Frequently Asked Questions:
Note: Please take the time to thoroughly read the FAQ questions and answers below. The SPY Systems are a collection of 22 individual systems, which I like to call sub systems, however each system is its own system. All of them are reversion to mean systems, except for the breakout system, and are based on past market statistics.
Q: Can you tell me more about this collection of SPY systems?
A: The SPY Pro systems are a collection of 22 sub systems with all of them reversion to mean (except for the breakout system) meaning that they will attempt to buy oversold pullbacks in general uptrends, or short oversold rallies in downtrends. They are based off past statistics and look for high probability trade situations based off rare statistical occurrences. For example a recent trade to this was an Exhaustion Short which was taken on 9/2/20, and the market sold off strongly starting the next day. The name of that sub system itself is pretty descriptive of what that sub system is looking for i.e. exhaustion short, it sensed correctly that the market has been trading up for too many days in a row and was due for a correction. That exhaustion condition has only occurred about 20 times in the last 25 years with 93% of them producing winning trades or pullbacks. Remember these sub systems simply look for trade opportunities whenever the market gets stretched one way or another, it then looks to close the trades out after that mean reversion occurs. These sub systems are completely opposite to the KISS SPX 401K which is a trending system that tries to stay long all the time in uptrends. These systems are mostly in cash, and look for trade opportunities here and there.
here's a description of each of the sub systems.
1. Trend long - only buys pullbacks when prices are above long term MA's along with up sloping MA's, exits when certain indicators recycle
2. QE Long - A reversion to mean trade similar to the Larry Conners RSI 2 reversion to mean strategy, however uses a %R indicator instead. Price must be over the 200 day MA for longs and below for shorts.
3. Pullback long trade - similar to the Trend Long but slightly different settings
4. Bear Long - a special type long trade that only occurs in bear markets, very stringent conditions and rare but very reliable. various filters built in here to allow it to exit quickly if need to for a small bounce only, or hold the trade for 1 - 2 months if conditions look ripe for a strong move off the lows
5. Exhaustion Long in bull market - opposite of the Exhaustion Short above, occurs when price is too stretched oversold, however price is still in a bull market. Bull market is defined generally when price is above the 200 MA and it is in a positive slope. I have two versions of this, 1 and
6. Exhaustion Long in bear market - similar to the one above, but occurs in bear markets so price has to be stretched MUCH further oversold
7. RSI 14 long off 40% - occurs in bull markets only, when 14 RSI V's off the 40% level
8. RSI 14 oversold trade - RSI is very oversold long, various filters built in here to allow it to exit quickly if need to for a small bounce, or hold the trade for 1 - 2 months if conditions look ripe for a strong move off the lows
9. Strap Long - a specialized Long trade that occurs when a fast stochastic gets oversold but price remains above a short term MA like the 20 - 30 MA
10. 60 Stochastic Long off 50% - uses a 60 Length Stochastic, which is a trending Stochastic setting, the condition occurs near the 50% level of the 60 length Stochastic.
11. Breakout System - This is a NEW system that I developed in early 2017 that is non-reversion to mean. It is different than the other long strategies in that it doesn't require a pullback in an uptrend to go long, instead it buys strength or a breakout condition! In very low volatility markets like the one we've seen in 2017 that has had the lowest volatility in 100 years, the market has had very shallow pullbacks which were not deep enough for many of the reversion to mean systems to catch - the breakout system can catch these trades. This system addition is yet another diversification to the system.
1. QE Short - Like the one above, but for shorts, different filters etc
2. Exhaustion Short #1 - this trade take short trades when the market is in a very strong uptrend, but statistically is very very stretched such as over 22 days above the 8 day MA and %R over 90%, exits on a quick pullback. I have 2 versions of this, 1 and 2
3. Exhaustion Short #2 - same methodology as above, however slightly different settings
4/5/6. Hi, Mid, Low short - these are three type of short trades that occur primarily in bear markets when price gets overbought, I have 3 types of these
7. 60 Stochastic Short off 80% - uses a 60 Length Stochastic, which is a trending Stochastic setting, the condition occurs near the 80% level of the 60 length Stochastic.
8. 60 Stochastic Short off 50% - same general logic as the one above, except this condition occurs near the 50% level on the 60 length Stochastic.
9. 34 Stochastic Short off 80% - same as trades above but uses a 34 length for Stochastic instead of 60 length
10. 60 DVDS Stochastic trade - similar trade to above, but uses a special normalized Stochastic indicator
11. Strap Short - a specialized Short trade that occurs when a fast stochastic gets overbought but price remains below a short term MA like the 20 - 30 MA
- that's a list of most of the individual small systems, that all work individually, and together
Q: Why did you build a system for the SPY ETF?
A: Because SPY is the ETF for the S&P 500 and it is very liquid. Also many of our members try to trade the 'market' via the S&P 500 through ES futures or ETF's like SSO, SDS, but trading the indexes can be extremely difficult. I personally think that it's more difficult trading the market indexes versus trading individual stocks like our trade ideas at the end of the market newsletters. Also systems remove some of the emotion, which can be one of the main pitfall for many traders. In addition, systems have a discipline, set rules and money management, which many novice or newer traders lack.
Q: What are the parameters to the system, how are the trades generated
A: That's a trade secret, and it is closely guarded to insure the integrity of the system. We are not selling the system code, only the buy/sell signals. However, generally speaking the system uses the principle of 'mean reversion' more so then "momentum Trading." However the system has intelligence built in so that it will attempt to ride a trending move when the opportunity arises. For example the average trade length is about 13 days, however that's simply an average as some trades can be held for a little as 3 - 5 days, while sometimes the system will catch trending moves and stay in a trade for 2 - 3 months! You can see visual examples of this in the 'Trade Examples' section.
Q: How and when are trades entered?
A: All 'new' trades are entered at the close of the day per the statistics, which makes this a true end of day swing system.
The various sub systems can have up to 3 total entries with 3rd entries very rare occurrences.
Q: How and when are trades exited?
A: Shorts: All Shorts are exited at the bar close just like the entries. However some trades can be exited via profit targets, which are rarely hit unless the trade has had a huge move i.e. as over 10%.
Longs: Most longs are also exited at the closing bar. However a few trade types are exited on the market or bar open. I communicate all trades via email notification to let you know when to exit.
Q: Could I trade options instead of SPY and SSO?
A: Yes, you can trade any instrument that is related to the SPY, such as options or futures. There are a variety of ways to play options, however my personal favorite is to use deep in the money options so that I'm paying very little for time premium and. I Also tend to go 2 - 3 months out so that the option doesn't expire while the system is still in a trade: for example while the average hold time for trades is around 12 days, some trades can be held for 1 - 2 months at times.
Q: How will I be notified when the system does a trade?
A: Whenever the system does a trade, I send out a trade notification to all Breakpoint Trades subscribers. I will also send SMS text messages (if you have this service set up for your cell phone). However you don't need to pay for the SMS service because you will be emailed for free. I also post the trade signals on the 'Trading Community', which is our active intra-day forum for the website. Thus it's always a good idea to check the Trading Community as well. I also discuss the system in the newsletters from time to time, however that's for extra or more detailed information, the official trade notifications are sent via email.
Additionally: The trades are added to this SPY Pro System section; you will see the current trade status at the top of every page in large font bold letters, and when the trades are closed out, they get added to the Trades List section. The current trade status at the top of each page: SYSTEM Is Flat means that the system is not currently in a trade and is in cash. When the system is in a position such as SPY or the 2nd entries using SSO or SDS it will be designated there as well.
Q: Can you tell me some of the typical statistics to the system, what's the average gain? How long are the trades typically held? How often does it do a trade, etc?
A: First off, you can view all the individual trade lists from the 'Trades List' tab, key statistics from the 'Stats' tab, and of course in the 'Trade Examples' tab you can view charts showing the trades broken for every signal year back to 1996! However are a few key stats:
Percent Profitable: The system has averaged 90% winning trades.
Frequency of Trades: The system typically does around 1 trade a month, however that's an average. For example sometimes the system will do two or three trades a month, and on rare occasions there are times when the system may go up to 1 1/2 and a maximum of two months without a trade.
Time Length Of Trades: The system holds trades for an average of 13 days, however that's just an average as a few trades can be held as little as 3 days, while on some occasions the system will catch a runner that can be held for 1 - 2 months, the longest is around 2 1/2 months. Also the system is typically in the market just over 50% of the time, which means that it's in cash around 50% of the time.
Average Annual Gain: The average annual gain is just over 35%, however that's an average as there are quite a few years in which yearly gains exceed this. For example in 2008 the system gained almost 97% and well over 50% and 60% in 2009 and 2010 respectively. The smallest gain was 2005 at around 14%.
Gains are not compounded: The statistics, such as the annual gains, are NOT compounded
Q: What type of trades does the system typically do? What's it based on, parameters etc
A: While I can't get into secret sauce, the system is a combination of reversion to mean type trades that look for opportunities to quickly get in and out of the market (like hitting singles baseball analogy), There's also trending components where the system will attempt to hold trades for longer swing trade opportunities (home run trades).
The system is actually a macro system that is made up of, or diversified across twenty-two sub systems that all work in concert with one another. Each sub system does different things and are actually whole systems on their own that can be run individually. My thought process with this was that this gives the system a huge diversification, it's like running 22 systems vs 1. Many systems out there are composed of only one trade type, such as a Larry Connors RSI 2 system etc, and so if that system gets out of sync with the market, you are out of luck. Since my system is devised of 22 systems that all do and look at different things in the market (some are reversion to mean, some are trend following, some are breakout), the odds off all of these systems getting out of sync with the market at once is astronomically low in my opinion. That's how I've approached this system; it's taken years and thousands of hours of code and development, and of course I'm never done, I will continue to further tweak and add new trade types and filters as I discover them, so one day there will be 25 sub systems, then 30 and so on. You can read a description of the current sub systems from the 'Overview' tab
Q: Is this system curve fitted, how do I know that it won't just stop working?
A: Well first off, there are no guarantees in life, especially trading. Thus just like any system. it could stop working at any time (read our disclaimer). However that being said, a lot of care went into this system and it incorporates things we personally use in our own trading vs a bunch of arbitrary variables and indicators. Also, the system has worked in all market conditions, bull and bear markets:
For example, this is not a system that has been optimized over only six months or a year, this system was optimized back to 1995! Also this system has no losing years and has worked in all market conditions.
- The Secular bull market of the 90's and the Internet Tech Bubble of the late 90's
- The Tech Bubble crash and bear market of 2000 - late 2002
- The cyclical bull market from late 2002 - Nov 2007
- The vicious bear market from Nov 2007 - Mar 2009
- And of course the current cyclical bull market Mar 2009 - Present.
- Q: I received the email that the system would be entering a trade at the close. However I was out running errands and was unable to get back to my computer or trading account before the market close to enter the trade, what should I do?
A: Well, the good thing is that the SPY ETF the most liquid ETF, which means you can enter the trade very easily in the after hrs market with a tight spread. Also, after hrs trading is open until 8 pm EST, so this gives you 4 hrs after the cash market SPY closes at 4 pm EST, which is late enough that you should be able to enter the trade even if you are too busy to enter at the close when the trade signal is sent. Also the average time that the system is in a trade is about 12 days, therefore it's not critical if you miss a system trade by a slight amount like it would be if you were trading a short term day trade system. You could probably also enter the trade in the morning if the price doesn't gap too much, and of course you can enter the trade if the price falls below the entry of the system.
Q: I just recently subscribed and become a member of BPT, however the system is already in a trade, should I enter the trade now?
A: In most cases, the answer would be NO, especially if the trade is up substantially, because you would be entering from a bad risk/reward scenario. I would only consider if you can get a price close to where the system entered or a better price!
Q: I would like to trade this system in my 401K or IRA retirement account, however I cannot short SPY in my account, can I still play the system?
A: Yes of course, you have a lot of choices to choose from.
- The easiest thing to do would be to buy SH, which is the -1X inverse ETF to the SPY in place of shorting the SPY. You could also buy SSO (2X long) and SDS (2X short) ETF's. However realize that these are 2X leverage ETF's thus while your gains will be double, so will our losses and draw downs.
- You could also choose to take ONLY the long trades. Most of the trades in the system are long trades (since the market is in a bull market more than it is in a bear market).
Q: How much money should I invest in the system trades?
A: That's up to you and you have to make your own trading decisions based on your objectives and personal risk/tolerance and we are not investment advisers; however we suggest using proper money management. What we mean by this is, don't put 100% of your total capital into the system trades or leverage up your account using margin for the system trades. It's no different when trading normal stocks, diversify your holdings, don't place all of your eggs into one basket!
Q: I've noticed per the system statistics you show, that all the trades are the same dollar amount of $100K. Should I also put the same amount of money into the trades, or can I vary this?
A: This is up to you, however you should have a plan when you trade the system! We suggest in order to match the system statistics that you should be consistent: Either keep all your trades the same dollar amount like the system, or you can compound your trades by taking a set percentage of your profits and reinvesting them into each trade. For example, you may decide to compound 10% or 25%, or 50% of your profits back into the system. However, consistency is the "key" here, do NOT change "willy nilly" i.e. where you are constantly changing your dollar amount, i.e. keep it consistent!