Mr. SPY System, but
perhaps with the down day today, the odds are good enough that we
get a bounce tomorrow, but Mr. Spy isn't too thrilled about the
near future and wants to exit after what he thinks will be a
bounce.
Remember, as Matt said, Mr. Spy can do what he wants. Heck, if
we exit in the morning, he could go long again at night if we get a
huge selloff.
I'm basically just looking forward to a couple of years of
trading Mr. Spy and then I'll go back and look and see how he
did.
Posted by philosoraptor on 16th of May 2011 at 06:12 pm
Algyros, I agree that the system buys weakness and shorts/sells
strength in terms of
entering trades.
However, if you look at the charts of past trades, some longs
have
exited after
a period of relative weakness.
For example, the single-entry long trade of early July 09 to
early September 09 exited after a short period of weakness. Same
for the multi-entry long trade of late November 08 to late December
08. In both cases, price actually bounced soon after exiting so
perhaps the system was looking to avoid a 'crash' or similar in
exiting under those (weak) conditions.
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Educational Question
Posted by algyros on 16th of May 2011 at 05:28 pm
The SPY system will sell tomorrow at open after a down day. And yet, it was my understanding the system sold into strength. Of course, there might be a gap up or a gap down tomorrow morning, but no one can know that. So, could Matt or someone explain why the system is selling into weakness.
It isn't necessarily...
Posted by burkmere on 16th of May 2011 at 05:47 pm
Well,
1. We won't know if it is until after tomorrow's open.
2. The spy only needs to gain .3 of 1% to make a profit. (approximately)
3. The multi-entry system has to gain less than that for a total "trade" gain.
4. If we get a big gap up at the open, it will be selling into strength..especially if one took a multi-entry spy long trade at the close today.
and....
5. 100% of the trades aren't going to be profitable. This may be one of those that's not.
All this said, it would be interesting to see how the trades work around options expiry, but there's been 16 years of options expiry before today and the system is very profitable.
But the signal was generated
Posted by algyros on 16th of May 2011 at 05:52 pm
But the signal was generated today. The system can't "know" or guess what happens overnight. It can't base a signal today on what mighthappen overnight. At least that's my understanding. If I'm wrong, then, well, I've been educated and, like I said, this is an educational question. I don't expect the system to be always profitable, so I'm not concerned if this trade is a loser. I just want to undertand the system better.
I would first like to
Posted by cwa82675 on 16th of May 2011 at 10:28 pm
I would first like to say that I am extremely grateful to Matt for posting this system for the average guy to use. I know it is causing him a lot more headaches than the hedge fund route would, but Matt there are many of us out here that truly appreciate the work you have done - with myself being one of them!
With that said I wanted to try and explain the current closing trade from my perspective with the hopes it will help to explain the current trade and also keep matt from having to answer a few questions (he is busy enough with a little one at home).
DISCLAIMER: I do not know any more about the system than anyone else on this board.
Matt said his system buys oversold conditions and sells on overbought conditions. One important part of this statement is these are for the entries not the exits. The system detects in some form or fashion an overbought condition and then takes a long position. Once the position is established it then has rules for exits. One of the rules for an exit is a profit target, another rule is if the system then detects the market is changing directions, and another is if the condition of overbought no longer exists - which I imagine is the reason for the current cllosing trade. When the system bought it thought the market was oversold and believed the path of least resistance was to the upside. That entry was seven trading days ago and the market has not made a decent move to the upside since then. My guess is the system no longer detects the market is oversold and is therefore closing out the position and will wait for a better opportunity.
Just think in terms of a moving average, if a stock gets too far away from a moving average it is said to be overbought or oversold based on the degrees of separation from itself to the moving average, but if that stock sits at that price for a period of time the moving average will move towards that stocks price even if this stocks price does not fluctuate (thereby removing the overbought or oversold condition) Hope this helps.
cwa, your explanation would make
Posted by cw12 on 16th of May 2011 at 10:54 pm
cwa, your explanation would make sense. And I really like the way Matt's system enters trades.
Perhaps..
Posted by burkmere on 16th of May 2011 at 07:03 pm
It's probably useless speculating about Mr. SPY System, but perhaps with the down day today, the odds are good enough that we get a bounce tomorrow, but Mr. Spy isn't too thrilled about the near future and wants to exit after what he thinks will be a bounce.
Remember, as Matt said, Mr. Spy can do what he wants. Heck, if we exit in the morning, he could go long again at night if we get a huge selloff.
I'm basically just looking forward to a couple of years of trading Mr. Spy and then I'll go back and look and see how he did.
Algyros, I agree that the
Posted by philosoraptor on 16th of May 2011 at 06:12 pm
Algyros, I agree that the system buys weakness and shorts/sells strength in terms of entering trades.
However, if you look at the charts of past trades, some longs have exited after a period of relative weakness.
For example, the single-entry long trade of early July 09 to early September 09 exited after a short period of weakness. Same for the multi-entry long trade of late November 08 to late December 08. In both cases, price actually bounced soon after exiting so perhaps the system was looking to avoid a 'crash' or similar in exiting under those (weak) conditions.