Mechanized Frog ProjectPresented by Tony DeQuick

June 2015

Mechanized Frog Scope

- Create a mechanized version of the Frog for use in Tradestation

- Apply advanced position sizing concepts from The Definitive Guide to Position Sizing to the Frog.

- Determine the expectancy of the Frog as-is on the Dow 30 and ETF 30

- It was a massive undertaking with Mark Clerkin and David Botero

Frog Champs

Potential Frog Champs

Frog Chumps

Frog Scoreboard

Champs: AAPL (.12), EWZ (.08), FB (.09), RSX (.08), EEW (.07) – Expectancy greater than .07

AAA Champs: BA(.04), GS (.04), CAT, UNH, DIS, MMM, AAL(.05), AMZN(.04), TSLA(.06), NFLX, CRM, PCLN, MSFT, DD, KO and CVX. Leveraged ETF favorites.

Chumps: JNJ, MRK, PFE, XOM – All Dow 30 not listed in the other two camps

Stop And Reverse (SAR) trades have expectancy of 50% - 75% less than initial trades

Tested using QF30, 1R = $1000, no SAR, no entry after 2 hours before close, exit at 25 minutes before close, FQN 1.6 min

The DNA of A Champ

- Consistently high range greater than 1.5%

- High volume leaders

- Tend to make news headlines regularly

- Tight spreads and good range relative to price to make them tradable

Filters

How will the Frog respond to filters?

- ADX (simple method)

- Range

- Direction filter using RL-DMZ concept

- Frog shootout (Leap, Quick, Slow)

Frog Shootout

Time (min) EWZ AAPL

0 .077 – 2197 .056 – 1984

30 .079 .116

60 .041 .092

90 .085 – 1285 .085

ADX

ADX Min AAPL EWZ GS

0 .116 - 1556

.079 - 1876 .044 - 1599

15 .126 - 1368

.083 - 1560 .047 - 1485

20 .139 - 1099

.073 - 991 .022 - 1101

25 .136 - 797 .095 - 582 .031 - 701

30 .149 - 519 .110 - 345 .041 - 405

35 .154 - 313 .180 - 159 .035 - 211

40 .167 - 189 .326 - .76 .085 - 124

Range

Range Min % AAPL EWZ XOM

0 .116 - 1556 .079 - 1876

-.009 - 1720

1.5 .110 - 1433 .077 - 1752

-.013 - 1007

2.0 .090 - 946 .080 - 1098

-.009 - 459

2.5 .079 - 594 .092 - 678

+.050 - 239

3.0 .085 - 388 .076 - 411

-.002 - 110

3.5 .093 - 210 .164 - 231

-.005 - 49

RL-DMZ Concept

- Uses the slope of a regression line on the daily chart to filter trades directionally

- When the slop is between a value centered around 0, no trades are taken - the DMZ

- Long trades are taken when the slope is above the DMZ

- Short trades are taken when the slope is below the DMZ

- Dramatically improves expectancy on every category of Frog – Champ, Potential Champs and Chumps

- Regression lines slope function is natively coded into Tradestation and it’s very telling

RL-DMZ Example

Rules using a RL-DMZ of .1 and 30 day regression line:

- When the slope of the 30 day regression line is above .1, only long trades are taken

- When the slope is between -.1 and .1, no trades are taken. The DMZ.

- When the slope is less than -.1, only short trades are taken

RL-DMZ Results

RL-DMZ Pairings

AAPL EWZ AAL

None .119 - 1556 .079 - 1876 .054 - 1445

2 - .2 .101 - 804 .100 - 1150 .071 - 654

5 - .2 .143 - 691 .141 - 1001 .141 - 483

10 - .1 .131 - 809 .096 - 1069 .058 - 586

15 - .1 .146 - 725 .097 - 1029 .068 - 525

30 - .1 .172 - 580 .121 - 857 .028 - 449

RL-DMZ AAPL 30 - .1

RL-DMZ AAPL 5 - .2

RL-DMZ EWZ 5 - .2

RL-DMZ EWZ 30 - .1

Exits

- Unloading the entire position at 1R slightly out performed unloading half at 1R and trailing the rest with at half R.

- Adding a fixed stop at .7R had negligible effect on expectancy

- My beliefs are the next big advances in expectancy will result from designing more and better exit strategies

Some ideas left to explore

- Position sizing based on ADX, market type and volatility

- How the RL-DMZ speed varies by market conditions

- Changing exit type depending on market type

- Using the Delta-ADX concept of Charles LeBeau (Saint Chuck)

- Frog Soup system for use on Chumps

- Better exits

Summary of key ideas

- There is a positive relationship between ADX and expectancy on Champs

- There is a positive relationship between applying the RL-DMZ concept and expectancy

- There is mild correlation with range and expectancy – not enough to trade on

- There is no relationship between FQN and expectancy

- Know what you’re trading

- The Frog tends to perform best in low volatility (100 day range average - ¼ SD)