Spectrum: Futures Trading Systems by TradingVisions

Spectrum is a completely mechanical day trading system designed to trade the e-mini S&P 500 and released in August, 2003. Spectrum's logic--which has remained the same since release-- is based upon market observations of cycles and extremes in volatility and range. These extremes are determined by two important emotions of trading, fear and complacency. In the typical equities market the dominant mentality is to be long. Any threat to the downside induces fear, and the more pronounced the selloff, the stronger the fear (and vice versa). Typically this leads to increased volatility. Conversely, a market that is trending upward tends to create complacency, and range tends to contract. It is these two principles that form the basis of Spectrum.

How does it work?

Spectrum is a unique system with 2 optimizable entry parameters, one for long and one for short. Its logic is very simple: it is based upon pivot extremes in volatility.

Originally Spectrum was intended for the S&P market, but it quickly became evident that the principles would apply to other equities indexes. The very first draft of the system showed profits, and the original parameter for long positions that was chosen based upon observation turned out to be the best one in testing. After initial testing on the S&P, the rough rules for short entries were developed. Then the S&P 400 Midcap, Nasdaq, Russell 2000 and Dow Jones were added to the test field. From early in the process, rules, parameters, and stops were added depending on the results for all 4 indexes. This helps ensure that curve-fitting was minimized. Spectrum uses exactly the same rules for all indexes, and the excellent uniform results are proof of its robustness. Further evidence of robustness is the fact that the Dow Jones contract results are excellent, as are the real-time results. Because the results for the different markets have fairly high correlations, and since the S&P results have been the most consistent, Spectrum is primarily recommended for the e-mini S&P.

Spectrum is very selective about when to trade, and unlike many day trading systems, it does not trade often. In more volatile markets, it averages about two trades per month.

Spectrum is a very easy system to trade. A trader knows the day before if a trade is possible the next day. About half the entries are market orders placed immediately upon the closure of a set bar at the same time each day. If no entry occurs at that time, then a stop order is entered.

Spectrum works best with wide exit stops. In fact, the day-version is almost as profitable without any stops as it is with. A protective "disaster" stop is placed immediately but is rarely hit. Another stop locks in a small profit when a trades advances sufficiently. A profit objective is also utilized. Finally, 15 minutes before the session end a close stop is used. The latter is the actual exit over 60% of the time.

What about optimization or curvefitting?

A good system is based upon empirical observations of the market, rather than a computer blindly crunching numbers. Through observation, patterns are noticed. These patterns, when objectified, may become a series of trading rules. By its very nature, a pattern is a form of optimization, because the extraneous is ignored in order to see the rule.The trick, then, in trading is to not overoptimize or overcurvefit. As mentioned above, Spectrum is based upon observations of the market that were then refined through testing. With only one optimizable parameter for long and one for short, and with its backtested success on 4 markets, the system was created with a minimum of curvefitting.

Excellent realtime performance

There is no better measure of a system's success than its out-of-sample performance. Since its release in August of 2003, Spectrum has done well, with 2008 being a record year. Spectrum ES is often in the Futures Truth top 20 systems.

Lease

Spectrum can be leased for $75/month/e-mini contract and traded through designated broker-assist programs or the Strategy Runner network.

Performance Information

To view hypothetical performance reports, click here.