Trading The Indices

[Beware The Draw Down]

I prefer to trade an Index rather than individual shares as individual shares generally only go up or down if the relative index goes up or down. Trading an index can be quite volatile so I only trade on the end of day close price with a stake relative to my capital so as not to be caught out by the draw down. Always beware the draw down.
I generally trade the Nasdaq100 and look to trade other indexes when at extremes. My current positions:-

16/04/20 - Sell Nasdaq100 @ 8758. Further equivalent sell orders placed at intervals of 129 above 8758.

 

[tomorton]

Hi mate - I used to trade indices a lot. I don't have a view on the US indices right now, I only trade the Dow and only long and only when its a lot more bullish than it is now.

But what are the factors making you go short on the Nasdaq right now?

 

[Beware The Draw Down]

My system generated a sell signal for the ^NDX at yesterday’s closing price. I do feel the index will go higher but feel a short correction is now due. Or that’s what my system is telling me. It is hard to stick to a system but the more I do it the more I steadily win. Or more importantly the losses are limited compared to the wins. With the indices it is the draw down that kills you so you have to size your trade relative to your capital. I only open at the close price and add to the trade at set intervals from the opening trade using orders. If my total position goes against me by a set amount at a following end of day close price I will add a booster trade of 5 times the standard trade.

I use City Index to trade with and place orders at set intervals after opening a position at the close price to catch the out of hours movement on the futures.

For my current ^NDX open position I am in for the following:-

16/04/20

1 unit sell at 8758 (Close price)

1 unit sell order at 8887 (Activated out of market hours. Futures.)

Basically 2 units sold at 8822

Looking to close position at an end of day price that gives first positive profit.

 

[tomorton]

Holy moly that's scarey stuff. So every 100pts or so up you sell again.

Now, I'm going to say you're not the only person trading like this. But maybe you've seen those black & white films about the early airliner and cargo plane pilots in South America and the like. You know, James Stewart would be the grumpy old captain....
They had no radar on those ex-air force crates so when they hit cloud they could either climb over it or drop under it. Don't you get the feeling that you're diving a DC3 through cloud?

 

[Beware The Draw Down]

Now that made me laugh and I am old enough to have watched them old black & white James Stewart films on a black and white telly. But I don’t get the feeling I don’t know where I’m going as the system has been back tested. You will never be able to pick the top (or bottom) when entering a trade so when the system generates a signal at the EOD closing price I enter the trade and if the position goes against me I have orders in place to catch every 1.5% difference. With my current ^NDX trade which opened at 8758 the difference is every 129 pts. What I am looking for is the booster trades or as I call them the bonus trades. These are the ones that are really profitable. I play the ^NDX for fun with basic trades (1 unit at end of day closing price and then another 1 unit every 1.5% from the open position if it goes against me) but if at the close price I am more than 500pts down I jump in at the closing price with a bonus trade of 5 units. These bonus trades are added to if ever the close is more than another 500 points from the previous bonus trade entry. These bonus trades have been very profitable. So have the base trades on the ^NDX. The base trades on the ^NDX have produced over 30,000 points over the last 20 years with the biggest loss being around 400 points and the max end of day draw down being about 8k for 1 unit.



On all other Indices I only trade the bonus trades with a 5 unit stake. These bonus trades do not appear that often but rarely produce a losing trade. It’s the draw down that will kill you. Just recently on the DOW 4 bonus trades were activated.

16/03/20 Buy at 20189 (close price)

18/03/20 Buy at 19899 (close price)

20/03/20 Buy at 19174 (close price)

23/03/20 Buy at 18592 (close price)

20 units at 19463 which suffered an end of day draw down of 17428k on the 23/03/20 but produced a profit of 37444k at the close on 25/03/20.



I have one open bonus trade at the moment on the Australian index ^AXJO

14/04/20 - Sell 5 units at close price of 5488

(Hope my typing is good as easy to make a typo on here)

 

[Beware The Draw Down]

I started this thread with the intention of explaining the system I use on the Nasdaq100 but realise it is too complicated to explain in words & would raise too many questions. But what my system on the Nasdaq100 highlights when the draw down is excessive is good trade opportunities for most indexes. All based on the closing price.

This makes it very simple but there can be wild swings both intra-day & end of day which can cause big draw downs. It is the big draw downs that can wipe you out so you have to place your stake in relation to your capital taking the size of the index into account.

A good example of one of the biggest draw downs I have seen for some time happened just recently on the DOW when four good buy opportunity signals were generated. The profit was made but the draw down had to be endured. This is how it panned out at the close price with a 5 unit stake per signal. A nice profit of 34744 points but a hefty draw down of 17428 points. (Bear in mind intra-day swings generated more draw down)

^DJI​	Close Price​	Signal​	Stake (Unit)​	Position​	Profit/Draw Down​
16/03/2020​	20189​	Buy​	5​	20189​
17/03/2020​	21237​		5​	20189​	5244​
18/03/2020​	19899​	Buy​	10​	20044​	-1448​
19/03/2020​	20087​		10​	20044​	435​
20/03/2020​	19174​	Buy​	15​	19754​	-8697​
23/03/2020​	18592​	Buy​	20​	19463​	-17428​
24/03/2020​	20705​		20​	19463​	24831​
25/03/2020​	21201​	Close​	20​	19463​	34744​

 

[Beware The Draw Down]

My open position on the Australian Index (^AXJO) generated a close position signal at the closing price today. Here is how it panned out on a daily closing price basis since the position was opened.

^AXJO​	Close Price​	Signal​	Stake (Unit)​	Position​	Profit/Draw Down​
14/04/2020​	5488​	Sell​	5​	5488​
15/04/2020​	5467​		5​	5488​	107​
16/04/2020​	5416​		5​	5488​	359​
17/04/2020​	5488​		5​	5488​	3​
20/04/2020​	5353​	Close​	5​	5488​	676​

I will try and post future live trades on the indices based on the closing price. 676 points profit.

 

[Beware The Draw Down]

Nasdaq100 (^NDX) open position closed at today's closing price. 96 points profit.