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Training Video_47

 

SATS5 Expert System

With this video I want to introduce my latest automatic trading system SATS5. SATS5 stands for – Sylvain Automatic Trading System 5 – SATS5 is basically a trend following system trading both long and short. Idea behind this video is to show you that a full automatic trading system can be profitable.

Please note, this is not an invitation to trade using this technique, information given is to be used for training purposes only. Stocata.org will not accept liability for any loss or damage which may arise directly or indirectly from use of or reliance on this information.

A great majority of private investors are trading based on fundamental analysis. They are long term investors buying stocks that are kept in portfolio for the long term. A big disadvantage is the difficulty to define rules when to close a trade, because generally fundamental data is lagging considerably. This is why many long term fundamental traders have stocks in their portfolio suffering large losses. Looking for an alternative; based on technical analysis techniques, I first developed SATS2 and now SATS5.

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With this video I want to introduce my latest automatic trading system SATS5. SATS5 stands for – Sylvain Automatic Trading System 5 – SATS5 is basically a trend following system trading both long and short. Idea behind this video is to show you that a full automatic trading system can be profitable. Please note, this is not an invitation to trade using this technique, information given is to be used for training purposes only. Stocata.org will not accept liability for any loss or damage which may arise directly or indirectly from use of or reliance on this information. Pay a visit to my website at stocata.org and buy my book “Capturing Profit with Technical Analysis”, a complete technical analysis reference inclusive a trading method called LOCKIT.

A great majority of private investors are trading based on fundamental analysis. They are long term investors buying stocks that are kept in portfolio for the long term. A big disadvantage is the difficulty to define rules when to close a trade, because generally fundamental data is lagging considerably. This is why many long term fundamental traders have stocks in their portfolio suffering large losses. Looking for an alternative; based on technical analysis techniques, I first developed SATS2 and now SATS5.

Using technical analysis I believe there are two different approaches to look for buy and sell signals.
The first method is the method I used and explained in my book “Capturing Profit with Technical Analysis” published by MarketPlace Books. The method explained in the book, called “LOCKIT” uses all possible technical analysis techniques to come up with reliable buy and sell signals.
A second method is to trail the price movement of a stock, buying and selling based on the fact that a short or medium term broken up or downtrend signals a trend reversal. Here you have to find the most profitable balance between fast entering a trade while avoiding as much as possible false entries and staying in as long as possible to let profits run. SATS5 is designed for this task.

SATS5 is mainly designed to trade long positions, but also gives short trade signals during a long term downtrend. Let’s first have a look at the evolution of the S&P500 index during the test period from October 2004 till August 2010. A buy and hold strategy of the 500 stocks in the S&P500 would have made no profit.

The United States Steel Corp example in this chart shows the price evolution in the lower part and the SATS5 equity curve at the top. The first buying point was October 26, 2004 at $37.45 and the last closing point was August 4, 2010 at $48.08, a period less than 6 years and the same period as shown in the previous S&P500 chart. With an initial capital of $1,000 you would realize a buy and hold profit of only 28%. Using SATS5 and trading long and short, there is a total profit of 968% using a simulated account. As long as there are green bars I have an open long position. Contrary with red bars I am out of the market and finally with black bars I am short.

 

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Looking at some details in this chart, watch how possible red short trades are avoided in an uptrend, because they are generally not profitable.

However, in this chart you can see profitable short trades signaled in black by SATS5 during a longer term downtrend.

To verify the validity of the SATS5 system, we use 25 stocks selected for their larger price moves over a longer period of time.  The stocks used can be found on this web page:
NO LONGER AVAILABLE !!!
And these are the general test conditions: $1,000 capital per stock with no profit or loss sharing between the stocks. 0.1% Broker entry cost and 0.1% exit cost. During the first test we are only trading long positions at the closing price the same day SATS5 gives a buy or sell signal. With a starting capital of $25,000 or $1,000 per stock, there was a total profit of $44,438 or 177.8% with an average of 27 trades per stock using a simulated account. Looks already a lot better than the 28% buy and hold strategy on the S&P500 index in the same period!

I already mentioned that SATS5 will also trade short during long term downtrends. So, let’s repeat the same test, but now allowing long and short trades. With a starting capital of $25,000 or a $1,000 per stock, there was a total profit of $100,815 or 403% with an average of 43 trades per stock in a simulated account. Thanks to a number of winning short trades and the compounding strategy, not sharing profits or losses between stocks, it almost doubles the winnings compared to long trades only. Really not bad! This equals a high yearly compounded interest in the order of 28% or if you want about 70% profit on the basic capital every year using a simulated account. If you can keep this up for about 23 years, the initial $25,000 will become $11,972,000 with a simulated account.

Worst scenario would be of course beginning to trade during a period like between October 2007 and August 2009 in the S&P500 as shown in this chart. Using a buy and hold strategy you would probably start to feel very uncomfortable with the index falling more than 50% from above 1550 to below 700.
Using SATS5 trading long only, gives a profit of 41%. But trading both long and short gives a profit of 161% in this period using a simulated account! It is clear that SATS5 does very well even during longer term downtrends.

SATS5 is good news for the long term trader who can only spare 10 minutes of his time by the end of the month. A slightly modified SATS5 can be used to trade the S&P500 ETF (Exchange Traded Fund) tracker (SPY) on a monthly chart of the index (SPX). From the first buy signal on January 31, 1961 until June 30, 2010, trading long and short with SATS5, there are 23 trades of which 18 winning and only 5 losing trades. There is a total profit of 4,540% using a simulated account. A $1,000 in 1961 is now worth $45,400. That is an annual compounded interest rate of about 8%. Not too bad for 10 minutes work once a month and certainly better than doing nothing.

SATS5 is also good news for the long term trader who wants to invest a couple of hours of his time before the Friday close every week. Over a period of about 10 years and using the same 25 stocks I used for the daily charts and with the same basic test conditions, there are on average 10 trades per stock with a total profit of about 650% using a simulated account.
However as you can see there is one extreme profitable stock in this period (BOOM). So, to be on the save side I reduce the profit for this stock from $90,000 to only $20,000, bringing the total profit back from $160,000 to $90,000. That gives a compounded interest rate of about 13% per year using a simulated account. Again certainly not bad for a couple of hours work once a week!

Believe me if I say that there is no perfect full automatic trading system. Avoiding some non profitable trades can therefore make a big difference. You can of course just use the SATS5 expert and make your profit trading all signals of this expert. On the other hand, as already mentioned, there is really no perfect system and if you are prepared to invest some time in analyzing the trades proposed by SATS5, I can give you additional techniques using this chart template, to avoid some losing trades without compromising the SATS5 system. You can find this template at stocata.org. That will certainly boost your profit. All required basic technical analysis techniques for this strategy are fully explained in my book “Capturing Profit with Technical Analysis”. You can order this book from my website: http://stocata.org/.

This is the end of the introduction to my new automatic trading expert system SATS5. Tell your friends about my videos and while visiting my website order my book “Capturing Profit with Technical Analysis”. A complete technical analysis reference and a trading system called LOCKIT. Follow my weekly updates at my website stocta.org about the S&P500 index and the EUR/USD FOREX pair. See you in my next video.

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