Thursday, 21 February 2008

Eurodollars Positioning Bearish for Banks

Just included a cool new trading setup in my Latest Signals table results. It's for bank stocks. How's that? you ask. Bank stocks aren't in the Commitments of Traders reports, which I use as the basis for all the setups on that list. Right you are, my friend. But I tested the Eurodollars contract positioning against the KBW Bank Index (BKX) and, lo and behold, so was born one of the best setups I've seen in any market, second only to my silver setup. Who would have thought that boring old banks would be so profitable historically?

The setup trades on the same side as the large speculators in the Eurodollar contract. (Btw, Eurodollars have nothing to do with Euros. They're based on U.S.-denominated deposits in banks outside the U.S., and they trade depending on credit conditions. See Wikipedia's entry for some basic details.) What's striking for me isn't so much the straight profit numbers of this new setup, but the measures of statistical robustness. See the columns near the right-hand edge of that table for the confidence intervals, which are really good. This setup has a Sharpe ratio of 4.3 (compared to 4.5 for my silver setup and 3.4 for my S&P 500 setup, my previous top two). For you stats enthusiasts, the regressed annual return (RAR%) of the BKX setup is 31% and the Robust Sharpe ratio (using RAR% instead of the compound annual growth rate) is 5.3, which is pretty sweet.

So what's the setup saying right now? It's been working overtime of late, flipping between bullish and bearish signals every week or two (or four) since October. The setup gave a new bearish signal from last Friday's COTs report, which with the one-week trade delay it uses means for execution on the open Monday, Feb. 25.

6 comments:

Andrew said...

Hey Alex,

Great site! It's really hard to find any good strategies for trading COT, so I'm glad I stumbled upon your blog.

Would you mind providing me with more detail about your Eurodollar setup? For example, whats the lookback/moving average that you use, and what net positions trigger buy and sell signals?

Thank you very much.

Alex Roslin said...

Hi Andrew,

Thanks for your interest. I'm still working out which setup specs to publish and where, perhaps through a paid site. For now, you can download the SP500 spreadsheet with those details from the page linked on the right in the Navigation bar.

Regards,
Alex

Alex Roslin said...

Also, my parameter values for my gold setup are also available on the Latest Signals page.

Regards,
Alex

Andrew said...

Thanks Alex. One more question, what software do you use to backtest your results?

Alex Roslin said...

Hi Andrew,

After initial culling of setups with an application written and shared by a generous reader, I use Excel to review the best setups more closely and pick the the best ones.

Regards,
Alex

Anonymous said...

Alex, after todays, almost 4%gains in Silver, isnt it premature to say Sayanora? In fact, I am a contrarian with you on this, and your "set-ups". They lack,Heart, and we are all entering unchartered waters, so any data in your "set-ups", isnt as Historically relevant,or so it seems to me. Silver was no Bear today!!Jim