Ed Seykota Sings the Rules of Trading

Remind me to play the Whipsaw Song after all the CMI 2.0 losses this coming year. Go ahead, check it out. You will be humming the rules of trading for days.



Ed Seykota is a commodities and futures trader, trading educator and trading systems developer.

Wrong Way QID

The CMI will sell out of the QID at tomorrow's open. This is yet another example of how this method can get whipsawed when hovering round the 50 day moving average. I will update the YTD gains for the CMI this week.

Unofficially, while the CMI is making all the wrong moves, the CMI 2.0 is trend following on the right side. Riding the QLD since last Thursday the CMI 2.0 is making up some ground in this consolidating market. The CMI 2.0 will be introduced in the jungle at the start of the new year. The CMI 2.0 is much more dynamic than it's predecessor, and does not rely on any moving average whatsoever. This should make next year very interesting, and profitable.

Prediction Sunday

I made very few individual stock picks this past year but here were two:



On Jan 13th 2009 I told the blogging community that CVS might run a little during the year. On that date the price was $26.75. Since then the price ran up 42%, just over $38 before it's recent crash back down to $31. All in all, not a bad trade.

On December 22nd, 2008, I has a warm and fuzzy feeling for LUV. At the time it was trading just under $8. Ok, it did go down to $5 but now currently resides at $11.24. It took a while but the 40% gain was worth the wait.

What's up for 2010?

The monkey is not shy, proud, or tired so the dart gets thrown at...drum roll please...

CVS (once again) currently trading at $31.18 and just coming off a big correction. Even a baboon can see that the gap will get filled.

LVS (Las Vegas Sands, Corp) currently trading at $15.29. The year to date chart looks like a technical analyst's dream. Could this be going to $30? I'm betting on it.

That's it for the 2010 predictions for now. While I'm here though, I have been working on a new stock screen the uses short-term relative strength and buy/sell volumes to predict swing points.
I have no idea if it will work but if the following stocks make a solid 5% move this week I may explore this a little more deeply. I'll track these during the week and post the results.

Symbol
Last
UCBI
3.25
JBLU
5.47
ERIC
9.05
MTZ
12.58
AHT
4.76
EGLE
5.01

Blogger Sentiment

As I had said in a previous post, I will look down 'memory lane 2009' and try to pick out some helpful information that could be useful for next year's trading.

Take a look at the current blogger sentiment poll. The question asked to these top-notch bloggers (unlike this bottom notch blogger) was how they think the market will fare over the next 30 days.



Looks a little "metsa-metsa" to me but I will take this poll a little more seriously since the bulls from last year's poll picked the market direction for 2009. Last year the pie looked like this:



Maybe some day all eyes will be right here at MTD and the CMI 2.0 will be considered the 'mother of all' polls.

Battle of the CMI's

Even though I am only tracking the original CMI, it is interesting to watch the signals from both the CMI and the CMI 2.0. The original CMI went QID with a $20.52 buy which may not last very long since this system uses the 50 day MA as one of the parameters. The CMI 2.0 held it's QLD position and made up some ground with a 3% gain today. Even though it is short-sighted thinking, the 2.0 made the correct call.

There are only two more weeks in the year and I am almost ready to upgrade the system to 2.0 even if I have to patch it up a little with some frog DNA. (Maybe next year I'll stop with the Jurassic Park references.)

Consolidation Blues

It's no real surprise that the CMI says to buy the QID at tomorrow's open. (Notice that the bear is back in the left sidebar). I will update the YTD gains this weekend. Hopefully the market will find some direction over the next few weeks so that the CMI has something to follow rather than whipsawing back and forth.

The CMI 2.0 is hedging on a QID trade but another day of confirmation is needed. I guess after a 120% gain, it's due for some mediocre trades.

Here's what's coming up over the next few blogging days:

Expect more insightful graphs for the CMI 2.0. If you want to know where your 2005 10k investment would be after 5 years of CMI 2.0 trades, you will find out.

You will see a frequency graph of winning and losing trades. This will give you more confidence after suffering a few losses and reinforce the need for a system that you can trust over the long haul.

I will look back at what the monkey dart hit. Some of the results of my past individual stock picks will be revealed. This could give some indication of what could work for you for the upcoming year. Even I was surprised at some of the results. With a bull year like this, even a baboon could pick a few winners.

Also, I will look ahead to the upcoming year and the future of monkeythrowdart. I may even have a long term 2010 pick of the year.

A Deeper Look into the "2.0"

The CMI is still in sleep mode while the CMI 2.0 has been calling for a QLD trade since Thursday or Friday.

Any reference to CMI 2.0 is for educational purposes only and is not intended to be used for buying or selling any individual stock or fund.

Wow, I'm getting good at pulling these disclaimers out of my butt.

I will continue to post buy/sell signals from the CMI in the left sidebar and will hold off posting any signals from the new CMI 2.0 until final testing is complete which should be just before the new year. Of course, if the 2.0 flashes the buy signal I will most likely post it in the blog.

For those who want to get a better look at the individual CMI 2.0 trades over the last 5 years, here you go. It would be nice if I could reduce the losing trades but the market can be quite unpredictable sometimes so I'd rather be 'in the trade' even if it means taking a loss. You gotta play to win as they say.

Notice that the biggest 'beat down' occurred between October 08 and Jan 09. I guess even the 2.0 couldn't withstand the huge market volatility during that period. Actually, the 12.2% loss for the October 30th, 2008 trade may actually have been a false signal. If this proves true, the loss would actual have been a 12% gain. More checking is needed here and I'll keep it 'as is' for now.

CMI Making a Statement

The original CMI is not giving up without a fight. After closing out an impressive 5.0% gain, the YTD 35.3% gain is nothing to sneeze at. (Remind me to check some of those H1N1 stocks). Anyway, we are now in a 'no trade' zone.

The CMI 2.0, although in beta testing, has posted a 120% gain this year but that is only through backtesting rather than real data that the CMI (1.0) has posted. Another difference between the two systems is that there is down time (no trading) with the CMI 1.0 while the 2.0 only gives buy or sell signals. There is no such thing as a 'no trade' zone with the 2.0. Either you are in a QID trade or in a QLD trade. This is much more dynamic but has resulted in win/loss % of 50. This means only half the trades make money. The good news is that the winning trade % gain has been four times greater than the losing trade %. If you are unwilling to take small losses, this system may not be for you.

CMI 2.0 - The Final Word?

The QLD buy continues even though many say the recent volumes cannot support the uptrend.

Enough about that. Take a look at the comparison chart below. this may be the final word on the CMI 2.0. The results are not as good as I had hoped but I'll take what the method has to offer. There have been about 47 trades since 2005. Half of them were winners and half were losers yet following this method would have given a trader an average of 60% per year. The large gains for 2008 and 2009 may be anomalies but it is apparent that if a trader would stick to the strategy, he would have been way ahead of a typical index fund, and more importantly, he would have avoided any major crash.

I will post all of the individual trades later. There is still some subjectivity, or "art", to this method that I am trying to eradicate.

See you soon.

Feasting on the QLD

Just a quick note that I have updated the year to date gains for the CMI. The QLD has been edging upward since the last trade to give the CMI a little traction and bush it back over 30% for the year.

Work on the CMI 2.0 continues. Backtested results will be posted soon.