Quantisan.com

Bought 4 MFC Jan 2010 Puts 14.00 @ 1.70, Mark $13.25

Paul — Fri, 10 Sep 2010 16:22:35 +0000

I am shorting again. This time on Manulife Financial (MFC.TO) with a January 2011 put at 14 strike price. MFC is trading at $13.25 at time of entry.

Recent series of prop desk closings isn’t going to bode well for the market, particularly for the banks as they need to recouperate those easy income. On top of it, the lack of push from the bulls this week as S&P test 1110 resistance doesn’t look promising either. Yet, this could very well be a bear trap.

In any case, I am taking a bearish bet via shorting MFC. Figure 1 shows a chart of MFC. It is depressed and it is struggling. Moreover, MFC keeps announcing billions of dollars worth of share offerings lately. I like it.

There is a dinstinct possibility of a bear raid if MFC can break this $13.50 resistance level. The gap above $15 is just staring at me.

Hard stop is at $1.00 premium. Worst case risk for this trade is thus ($1.70 – $1.00) * 4 * 100 = 280 + $27.90 commission = $307.90 = 3.2%. However, I’d be very cautious if MFC closes above $13.50.

Manulife Financial (MFC.TO)

Bought 200 VEN.TO @ $9.74, Stop $8.90

Paul — Thu, 09 Sep 2010 15:32:29 +0000

Well I found a viable long term hold just as I declared that there’s nothing good out there today. Yes, I eat my words often. So I took a long position in Ventana Gold Corp (VEN.TO). That cup-and-handle breakout from $9.00 is just textbook (Fig. 1). I am indeed a bit late, but the trend is now upward.

There is a big resistance at $10. It is where the June epic decline started. From just above $10 to $6.5 between June and July. Now that VEN is back at this level again. I am betting that the positive momentum would carry it upward.

My hard stop is $8.90. My mental stop is $9.50. As VEN seem to like to gap at $9.50. From the look of it, $9.50 level is more important than $10. Since we’re above it already, this gives me a bit more confidence in this trade.

Another point to note is gold price. It is on a direct train to test, and possibly, break a new high record (Fig. 2).

Risk is ($9.74 – $8.90) * 200 = $168 + $9.90 commission = $177.90 = 1.85% of RRSP trading account.

Ventana Gold Corp. (VEN.TO)

Gold

Still waiting on the sideside in my RRSP

Paul — Thu, 09 Sep 2010 14:42:25 +0000

As much as I rant about trading and forex, a big portion of my investment funds are in a Questrade RRSP trading account for the long haul. However, that account has been dormant for a few weeks now. The money is just sitting there, not even making any interest. The reason is that I am just not seeing any long-term opportunity on either long or short just yet.

Even though the month of September started well after Labour Day, as the market is inching higher, the long term picture is still unclear. Figure 1 below clearly shows that not much has really happened for the whole year. There was a lot of volatility as TSX swings up and down a thousand points now and then. Evidently, a buy-and-hold strategy wouldn’t have been doing too well this year. As such, I am waiting with no position in hand.

At least I’m not going all out shorting the equity market anymore.

TSX weekly chart

Number one with 40+ percent return in a month! So am I rich yet? Not really

Paul — Fri, 03 Sep 2010 16:39:47 +0000

I have won first place in the August Dukascopy JForex contest! My automated strategy returned over 45% in the month of August. With that honour comes a $5,000 grand prize in real greenbacks.

The setup that I used is a minor updated version of the one I used last month. I continue to adapt my system to expect market conditions of the month ahead. Sometimes I’m right, sometimes I’m wrong.

This contest is turning out to be more than a nerdy pass time for me as I have finished in the top 10 three times already since it started in April. However, I must reiterate the fact that this is not real trading. It’s just a paper trading contest with no real money risked on my part. If I’m really that good at trading to make 45% of return a month, I wouldn’t be writing this post at lunch in my cubicle at this moment.

So yes, back to reality as I continue my engineering work while improving my own trading and developing my quantitative trading system in my spare time. As my blog’s tagline reads, this is an engineer’s training to trade for a living.

On technical analysis and fuzzy logic for mechanical trading

Paul — Thu, 02 Sep 2010 14:49:58 +0000

Technical traders realize that technical analysis is more of an art than science. Until you draw a plethora of lines to fill your chart, which would render it practically useless, prices rarely “hit the spot” based on your doodles. This doesn’t matter though because trading is not about charts and guessing numbers. It is about costs and risks (pardon me if you’ve heard this a thousand times already). To whom this would matter though, are the mechanical traders using technical analysis.

It may be obvious to a human to discern price patterns because a trading setup looks like something you know. However, figuring out “obvious” and “looks like” is not trivial in a program. Common ways of tackling this problem is with stochastic algorithms or Bayesian logic. The drawback with using these methods though, is that they are difficult to conjure unless you have some vigorous background in math.

Hereby I suggest an alternative–fuzzy logic.

In it’s simplest implmentation, fuzzy logic are mere if-then statements. Here’s a sample fuzzy logic control system for regulating temperature with a fan (it is also a trick solution to the infamous hysteresis problem in control theory…but I digress),IF temperature IS very cold THEN stop fan IF temperature IS cold THEN turn down fan IF temperature IS normal THEN maintain level IF temperature IS hot THEN speed up fan

As you can see, there can be more than two values for a result. The classic and ubiquitous TRUE or FALSE boolean is thrown out the window.

Let’s dive right into an example of applying fuzzy logic to technical analysis. Say you are using the RSI as one of your indicators. Typically, you set a pair of threshold values to determine if the instrument is overbought or oversold.

String rsiCondition; if (RSI > 70) rsiCondition = "Overbought"; if (RSI >= 30 && RSI <= 70) rsiCondition = "Neutral"; if (RSI < 30) rsiCondition = "Oversold";

Then here is what a fuzzy logic implementation would look like.String rsiCondition; if (RSI > 90) rsiCondition = "Very overbought!"; if (RSI > 70) rsiCondition = "Overbought"; if (RSI > 60) rsiCondition = "a little overbought"; if (RSI >= 40 && RSI <= 60) rsiCondition = "Neutral"; if (RSI < 40) rsiCondition = "a little oversold"; if (RSI < 30) rsiCondition = "Oversold"; if (RSI < 10) rsiCondition = "Very oversold!";

In fact, you may have noticed that the first RSI example is already a 3-valued fuzzy logic. And you’re right! Fuzzy logic is that easy.

So what can you do with that second RSI example? Well, perhaps you want to implement fuzzy logic on a MACD as a second indicator. Then you can implement a “conviction” algorithm (which isn’t possible with TRUE/FALSE algorithms) by summing the two fuzzy logic (see wiki or google for more information on performing fuzzy logic operations). And then… well.

This is a basic example of exploiting the benefits of fuzzy logic in automated trading strategies. More advanced use of fuzzy logic is demonstrated in this seminal work by Lin and Lee, Neural-network-based fuzzy logic control and decision system, 1991. Fuzzy logic + neural net! Well, as you can see, this is only the tip of the iceberg.

P.S. I have discussed a lot recently about the frontend work that I have been working on. This post is a break for the reader and a glimpse at what I am really doing behind the scenes. Let me know in the comments below if this is your cup of tea and I’ll write more of this type of posts in the future.

Closed USDCAD short @ 1.06525, breakeven

Paul — Tue, 31 Aug 2010 22:24:02 +0000

It seem that USDCAD isn’t about to die just yet. My USDCAD short got stopped out at breakeven this morning. In fact, the pair is still struggling around the descending resistance line as shown in Figure 1. It made a higher low so I won’t be surprised if it cracks higher.

USDCAD, 4-hour

The reason why I took this trade was that the opportunity seemed too good to pass on based on my analysis at the time. I always keep an eye on the market even when I’m not trading. Although the basic setup remains intact, the opportunity isn’t so fantastic that I couldn’t say no anymore.

Anyway, back to staring at codes.