Dear Jerry,
How do you pick your top 10-20 investments every month After doing my research I see there are more patterns that could be traded that have a 100 success rate over the past 15 years but I don't see them on your list.
This lead me to try and understand what your research criteria is based on. It is obviously based on more than just success rate over the past 15 year. If I am going to leverage your data to help me invest I would like to understand what this data is based on.
Thanks - Ed
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Dear Ed,
Thank you for your question. I will try to answer as best I can how we choose the 15 seasonal and 15 spread strategies presented each month for MRCI Online subscribers.
First, using settlement prices for the past 15 years, a computer simulates all possibilities in each delivery month in each of the 40 or so markets we follow to identify those that would have worked in at least 80% of those past years. For example, for Year #1 in Delivery Month ABC in Market XYZ, it compares the settlement price on Day #1 with settlement prices on Day #7, Day #8, Day #9, etc., to determine which closed higher and which closed lower. It then does the same for Years #2-15. Then it does the same for Day #2 for all 15 years. And it performs the same calculation for each deliver month in all those markets. No comparisons are considered for fewer than 6 days apart and none longer than 4 months. The computer then compiles all those comparisons that have consistently closed higher or consistently lower at least 80% of the time.
The computer program also has parameters set6 for minimum average profit specific to each market. It is unlikely that many traders would care about a crude oil strategy that might have been 100% but took 4 months to generate an average profit of only $10.
The computer then spits out the raw list of potential strategies for all delivery months for all markets that moved in the same direction in at least 80% of the past 15 years with minimum average profits. For each potential strategy, that raw list also shows the "average profit/day" (denoting the typical intensity of the seasonal move) and how often it would have both generated and held its average profit.
From that raw list (that from which April seasonals will be chosen contains 305; for spreads, 686), someone with extensive market and tradiing experience chooses the final 15. In selecting a penultimate list (down to one strategy per market), the first and usually most important consideration is reliability (100% versus 80%), then total average profit, and then the average profit/day. Other considerations can also enter, such as whether an exit date is on or after First Notice Day, whether the strategy conflicts with an "open position" from an earlier month, etc.
From that list of usually 25-30, the final selection is made. Those are usually the creme de la creme. However, we try always to present a somewhat diverse list, choosing a couple from among all the various market complexes if/when we can.
Because we limit ourselves to 15 strategies each month, there are a lot of perfectly valid strategies that we just can't present --- even several that may have worked in 100% of the last 15 years. For example, do we present that corn strategy that was 100% reliable but generated only $200 over 2 months or a crude oil strategy that was only 93% but generated $1,000 in 2 weeks? Many of those perfectly good trades will find their way into our series of special historical reports, each of which focuses on a specific market complex for the whole year.
These strategies are typically chosen 6-12 weeks prior to any of their entries let alone their exits, so we must try to avoid any market biases on our part. They are based on historical prices and their repetition of movement, not on any technical indicators. They must appeal to traders from the complete novice all the way up to commercial and professional traders.
In other words, we try to provide the best historical research we can. Each trader then has both the luxury and the responsibility to use it as he/she sees fit according to one's market perspective, the market's current behavior, one's experience, one's resources, and one's ability to monitor the markets.
I hope that answers most of your questions.
Jerry Toepke
