In this issue:

• Yet Another Video: Dakota trades Huaneng Power using an Advance/Decline Pessimist bot

• Dakota User Survey Results: Dakota is Under-Priced, Users Pleased and Lots to Do

• Dakota 1.5 Released

• Profit Users Report Gains

• Trading: Cutting Across Systems vs. Down

Dakota Video: Huaneng Power
Everybody likes our videos, not that they are particularly exciting or moving, like a movie classic, but they are interesting in that they are profitable.  Watching something making money is always interesting.

This security was brought to our attention by Bill of Dallas, the same security he shows us in the Gallery of Customer Successes, but this time we are using an Advance/Decline Pessimist (A/D Pessi, as I call it) in Dakota version 1.5.  The A/D Pessi calculates the number of advances and declines over a window and if the advances are > 66%, it goes short or exits and if the advances are < 33%, it goes long.  The trade-bot's core code is very simple:

   if AdvanceFraction < 0.33 then
        Signal = 1        'Things are bad, so go LONG !
   elseif AdvanceFraction > 0.66 then
        Signal = -1        'Things are too good, so go SHORT !
   end if

It is a contrarian trader.  The nice thing about the A/D Pessi is when the stock is in the middle ground, you sit out, unexposed.  This example shows us how to take a $2,500 trading account to $4,659.95 in 5 years trading 100 shares, but actually owning stock only 13.5% of the time.  Results are hypothetical, of course.

So, get a bowl of popcorn, pull up a chair and watch:
http://www.biocompsystems.com/products/Dakota/videos/index.htm

After your done wiping the butter from your fingers, get involved with Dakota today!
http://www.biocompsystems.com/store/financial/index.htm

Back to top

Dakota User Survey
Surprising to some and sometimes unusual in the software industry, we actually ask customers about the products they buy, then we listen and act.  This last week we asked all the Dakota users about pricing, likes, dislikes, wanted features, compelling messages and promotional items.  We got a lot of praise, which we appreciate, and the dislikes were principally aligned with wanted features, which we expected.  However, the surprising thing we discovered was that Dakota's price is too cheap.

Pricing
Fairly novel, but smart: Dakota is actually priced by the users.  This assures that we are aligned with expectations and delivered value.  We asked the users at what price is Dakota too cheap (yes, a product can be too cheap based on perceptions of value) and what price is too expensive.  We do analysis on the distributions of those answers to determine the price.  The result is that the standard Dakota license is on average "too cheap" at about $580 and too expensive at $1,480.  The standard Dakota license is currently $599,  right at the "too cheap" level.  Oops. This means that a person looking at that price may get the wrong perception of Dakota's value.  The target price was found to be $800.  So, based on the users setting the price, it will be going up again.  We'll raise it gradually as we have been.

Effective May 5th, Midnight, Central time, Dakota's prices will increase.

This means if you are seriously considering getting involved with Dakota, or moving up from Express or Standard, you should think about doing that before May 5th.  You can do so here:
http://www.biocompsystems.com/store/financial/index.htm

Enhancements
In the Dislikes/Desires portion of the survey, the top 5 things users want are:

• Portfolio creation for equity, return on investment and drawdown enhancement
• Batch processing and automation
• User fitness and customizable system statistics
• Integration with BioComp Profit
• and finally help with programming their own custom trading bots.

This means that we have our work laid out before us and for you it means the "Sponsor" level of Dakota is a good deal, because "Sponsors" get all updates in the future at no additional charge.

The users have spoken.

Back to top

Dakota 1.5 Released
Dakota 1.5 was just released, which includes "thinking" in terms of money rather than points.  Thus far, Dakota has been a points-based system, but now you can enter the value per point and a starting account equity and all the reporting is in money with gains and losses in terms of account equity.  We don't force the units of currency to US$, so you can have Dakota "think" in US$ or Euros or even Thai Baht.  This is to accommodate our international customers around the world.

We also added the ability to call Mark Jurik's RSX, VEL and CFB from ScriptBots.  You must have a "DLL" license from Jurik Research to use these, of course.

We also added the ability to export more than 30 system performance metrics to a file so that users can repeatedly run swarms and export metrics for analysis, including determining system robustness and whether a change made is statistically an improvement.  Nothing like having some proofs prior to putting real money on the table.

One more step in the advancement of BioComp Dakota.

Back to top

BioComp Profit Users Discuss Gains
In the BioComp Profit private discussion area, one user reported about a 20-30% return on investment on his S&P 500 systems since November, 2005, throwing down the gauntlet to others.  Shortly thereafter, another user replied that his S&P 500 system, which he trades with eMinis, did about 18% of perfect* for the 12 months to now, 21% from 5 Nov 05 to now, and 22% perfect for the period 23 Jan 06 till now.  Over the same three periods the percentage winners were between 67% and 72%, and his Average Winner / Average Loser ratios ranged from about 2:1 to 4:1 while in the market about 60 to 80% of the time.  Good, realistic results, guys!

The second user goes on to explain what target series he is predicting, what his input indicators are, how significant each are and where he got his data.  But to read that, you'll need to go to the private Profit discussion group, and to do that you'll need to be a Profit user.  Not a Profit user?  You can become one here:
http://www.biocompsystems.com/store/financial/index.htm#Profit

*Perfect profit is the most money possible, trading every day perfectly with no slippage and commissions.  This is a good base metric to compare your systems' performance against.  If you get 20% of perfect, you are extracting 20% of the maximum equity possible from a security, which, by the way, is a lot.  A good reasonable number ranges between 10% and 20%.  If you get 30% or higher, in my experience, something is likely abnormal and your system should be watched very carefully.

Learn more about Profit:
http://www.biocompsystems.com/products/profit/index.htm

Get a license or upgrade to BioComp Profit 7.0:
http://www.biocompsystems.com/store/financial/index.htm#Profit

Back to top

Trading: Cutting Across Systems vs. Down
From time to time I hear users say, "I've got multiple systems that are all positive for tomorrow, so I'm going to go Long".  Is this a good idea?  I say NO.  Why?  Let's say you have a trading system that is delivering good equity, say 70% winning trades, but is only 51% correct each day ("Percent Direction Correct" in our products).  This is common.  The system makes good money, but if you look at any given day, your odds of winning or losing is nearly a coin toss, mostly to noisy day-to-day variations in price. Your odds of losing on any given day is approximately:

 (1 - Percent_Direction_Correct) = (1-0.51) = 0.49 or 49%

But, you say, what if there is more than one system with a long signal for a particular day?  Well, if you had 3 systems, all with 51% direction correct, all saying "go long", you might say your odds of losing are then the product of those probabilities:

0.49 * 0.49 * 0.49 = 0.12 or 12%

88% chance of winning?  Nice idea, but likely wrong, because ...

1. Those systems would have to be independent from each other in terms of information, when in fact, I'll wager they likely use correlated information.  So, your real odds of losing are somewhere between 12 and 49%, and Murphy's Law says it is biased heavily towards the pessimistic view, putting you back close to a coin toss.
    
2. You are jumping into the middle of a system's trade, in this case, thrice violating that rule. Those systems were likely developed going "down stream" in time, meaning they were adapted or optimized to make money on a trade basis, not necessarily to make money on each and every day.  There are plenty of good systems that make a lot of money that don't do well on a day-by-day basis.  That is why second-guessing mechanical systems is disastrous.  You see a bad day, jump out in a draw down, only to have things reverse to your system's favor and you watch on the sidelines with a loss in hand as your system closes a profitable trade.  You get that special feeling in the pit of your stomach.  Not only did you have a loss, but you feel foolish because if you had left things alone, it would have been a gain.

My conclusion:  Cutting across the grain and trading a single day based on the position of a number of systems is generally NOT a good idea.  I'd rather prove that a mechanical system works and trade it.  If you want to use the signals of multiple systems, then create a combined mechanical system that uses all of them prove that it works then follow that downstream with time.  Down, not across.

What do you say?  Am I right or wrong?  Have you had similar experiences?  Email me at cmcook@biocompsystems.com and let me know what you think.

Back to top

P.S.
Don't forget that Dakota's price is being adjusted once again upward based on user price setting.  If you are seriously considering getting involved or upgrading, you might think about doing that before May 5th.
http://www.biocompsystems.com/store/financial/index.htm

As always, long term valued customers automatically receive a Silver (10%), Gold (15%) or Platinum (25%) Preferred Customer Discount.  Not sure what level discount you receive, send an email to sales@biocompsystems.com and we'll let you know.

Closure
If you find this newsletter interesting, please stay subscribed.  If you think others might like getting it, forward this email to them or post a link to our website in your favorite trading discussion group.  That helps us grow.  We'd appreciate it.  If you have suggestions, please email me at cmcook@biocompsystems.com.

These documents are provided for informational purposes only. The information contained in this document represents the current view of BioComp Systems on the material discussed as of the date of publication.  Materials written should not be interpreted to be a commitment on the part of BioComp and BioComp cannot guarantee the accuracy of any information presented after the date of publication.   INFORMATION PROVIDED IN THIS DOCUMENT IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND FREEDOM FROM INFRINGEMENT. Statements of equity performance are hypothetical and have not been substantiated by records of actual trading.  Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading.  Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity.  Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those mentioned.

The user assumes the entire risk as to the accuracy and the use of this document. This document may be copied and distributed subject to the following conditions: 1) The entire document must be copied without modification; 2) All copies must contain BioComp's copyright notice and any other notices provided therein; and 3) This document may not be distributed for profit.  All trademarks acknowledged.  (C) Copyright BioComp Systems, Inc. 2006.