Fast Break Plus Subscriber,
to this week's issue of FutureSource's service,
Fast Break Plus. Today's author of Fast Break
Plus is Charles Tanti.
Tanti has been trading The 30 year US T-Bonds
for the last 20 years and shares his trading advice
and methodology every week during a online seminar
at his website www.ats3200.com.
Tanti is the president of Advanced Trading Systems Inc.("ATS").
ATS is a futures trading systems developer of Long Term
Trading Systems. The company licenses 2 trading systems:
the ATS-3200 trades the 30 year T-Bonds, and the ATS-6400
trades the 10 year T-Notes. Both systems have been consistently
in Futures Truth top ten tables over the last 2 years,
and the ATS-3200 presently is in the #3 position with
an annual performance of 225.2% and also the top T-Bonds
trading system. Both systems can be traded by "Broker
Assist" at RJOFutures.
"Portfolio Diversification" Brochure from
booklet, produced by the Chicago Board of Trade, allows
you to explore an in depth look at the many diversification
opportunities that are available utilizing Managed Futures.
RJO Futures provides a professionally managed futures
program customized for each client's investment goals.
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a Profitable Long Term Trading System
By Charles Tanti
Traders Trade Long Term
is a trading system? A trading system is not the "Holy
Grail". Most traders expect too much from a trading
system. If a system makes a few losing trades they usually
give up just when the market is about to turn in their
favor. A good trading system is nothing more than a
tool to turn the odds in your favor by employing a proven
consistent trading methodology.
be successful, a trader must overcome hope, fear and
greed and learn to be patient. The market is always
right. A trader needs to pay close attention to the
market. He must be able to analyze and interpret the
information in the charts correctly and objectively
without any emotion. Risk is a part of trading, and
it cannot be avoided or eliminated. The successful trader
knows this and accepts risk as part of the business
of trading. However, he also has the knowledge and confidence
that risk can be controlled.
trade a system profitably, one must have the discipline
to execute the signals generated. Discipline comes from
confidence, and confidence comes from knowledge. Therefore,
it is very important to understand how your system works.
Confidence and discipline also comes from experience,
and therefore a trader must have the patience to observe
a trading system in real time to see for himself how
and where signals are generated.
trader knows that in trading TIMING IS EVERYTHING. If
you can time your trades perfectly, you will never have
to worry about a drawdown. But, as everyone knows, it
is not as simple as this. No matter how good you are
at technical analysis, most of the time the market is
it going up, or
Is it going down, or worst
Is it going sideways.
traders, especially day traders, look at the market
too closely. If you look at the market on a day-to-day
basis, eventually you will lose sight of the big picture.
In other words, you will get confused about the long-term
all know the saying, "THE TREND IS YOUR FRIEND".
There is also another saying, "A FRIEND IN NEED
IS A FRIEND INDEED". As a trader, your only "FRIEND"
is the "TREND". As long as you trade with
the trend, you should not be too concerned about timing.
The "TREND" will always come to your rescue,
as long as you stay with it, and as long as you trade
in the direction of the major trend.
is like any other business. To be successful you need
Be well capitalized.
2. Have a good trading plan.
3. Be objective.
4. Have a long-term view.
5. Conquer hope, fear and greed.
6. Be able to trade with the odds in your favor.
other words, you need a trading system.
key elements of a Profitable Long Term Trading System
Choosing the right market to trade.
2. Choosing the right price data to reduce noise.
3. Choosing a reliable long-term indicator to find the
4. Applying a simple filter to stay with the major trend.
5. Using more filtering algorithms to improve the performance.
6. Incorporating genetic algorithms to sell near the
top and buy near the bottom.
7. Using functions to keep drawdowns to a minimum, reduce
the number of losing trades, and lower risk.
Choosing the right market.
long-term trading system, if it is going to be profitable,
needs a market that has a tendency to trend for long
periods of time. The trend must be evident on daily
and weekly charts. Examples are the T-Bonds and T-Notes
markets, as well as Currencies. These markets are driven
by interest rates, which in turn are driven by the state
of the economy. These forces do not turn on a dime.
They build momentum and move in the same direction for
months or years at a time.
Choosing the right price data to reduce noise.
data you feed into the system is very important. Daily
price data usually has a lot of noise, which in turn
can produce a lot of false reversals that can generate
false trading signals, which are very hard to filter.
On the other hand, weekly data is smoother and makes
the major trend more evident. Weekly data also will
have less noise in it and therefore will produce fewer
false trend reversals.
Choosing a reliable long-term indicator to find the
are a mathematical way to measure the state of the market.
I have been developing and creating indicators for my
systems for the last 12 years. During this time, I have
found out that simple works better. For this reason
I prefer a long term stochastic.
work the same way as moving averages, with one big advantage.
A stochastic will show the trend of the market and can
also indicate when a market has become over bought or
over sold. For this reason, the elements of the stochastic
can be applied to generate better buy and sell signals,
at or near market bottoms and at or near market tops.
This is much better than taking the signal from sign
changes in the stochastic alone, which usually lags
the market and will miss up to $3000 or more from the
market turning point.
of applying an 11 week stochastic only to T-Bonds weekly
data in the ATS-3200.
number of trades: 175
Applying a simple adaptive filter to stay with the major
Number of winning trades: 85
Number of losing trades: 90
Total Profits: $44,125
Average Trade: $252
Average Profit: $2700
Average Loss: $2060
Biggest drawdown: $11,781
matter how good the indicator is, it will have false
signals generated by minor trend reversals. A good system
must be able to filter out these minor reversals, otherwise
most of the profits will be dissipated. Markets are
dynamic. They can become more volatile or move faster.
A good filter should be adaptive to changing market
conditions. In the ATS-3200, this filter improves the
performance by 159%.
of applying an 11 week stochastic plus a simple filter
to T-Bonds weekly data in the ATS-3200.
number of trades: 133
Number of winning trades: 83
Number of losing trades: 50
Total Profits: $127,781 (+190%)
Average Trade: $960 (+281%)
Average Profit: $3031
Average Loss: $2476
Biggest drawdown: $6,745
Using more filtering algorithms to improve the performance.
performance of a trading system can also be vastly improved
by applying filtering algorithms to the long term indicator,
in this case a long term stochastic. For example, the
stochastic may go from "-" to "+",
i.e., from negative to positive while the system was
is a short trade. In this case, this will be a signal
that the trend has changed. However, the market may
still have moved lower. The close could be lower or
the low could have gone lower. Therefore, even though
there was a sign change in the stochastic from negative
to positive, since the market actually moved lower the
filtering algorithm could filter this false signal out
and keep the system short in the direction of the trend.
number of these simple yet powerful filtering algorithms
can be designed and incorporated into a trading system
to improve its performance. In fact, both the ATS-3200
and the ATS-6400 each have nine such filtering algorithms
called the "V-Filters". In the ATS-3200, these
9 filtering algorithms improve the performance by 58%.
of applying an 11 week stochastic plus filterting algorithms
to T-Bonds weekly data in the ATS-3200.
number of trades: 115
Incorporating genetic algorithms to sell near the top
and buy near the bottom.
Number of winning trades: 82
Number of losing trades: 33
Total Profits: $201,812 (+58%)
Average Trade: $1745 (+81.7%)
Average Profit: $3482
Average Loss: $2538
Biggest drawdown: $6,745
long-term trading system usually gets the signal for
the trend from either a moving average or a stochastic.
These indicators lag the market, and unless the market
keeps the trend for very long periods of time and there
is a substantial price difference between the top of
the market and the bottom of the market, it is very
difficult for a system to produce good profits. This
is because a slow moving average or a long term stochastic
normally misses up to $3000 from the top and up to $3000
from the bottom, i.e. $6000 in all.
a system to be truly profitable, it must be able to
signal when a market is just going to turn around. Therefore,
the system must be able to go short at or near a market
top, and also be able to go long at or near a market
bottom. This is possible by designing and creating genetic
algorithms that track several indicators inside the
system to signal an extremely over bought or an extremely
over sold market.
commodity markets cannot go up or down forever, they
inevitably become over bought or over sold and turn
around. A good algorithm will track a main indicator,
but will only generate the buy or sell signal after
a signal has been verified by several other built in
indicators to produce more reliable and accurate results.
Both the "ATS" systems have 15 such genetic
algorithms. These are called the "X" algorithms
and the "L" algorithms. There are six "X"
algorithms, these generate the "SELL" signals,
and there are nine "L" algorithms, these generate
the "BUY" signals. In the ATS-3200, these
15 algorithms further improve the performance by another
of applying the stochastic, the V-Filters and the genetic
algorithms to T-Bonds weekly data in the ATS-3200.
number of trades: 105
Number of winning trades: 83
Number of losing trades: 22
Total Profits: $458,718 (+127%)
Average Trade: $4368 (+150%)
Average Profit: $6073
Average Loss: $2062
Biggest drawdown: $6,745
Notice also the number of secondary trades and profit
generated by the algorithms.
Using functions to keep drawdowns to a minimum, reduce
the number of losing trades and lower risk.
good system must have functions to manage a trade once
it is started and to keep losses to a minimum. For this
reason both the "ATS" systems have the following
built in functions:
The "Stop Loss" function. This function calculates
and sets the stop when a new trade is started. It is
an adaptive function and is controlled by market volatility.
The "Moving Stop" function. This function
moves the stop, once a trade is making sufficient profit,
and prevents many profitable trades from turning into
losing trade, therefore reduces the number of losing
trades and protects profits.
The "Drawdown Parameter" function. This function
takes the system out of the market when a trade starts
to lose money, and at the same time the market has turned
against the trade. This function too reduces the number
of losing trades.
The "Fail Safe" function. This function prevents
the system from entering into a trade if the chances
of making a profit are not very good. For example if
the system gets a signal from the stochastic to go long,
but at the same time the market is already over bought,
this function will take the system, or keep the system
out of market until there is another change of direction
and the system gets the signal to go short.
go over these principles in more detail during my on
line seminar which I start every Sunday. Those interested
should go to my web site, Advanced
Trading Systems and register for the seminar. I
am also always available to answer questions and to
help everyone until they are totally confident using
the "ATS" systems. You can also reach me,
Charles Tanti, at: (416) 487-0565 or (416) 319-9038.
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