Capital Flow 32 Data Explanations  

J Peter Steidlmayer

Background of 0-4—

The 0-4 programs is an outgrowth of my initial concepts into trading.  It is based upon holding as long as possible without overstaying, and varying ones volume related to differing opportunities.  This is accomplished by using a larger tolerance [time] for exiting, and by using a rational thought-out discipline instead of one that is more reactive.  It is immaterial how well you can execute it, it matters only that a consistent effort to do so is present.  This approach takes one above the random fray into the world on non-random activity that can be actively managed.

The program also has revealed a higher structure that I never knew was there.  Subconsciously, we do beneficial things in a vein that sort of just fits into our basic programs, and stay there if things work well. Success has a way of stopping one short of full potential.  The 0-4 is a complete program [one that goes beyond success], and one that finishes or goes the distance every time due the nature of software discipline.  It has taken the leverage that produces outsized gains in my initial program to definable, reachable, and more manageable levels. 

Prices being random need to be leveraged [made irrelevant] in any approach to trading success.  The 0-4 has produced three new disciplines [breakthroughs] that need to be further understood.  First, is that it has created an unbalanced data base—one that is totally orientated to the long side yet sells correctly, second, it has provided a sound basis for restarts [new platforms], which provide direct economic benefits, and lastly, it has created a positive slope through the re-starts and by having a de/re-leveraging processes.

These three elements provide the basis for a new level of outsized returns in the program, and are part of the following discussions.  While the information might appear to be scattered and incomplete [it is], understanding what you can and beginning to think correctly will move you along nicely.  The Zero Sums ticker is your starting point so concentrate on that first, and try to think visually as you proceed into the unknown. The ticker should give you more trade changes than our F10 page, and therefore more short-term definitions with which to work.

The move to creating automatic X-funds and to a personalized 0-4 is just beyond where we are now.  The progression as a trader moves from managing price differentiation, to the whole of the market, and finally to managing leverage instead of the market.

We have tried to make the program more transparent by offering insights into how and why it works. The following data sets are directly related to understanding these principles as they relate to 0-4 outputs.  They appear at the end of a 0-4 run.

The trading program run “run summary” offers information related to the random as well as the non-random side of the market.  The percentage of wins number refers to random access and that number should be within plus or minus 3% of 50% given a one thousand trade sample.  It regresses to the mean [50%] because of its orientation to price access.  The non-random part of the report is the “gain per trade” which does not revert back to the mean due to the leveraged-supply slope [see later] regarding trade allocation.  This program will be re-run in the new trade summary report 1V where it will offer comparative information relating to the de-leveraging and re-leveraging of the 0-4 program that helps produce the positive slope. 

The next output is the summary report of the last 20 days where it gives open trades, the percentage wins, and a running equity total.  The concept here is to begin understanding how to take advantage of a group analysis.  Where one is on the low side of the percentage---47%, and inventory is increasing while equity is going down, the program is buying low—red triangles, which gives an opportunity to buy the board so to speak.  Where inventory is static with a high percentage ---53% and equity is growing, the program is benefiting from the buy high blue triangles and one would look to liquidate or sell.  The open trade numbers also have a ratio to the base of the program [number of contracts in the program run]---somewhere around 2.3 or 2.4 on how low the inventory can really go, and 5.5--6.0 on how high it can go.  A group of twenty---45-50 contracts on the low [buy], and 110-120 on the high [sell].  

The open trade summary report part B --the most recent 20 updates is one that I am still working on.  The report is broken down into two sections—trades one through three, and trade four and others more advanced. This breakdown is good and important to understand as inventory reaches different stages in the program, and can be individually less significant, while a larger group analysis overtakes as the overall discipline. It gives the number of products in each category as well as their total trade numbers.  The shifting of inventory between the two groups is representative of the condition of the program, and the 1-3 area represents a re-start and initial re-leveraging while 4-5-6 etc represents the start of continuation and a secondary push to re-leverage supply.  The P&l numbers will change again as I am not getting what I want yet [next will be average win per open trade] and I will discuss it or whatever I finally decide on at the next class.  The odd –even advances are good in that they help reflect the stage the program is in and reflect how equity is responding to the leveraging process built into the program.  I am going to change the format so that the consecutive updates for a day will consolidate into just one---20031219-20031219 etc. will just be one [at the end of the day] rather than multiple entries as is the case now.

The part 1 report shows the inventory position of each contract in a good visual format [the present], and allows for one to see change and how it is affecting equity.  It also allows one to track a trade as it moves forward or back to a re-start.  Column one has the highest percentage of losers in that the program has de-leveraged the position to only one from some advanced number [odd—3-5-7-9-11-13], and the re-start process is still in abeyance.  Trade two is a very important trade in that it is the first step in the re-leveraging process.  It must win or the leverage goes against us.  It is also the trade that has the most positive range potential [one-- is the most negative].  A positive trade two carries trade one with it, thus its importance as an initial re-leverage. Trade three can be important if trade two is negative as it can be the end of the negative development.  Trade four is the most important related to continuation in that the re-leveraging process has expanded and total equity is vulnerable if it fails.  Most of the losing platforms are five and out [back to one], and if trade four remains profitable, the forward experiences are just disappointing rather than negative. The * relates to the overall results of that product being negative to date, the (  ) relates to that trade being negative, the number after the acronym in column-one relates to the last trade in the platform before de-leveraging i.e. #5 back to #1, and the platforms are the trade sequences 1 a, b ,c, etc 2 a, b, c etc that can be seen in the individual trade statistics listed above the “run summary”.

The old inventory composite report part 111 has been assimilated into the Zero Sums Ticker—[see that report].  

The inventory composite combined report –part 11 is result of paring down a lot of data into an aggressive platform that focuses on re-starts.  The page is organized from top to bottom by having those contracts with the smallest inventory to those that have the most.  The acronym of each contract is followed four dashes---- they precede the letter C that is followed by a number that refers to the time in days in the current status [i.e. trade day number].  The dashes refer first to the exit price, the carryover trade, the second trade, and finally the third trade.  When a plus [+} replaces the dash, it means that C [current price] is above that reference. [Note that in trade one that only two pluses are possible, three in trade two]

The next column is D: and a number that refers to how far above or below the exit box the current price is. This is an important number in that it illustrates the degree of supply burden related to direction.  It represents a weighting of supply on price that price itself cannot disclose. One can easily see that trade two has the most positive range potential just by looking at this column.  Next, comes a date that uses a ten day period to establish a buy or sell bias when the price is above or below the exit mark.  The point being that it is not a timed trade for profit, but rather one that is not going to be in free fall if above, or if it was below, it would be one that you would not want to re-leverage.  In the next version of software, I am going to introduce a (buy) after a ten-day sell when it is above trade number two or where @ 15 days it is back above the exit.  On balance, it has been a rather good indicator given my initial expectations.

When we move to trade four, the term added and the date of the addition is important related to the D:number.  If a lot of trades are activated, one needs to have some upside to that number; otherwise it can be over allocation especially later in the process.  The nature of the market is to find an accelerant that carries such a passive inventory that could not quite exit into very favorable territory [trade positions 4-6-8-10].  The next column shows a graphic of all trades and a Plus [+] means that trade is a winner, a minus [-] a loser.  ( ) at trade number 1 also indicates a loser.  It gives a good visual that allows one to have an insight into the program.  One can count the winners and losers, and can monitor trades two and four for profitability as well as get an insight on how profitable platforms get into difficulty or prove to be more profitable.  The numbers that follow are important, but the subject matter is too cumbersome to explain in this form [I will go over it at the next class].

The new part 111 deals with understanding the re-leveraging and de-leveraging program that is essential to the 0-4 program’s success [its slope].  It produces a slope that is attributable to various in house programs, and this in effect minimizes back or past data related to price activity, which allows the platform to focus on re-start versus retracement values.  Slope removes price differential, which is has been used as a random distinction in the past tense, as an issue related to the condition of future development.  It allows one to be aggressive in that slope forgives human shortcomings, which heretofore were and are the foundation of failure.

The program allows you to hold a “run summary” at a selected date and then allows you to make a comparison to the current one.  As time proceeds, the relationship between inventory growth or reduction, number of trades made for liquidation or inventory addition, is compared to the growth or reduction of total gain in each “run summary.”  It gives one an insight into how to improve results for our routed programs of X-funds or non-summary customized 0-4 programs that are part of the next generation of automation.  

In short, a good understanding of all of the above will make your journey forward a lot easier.  Learn to visualize the transparency, move to implement the principles found, and find yourself where you want to be---independent and free.

The Zero Sums Ticker--Details

The displayed ticker segment shown on the screen represents the last inventory platform of that contract in the 0-4 program.  The ticker display starts with the acronym of the contract and follows that with the carryover trade location, which contains the number that reflects the days of the preceding buy signal [i.e. two pieces of information].  It is followed by dots in the center of the display that are one of three colors—red where zero sums are assigned to the buyer, green where zero sums are assigned to the seller, and yellow where it can not be assigned.  The principle here is to have a tolerance like we have on F10 [green minuses/pluses] so that continuation can be more of a feature than change. 

Next, comes a buy high signal and (two [[ in front of the number and two after]]) to be color coded so that the new level can be seen as lower or higher than the previous signal.  Each of the dots between the signals represents a blank square [same scale] on the 0-4 graphic that depicts vertical movement.  All the numbers are green in order to reduce noise, and because they alternate from buying high or low which is an already known.  After the first [before another is made] and last mark, the data reflects the range above and below it by using dots, and the most current price within the range is indicated by some type of distinctive marking.

The coding for the dots [color designation] is complex as there are many conditions that can satisfy the needs to assign the zero sums. [I think that my first attempt will be about 90% of what I want]  In spite of this, the colors will not change much because they are a time measurement rather than one of price.  When the colors do change, the event should be reliable, and serve as well as a vertical reference to later trades.  The higher and lower boxes [trade signals] as the platform develops provide information on how well the flow of capital is working, but the colored dots are the main thrust of the information.

The dots illustrate a weighting that price numerology cannot.  Prices being random are all equal as access is equal.  The zero sums are an uneven weight in that it is assigned to either the buyer or seller.  Think of it in the same vein as if the market bought 100 and sold 50 instead of 100 versus 100.  It is this weighting that absorbs random price changes through time making it the most stable element in the market.  It is a force that is working for you because it removes the need for reactionary disciplines. 

The Zero Sums Ticker— Economics

The 0-4 program is biased towards the buy side because doing so allows the program to re-start.  The bias reduces selling data to about 10% of the total.  It moves to selling only when the buyers are in a bad position and have to give up.  In other words, not a long and protracted bearish situation, but one that is going to be quick and offer a sharp downward adjustment in price compared to a more random atmosphere. The over allocation [time] in these instances will be small in relation to buy bias brought about by the re-start program. 

The re-start makes past data mostly irrelevant and brings the entire focus to managing the new.  The new relates to continuation, and continuation relates to pushing the zero sums forward.  For instance Merrill lynch stock starts at 55, moves to 25, and then back to 55.  At the low Merrill reinvents itself as a company by making change etc. and it is not the same company as before—it is new—the past is irrelevant. 

One of the economic fundamentals of a free market is that it will ration supply to ensure availability at all times.  This rationing process withholds more at the early and undefined stages of market development than it does in the later stages.  We create our data along the same line by adding a program of leveraging and de-leveraging to increase the focus of time, and to provide a basis to see over-allocation.  The re-start portion of our 0-4 program features this fundamental as an advantage to the long side, and our zero sums ticker starts its display at this important juncture, and provides a visual weighted impact to the random prices available. 

After sending this out, I know that I will have forgotten something our found a new and better way [ticker] so please watch our web site for updates.   Pete

 J Peter Steidlmayer