Saturday, 16 June 2007

Update: New Setups Turn Bullish on Gold, HUI, USERX Gold Fund

I've been busily refining my COTs-based trading setups - looking for ones that are profitable, beat the markets and can be validated statistically. I guess my timing was good because I've just found validated setups for gold and the USERX Gold Fund - and they've both just given new "bullish" signals, like my XGD gold ETF setup (see post below).

Unfortunately, I'm having some trouble updating my "Profit/Loss Results" page with all the details, so I'll report them right here.

My new gold setup gave a "bullish" signal in the Commitments of Traders report dated May 29, with a trade delay of zero (meaning I would have executed my buy on the open Monday, June 4). This setup had a maximum drawdown of 9 percent (meaning my maximum portfolio allocation would be 22 percent). The setup had 16 trades (12 wins and four losses), with an average profit of 9.4 percent and an overall profit of 352 percent since the first trade, compared to 174 percent buying and holding gold itself.

My new USERX setup gave a "bullish" signal in the latest COTs report, also with no trade delay (meaning my buy should be executed for the open Monday, June 18) like the XGD trade (see post below). This setup had a maximum drawdown of 28 percent (meaning my maximum portfolio allocation would be 7 percent). There were 17 trades (13 wins and four losses), with an average profit of 32.5 percent and an overall profit of 2,743 percent since the first trade, compared to a 25-percent loss for the USERX Gold Fund.

I also got a "bullish" signal for a new setup for the HUI Gold Bugs Index in the May 29 COTs report, but this setup is only validated at a 90-percent confidence level (meaning that 90 percent of the time, the average trade is expected to be profitable) - which is less than the 95-percent confidence I want to see in my trading setups.

All three of these new setups are based on trading the same side as the commercial traders when their net percentage-of-open-interest position in the combined futures-and-options COTs data hits specific historic extremes that in the past have led to superior profits.

I'll update the new results on the "Profit/Loss Results" page as soon as I work out the glitches.

4 comments:

GKS said...

Hi Again Alex...

I was wondering about the timing of some of the commodity signals
you are generating...

For instance oil: its been on a sell signal but oil stocks are on fire.

With gold its on a buy but internal market momentum as measured by new highs/new lows is weak - usually momentum preceeds price.

Is there perhaps some way to integrate various market/technical signals to confirm the COT signal?

I mean gold could trade in a range of $640 to $660 for months with the commercials flipping long then selling then long again then selling again - in the meantime gold stocks would go nowhere.
Would it not be wiser to only take the signal if market indicators subsequently confirm?


Thanks

Alex Roslin said...

Hi GKS,

Thanks for your thoughts. Integrating technicals with the COTs data is certainly another way of using the information. I see nothing wrong with that, if it provides you a useful tool.

Oil has been on a sell, but please read my notes for this setup on the "Profit/Loss Results" page. My best setup for crude oil is in cash during a "sell" signal for oil. While energy stocks are doing well, oil itself has been falling and languishing for a year. I am, however, planning to take a closer look at my energy-related setups soon using my statistical validation approach, and see if I can find refine them a little.

Regarding gold, the commercials have been bearish since January or February (depending on which setup one looks at), which I think coincides with the recent weakness in this sector.

Best regards,
Alex

Tim said...

Are you using different day to test the system than data used to develope the system?

Alex Roslin said...

Hi Tim,

Thanks for your question. I don't understand what you mean. Could you explain your question again?

Alex