Review of mwz trading system on Collective2.com

After only 9 trading sessions I decided to unsubscribe from mwz. These were my reasons:

- As soon as I have subscribed, trading frequency shut up 3+ x over historical average making $30k, which I have allocated to this system, too small to be viable. The trend of number of trades per day generated by the system is shown on the graph.

- Discrepancy between reported and my own performance was too high. I estimated discrepancy of 14% / month at my allocated capital size. This would wipe out most of the reported performance of this system. (I do not have a tool to analyze over 700 trades that were generated to find the root cause of discrepancy. Although Collective2 web site has an option of displaying real trades along with hypothetical trades, my trades were not reported for some reason). The table shows a summary of discrepancy of my results versus reported by c2 web site.

- Vendor did not respond to my questions.

- I did not have a stomach for combination of high leverage, short selling and in some cases >50% of equity going to a single security.

My trading set up uses an account at Interactive Brokers + TradeBullet, a required 3rd party piece of software which costs $50 per month. Interactive Broker's commission is about $1 per trade. MWZ subscription cost is $22 per month.

Comments, questions, suggestions are welcomed.

Proposed rules will aggravate housing slump

I think Fed's idea to disallow no-doc / low-doc loans would have been a good idea before the housing bubble, but in today’s climate its impact will be devastating. This significant tightening of the consumer credit policy cannot come at the worst possible time.

Many people faked their income to be able to afford the home they want or any home at all. With housing costs increasing faster than their incomes, faking income was possibly the only way to become a homeowner in their lifetimes. Others may have had a good income but lost their jobs (temporarily or permanently) or simply retired. Yet there is another category of small business owners who find it difficult to qualify for a loan.

Many of these folks, who are good payers with high credit scores and ability to pay, under new rules will not be able to qualify for a new loan, either refinancing (to take advantage of lower rates or to avoid ARM reset), cashing out to meet short term obligations or major expenses or needing / wanting to move to a different part of the country.

Inability of these people to obtain a mortgage will contribute significantly to increased backlog of homes as well as push away potential new home owners because

o Who wants to invest in depreciating assets?

o Home values seen as considerably more volatile (risky), reducing attractiveness and increasing cost of financing purchase.

o Home is seen as an asset which is hard to buy and to sell (not liquid) or has a potential to become not liquid during the course of ownership.

o Loss of confidence in regulators who can step in arbitrarily at any point and change rules of the game in a way that will wipe out your investment returns.

It will amplify housing market slump and cause more people to loose their retirement nest eggs they have built as equity in their homes. Many will be forced into foreclosures, bankruptcy and poverty and is likely to result in major recession / depression.

This step will not “punish” those who have speculated or got into homes they could not afford – this will punish everyone.

Tightening consumer credit policy and causing the housing prices to plummet even more than they already have, is the craziest idea I have heard coming from Washington in the long time.

There is a 90 day public comment period. You can let your opinion to be know by going to Fed's web site.

mwz system on collective2.com

I am very interested in trading tools available through www.collective2.com which allow investors to publish and subscribe to trading systems, verify and compare performance of such systems. I will be commenting on these tools in a separate blog. In the mean while I would like to post on the first system that I have subscribed to through C2 - "mwz".

I will be tracking a number of systems on Collective2.com.

This is a discretionary system which means there is a human driving the boat. I don't particularly buy into publisher's explanations of his own strategy (you can find those on his web page); however, If the results he achieves are real he does seem to have a 6th sense, so I am going with it. Human brain is one of the best pattern recognition devices ever created. It is my understanding that if you take one of human senses such as hearing and wire it to the part of the brain which is responsible for sight, pretty soon you will be able to hear again. In other words brain will make sense at any pattern thrown its way. Granted, the brain may play tricks on you: it may see one pattern when in fact there are many or in fact none - like Escher painting or a cloud that can look like many things or nothing all at once. But this is the risk you are taking with a human system, no two ways about it.

There are few things that make me nervous about this system. I really hate shorting as a strategy, period. Then, a lot of weight is given to a single stock once in a while which can blow up in a big way. Granted it did not happen yet, but it could and sooner or later it will. The other thing is that you need a good size equity to trade it because it generates a huge number of trades (about 30 / day). Using Interactive Brokers account this is about $200 / mo. Plus you need to pay for Trade Bullet (a mandatory piece of software), another $50 /mo. Bottom line is if you only trade $30k (which is the minimum you need - remember government regulation does not allow day trading if you have less then $25k in your account) be prepared to spend at least 1% of your earnings per month on fees.

The reason why I decided to go with this system is consistency of return and low (almost negative) correlation with the market. This is the best way I thought of allocating some money to a day trading strategy.