Everybody is too afraid to post their market-beating methods (excluding the badbaseball, of course). I'm not. I hope for as much criticism as possible. Besides exposing the flaws in my methods, I hope you will also share the details (beyond generalities) of your own. PM me if you would rather.
I'm doing all this with $100k, plus my broker's non-portfolio margin (IB)
Section 1: FUTURES
Here I attempt to create positions in stocks, bonds and real estate that are perfectly equal in relation to their average movement per month (Volatility), as opposed to simply being equal in market value.
On the open of the first trading day of the month, I will buy the following:
STOCKS (1/3 futures portfolio) 1. IXV Healthcare (1 contract - $75k) 2. XAP Staples (1 contract - $75k)
Market value total for equity futures = $125k
BONDS (1/3 futures portfolio) 1. ZF 5-year T Notes (2 contracts - $240k)
Market value total for Treasuries futures = $240k
Real Estate (1/3 futures portfolio)
- RX Dow Jones Real Estate Futures (4 contracts - $115k)
Market value total for REIT - $115K
As mentioned above, my position is based on volatility. 5-year notes move about half as much as healthcare stocks, hence the higher allocation to bonds. And REIT is the most volatile one out of the futures listed, therefore a lower allocation.
Total futures market value = $480,000
I have data showing the average high point for each of these futures. I place a limit sell order at these points for each contract.
Once the average high target point is reached, I will not sell short bonds or real estate, but I will equities. If the health and staples both reach their average high point, I will sell short ES (S&P 500)
Section 2: STOCKS
Now to individual stocks. I only work with every stock from the Nasdaq 100 and the NYSE 100. I also add about 20 that I'm bullish on.
First, it should be noted that I have only $200k to purchase stocks ($100k plus my broker leverage)
On the 31st, at night, I go about making OPG (on the open) order for each of my 220 stocks.
I sell short the 110 that did the best in the previous month, and I'm long the 100 that did worst.
Since I have $200k for stocks, that allows me to buy $950 of each stock.
METHOD
I have monthly moving average data going back a good length of time. This info shows me the average low point, high point, and end point, for each security, in a given month.
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Long Positions. With my 110 long positions, I will set the limit at the average high point. If my position is 10 shares, I will double the sale order to 20 shares, so that once it reaches this high point it will immediately reverse and sell short.
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Short Positions. I will do exactly the same. Set the limit at the average low point. Double the shares so that it reverses when it reaches the low point.
Step 3: FUTURES PART 2
There is a definite pattern in the market whereby once a broad equity index (NQ, ES, YM) reach their approximate average low point, they will reverse and climb to point zero and hit a wall. Point zero being the price of the contract on the first trading day of the month.
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Once NQ, ES, or YM reaches their average lows, I will buy. My sell limit will be set at point zero mentioned above. So many times, once this point is reached, the index will retreat, enabling me to rebuy, at which point I will let it ride, selling at the average high point (if it ever gets there). But I'll setting for it's average monthly end point, which is somewhere around +1% above point zero.
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I will not hold all 3 of these. If I'm holding YM, and ES is bought, I will sell YM. If I'm holding ES and NQ is bought, I will sell ES.
I intermittently mess around with FTSE100. Lately I've been weary of it, to say the obvious, but in good times, mean reversal works just as well with it as it does with other indexes. And though highly correlated with US equity indexes, it isn't completely, so it does offer a bit of diversity.
Section 4: single stock OPTIONS
I use options to hedge my stock positions against movements on earnings announcements. I want nothing to do with that lottery.
I will research movement of the last 4 earnings days for a stock approaching earnings. The I will buy an OTM put if I'm long, and vise-versa. If the average movement on earnings is 4%, my strike price will be 4% below current ATM
It's my contention that if the price of the underlying is lower than it was when the month began PLUS lower than the broad index, then the odds are earnings day will cause the stock to plummet. I don't play that game though since it's just a hypothesis.
CONCLUSION
I want you guys to rip into me. Tell me why this method is problematic, be as cruel as possible, but PLEASE give good, clear, detailed reasons what I should be doing, and EXACTLY WHAT YOU'RE DOING. Also, please don't be afraid to share as much as possible about your method, as I did here. I post this not because I'm struggling (it's been a great success in the past 6 months months of sideways markets, never making less than 5k/month), but because there are a few smart people here whose opinions I value who can elevate my method.
Thank you
p.s. For those who will write about me being over leveraged (which I welcome). Notice with stocks I'm equally long and short. And with my futures I have three uncorrelated assets (OK, they're pretty correlated - seems like everything is these days). So take that into account please.
pps. As for a my strategy to deal with a rapid hard market tanking, I have a limit order for a SPY put that would protect my entire portfolio. It kicks in with excessive downward acceleration.