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The Mad Momo Ratio
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The Mad Momo Ratio

by The MoleNovember 17, 2015

Over the years I slowly shifted away from using TOS/Prophet charts toward NinjaTrader as I am able to enjoy coding my tools in an object oriented fashion. Scripting languages have always been the bane of my existence and although they can be great for prototyping you will run into limitations pretty quickly if you’re trying to do anything a bit more sophisticated. In addition consumer oriented trading platforms also suffer from an inherent problem which is that you simply cannot rely on a data feed that is either filtered or buffered.

2015-11-17_VIX_ratio

One of the few things I however appreciate about Prophet charts is the ability to quickly create ratio charts via a mathematical formula. Basically it’s the poor man’s Mathematica for data series. What is shown above is a special volatility brew of mine which has served me pretty well over the past year. I call it the Mad Momo Ratio and one of its components is the VIX – I have also thrown in a few other symbols for good measure (pun intended).

The lower pane shows us the SPX (I don’t know how to add a 2nd series to my shame) and I have pointed out all daily highs and their correlations with my mad momo ratio. As you can see a push toward the upper line on the BB(100) either meets or precedes the highs on the SPX in all but one case (5/22). The subs should expect seeing this chart more often in the future, so here’s another reason to join the club 😉

2015-11-17_volume_profile

Volume profile – last chance for the bears (how often have I said that in the past few years?). We are now pushing back into the high participation range between ES 2050 and 2100 – 50 handles of pain for the grizzlies.

2015-11-17_spoos_ST

The short term panel shows the spoos in the process of establishing a base near the 100-hour SMA. We should never discard the possibility of a counter response but as of right now I’m not seeing any pertinent evidence. So I’m moving my stop below that stack of Net-Lines and let the chips fall where they may.

A few more setups for my intrepid subs:

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • tradingmom

    Some bearish evidence (I’m a lawyer, I like to play devil’s advocate.)
    SPX 2 hr

  • mugabe

    Did you or did you not on the night of murder mention a death cross?
    I rest my case, m’lud.

  • Kishore Kumar

    Sorry for this belated entry on yesterday’s political discussion. India has a lot of experience with Muslims as original invaders and a fast growing minority, and based on that, we should all know that Muslim group behavior, especially after they become a sizeable minority, is very different from their individual behavior. As a group, their religious fervor takes over and they all, except for a chosen few, become violent against the “infidels”. This is a well known fact throughout their history, probably as a result of their brainwashing with “religious” (it appears to be more political than religious) indoctrination.

  • Round we go

    are you attacking mom? chill. just state the facts.

  • Ronebadger

    This song just popped into my head…I used to watch them in the clubs 40 years ago…one of the best bar bands back then. During this song, the singer would bang his baseball bat on a galvanized garbage can, then throw rubber rats into the audience.
    https://www.youtube.com/watch?v=foN8Jx_d5fQ

  • tradingmom

    That’s hysterical!

  • http://evilspeculator.com molecool

    Motion DENIED!

  • http://evilspeculator.com molecool

    Slow here today….

  • Round we go

    copper headed to 1.50?

  • tradingmom

    So we stopped at the top of the megaphone. Are we going back to the bottom, or just pulling back for another stab at breaking out? Zero isn’t too negative yet.

  • ridingwaves

    objection your honor…is not the trading mom’s argument cohesive, without conjecture and based on facts…a travesty of justice is not what you want in your court room

  • newbfxtrader

    Sure. Is that a channel?

  • mugabe

    sustained

  • mugabe

    I put it to you that Colonel Mustard in the parlour with the knife has the answer.

  • tradingmom

    I’m going to grab a candlestick before I ask him…

  • ridingwaves
  • newbfxtrader

    Zero is completely different than yesterday. You had no chance of a sell yesterday.

  • newbfxtrader

    Participation is picking up on the zero and its a bearish signal today.

  • tradingmom

    support? SPX 15 min.

  • Ronebadger

    Nice lines…let’s see what happens

  • tradingmom

    possible bullish case on the ES

  • Round we go

    i like it.

  • Scott Phillips

    Death cross – not an edge (categorically), just a cool name.
    Trend lines where you extend a trend line to make hypothetical resistance some on the other point of the chart down the track – not an edge

    Court finds in favor of Mugabe, and orders Mom to start using real TA and throw away that stupid stuff :)

  • Scott Phillips

    Even though it worked in this instance, these trendlines you keep doing are TERRIBLE.

    Two points is NOT a trendline. You could draw a line between a lot of different 2 points on this chart. Why these ones? Truth is, the market was heading into resistance and you are looking for reasons to justify it.

  • Scott Phillips

    No it is not. Not even close

  • Scott Phillips

    We have a wonderful experience with immigration in Australia, fully 20% of the country was not born here, and generally it has added a lot to our culture.

    However, anyone who grew up with their education in a madrassa, is going to be an intractable fuckwit. We have to stop those guys getting in.

    I’m generally pro-immigration, but the experience of Britain, France and Germany has been terrible with mass Islamic immigration. If they could turn back the clock, they would. Just not worth the risk

  • RonnieH

    Has anyone had problems using NinjaTrader. Lately when accessing the software, it’s been taking over 30 minutes to open my charts.

  • mugabe

    ooh uh .. made up that stuff about death cross :)

  • Scott Phillips

    Ninjatrader is shit. Your problem is the cache is corrupted. Do the following.

    1) Disconnect your data feed
    2) tools>options>repair data
    3) Exit ninjagayness
    4) Go to documents/Ninjatrader 7/bin/cache – delete all directories and files
    5) restart ninja.

  • Scott Phillips

    That “any two points” is a trend line shit has to go.

    Also the idea that you extend a trendline out and hypothetically the underside of the old trendline becomes resistance…. in very limited situations, the break and retest of a clear trendline, that can be fine. But extending it out to drawing random lines and the other side of those random lines somehow magically becomes resistance.

    Simply rubbish

  • http://evilspeculator.com molecool

    Have you contacted them directly about this? Clearly your installation is corrupted. The steps Scott posted below may help but it sounds like you may need to reinstall.

  • whatstreet?

    What’s your preferred platform/setup Scott?
    I want to start testing some Fx & futures strategies(which I have found data for, but not brokerage access yet).
    I thought Ninja seemed like a no-brainer with it being all consolidated, but I really don’t know any better either.

  • Scott Phillips

    Starting from scratch ninja is the only real choice for the home programmer. Trade station or esignal are the best two choices if you are not a programmer. If you are fx only probably stay with whatever shitty package your broker foists upon you :)

    Ninja is highly unreliable slow with a crappy interface. It however does a few things no other software does

  • Kevin Mcdonald

    I use multicharts… its decent!

  • dunknowanything

    Hope Mole and Scott don’t mind me asking a question. You guys often mentioned Bollington bands, for example in the previous post. By Bollington bands, do you mean upper and lower bands 2 times standard deviations from the mean? Thanks!

  • Scott Phillips

    Bollinger bands. They don’t have to be 2 standard deviations from the mean, but that is the default setting on most platforms. Google is your friend :)

  • Scott Phillips

    I’ve heard good things about it :)

  • dunknowanything

    Thanks Scott. I Googled and it said 2. So 2 or otherwise is a parameter to be investigated in system design I guess?

  • Scott Phillips

    Here’s the thing. If a concept is good, the actual parameters will still work even if they are a little screwy. Bollinger pinches, bollinger squeezes, bollinger reversions in flat markets are all edges. 2,20 is a good place to start.

    Here is a link to the book by the guy who invented it

    https://www.dropbox.com/s/auvzbuhzs1hyfzl/Bollinger%20on%20Bollinger%20Bands%20-%20John%20Bollinger.pdf?dl=0

  • Scott Phillips

    I’m a fan of esignal, though their default FX feed sucks (but there is a way to fix it)

  • dunknowanything

    Thanks Scott. Much appreciated

  • TheRooster

    all of the platforms i have investigated have benefits and drawbacks – best place to start is what do you want to test with regard to:

    – time frame
    – complexity
    – instruments
    – portfolio (i.e. do you want to build your own portfolio results or have them presented to you)
    – cost

    if you spec this on paper you will probably rule some platforms in/ out

    when you choose a platform take some time to understand the backtesting limitations and flaws in your chosen platform before you write a line of code – this can save alot of time further down the road

  • http://evilspeculator.com molecool

    MC is great and stable and you now can develop in C# as well:

    https://www.multicharts.com/strategy-development-net/

  • http://evilspeculator.com molecool

    I think you have a water leak in your PC.

  • http://evilspeculator.com molecool

    We use eSignal as a backup for Continuum and Rithmic as a backup for FXCM.

  • Scott Phillips

    To my knowledge there are no retail programs with accurate back testing

  • mugabe

    amibroker is well regarded even by some pros and it’s not at all expensive, but you have to get comfortable with the language- a problem not to be underestimated.
    and you have to get your own data.

  • http://evilspeculator.com molecool

    There is no such thing as accurate backtesting – you can only attain a higher degree of realism. And it’s an exponential ratio – the effort and resources required to get to about 90% accuracy is probably 10x that of reaching 80%. However keep in mind that even a deviation of 5% can vastly affect your edge in any system below a win/loss ratio of ~75%.

  • http://evilspeculator.com molecool

    See my comment below – this has nothing to do with the tool or the language. Unless you are able of simulating all the L2 market data on a tick basis you are basically just roughing it. Plus in BT you are not a market participant – in thin contracts your activities will affect the tape. Finally there are bad fills and mistakes which also are dependent on your system – a daily system will have less problems with that than for instance a 60-min system.

  • mugabe

    OK, got it
    edit: this is possibly an argument for developing/backtesting EOD systems if you’ve got limited resources

  • whatstreet?

    You’ve really got me thinking on backtesting the past few weeks. I did one thorough backtest “by hand” for one system. The main thing I got out of it was at least an idea of draw-downs. But what’s that even worth… I’m forward testing a few other systems with promise. When do you take it live?? After a month or two of looking really good?

  • RonnieH

    Thanks for your help

  • RonnieH

    Thanks, I will give a try

  • whatstreet?

    Thanks sir. I’ll have some time to weigh it out before I expand from ETFs. I’ll take a look. Definitely not a programmer.
    Is it just the charting ‘look’ that sucks in Ninja, or do you mean more of the- ‘ease of use’?

  • http://evilspeculator.com molecool

    Start trading it live for very little money if that is possible. Forex is ideal for doing that. As you trade it live you will discover many things that would take you weeks/months to figure out in backtesting.

  • whatstreet?

    That sounds ideal. Thanks!

  • RonnieH

    I agree, Ninja is crap. If I delete all directories and files, I will have to rebuild all my charts??

  • Scott Phillips

    Nope, you just delete the Ninjatrader 7/db/cache files and restart after disconnecting kinetick and file-tools-options-data-repair db

    Oh shit there is a typo above, should be db/cache, not bin/cache :)

  • Scott Phillips

    Your charts will all be the same

  • Scott Phillips

    Backtesting is fine for what it can tell you. The confusion is that people expect a big backtest to be some kind of guarantee. It’s not.

    It can tell you within a given confidence level what your returns should be, as long as future markets approximate past markets.

    There are two very big if’s there. Let’s say your system has a backtested expectancy of .15 and a standard deviation of .1

    About 60% of the time the system will perform between .05 expectancy and .25 expectancy. A significant amount of time will be spent in negative expectancy periods. So basically your backtest doesn’t tell you anything useful about whats happening next month.

    For example, my expectancy over the last two months was .44R per trade, which is nothing like the paltry returns I usually get. But still entirely normal within normal expected distributions.

    Also the really big caveat is “what if market type changes”. Especially for stock trading systems if you base it on a long running 20 year bull market its not going to even think about working right in a decade long bear (if that ever happens).

    There are many many technical problems with backtesting, most of which are solvable with enough effort, though as Mole correctly states it’s a diminishing returns type situation.

    Bottom line, backtesting IS useful, just not to hang your hat on.

  • Scott Phillips

    Trading live for small money after a decent backtest is the gold standard :)

  • Scott Phillips

    Absolutely correct. However EOD systems have the devil deal of virtually unsolvable correlation problems

  • http://evilspeculator.com molecool

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  • BKXtoZERO

    LOL

  • TheRooster

    Hi Scott

    How are you defining retail? Ninja, TS, Trading blox, multicharts and a a few others are probably viable for backtesting (with the caveat that you understand the limitations) and are available to retail investors?

    i havent used amibroker but i have heard good things about that too?

  • TheRooster

    Completely agree Mole, although it is interesting how many people use the excuse that it is not accurate or flawed to not do any work or simply throw trades at a chart when they see an indicator that is temporarily in synch with the market

    I have a trading buddy who refuses to do any backtesting because he thinks it is a waste of time but I am pretty sure he doesn’t have an edge and a few simple backtests would probably prove that

  • supervilin

    And what about SierraChart? Anyone heard of them or used them?