System Spotlight: .R-Mesa 5 for the E-mini Russell
September 12, 2005
What happens when you take a time proven S&P trading system and run it on a market with twice the point value and nearly the same daily range? Well, if R-Mesa 5 running on the E-Mini Russell is any indication, some pretty good looking performance is what happens.
Attain has been telling anyone who will listen how the E-mini Russell 2000 futures have been exploding in volume over the past year and a half - and that volume explosion has led to better liquidity, bigger trading ranges, and possibly a better day and swing trading market than the E-mini S&P.
Not content to just talk about how the Russell might be a better trading market than the S&P, Attain began testing existing systems on e-mini Russell data towards the end of 2004. The resulting testing led us to find R-Mesa 5 tested very well on the emini Russell. This week's system spotlight is on R-Mesa eRL (eRL = E-mini Russell).....An established system with a NEW market.
Who is the Developer?
R-Mesa eRL is actually the exact same logic as R-Mesa 5, and the R-Mesa 5 system is actually a combination of Rick Saidenberg's R-breaker system, John Ehler's cycle theory logic, and Mike Barna's knowledge and experience in utilizing different filters and programming. Mr. Ehlers and Mr. Barna are the official system developers and sell or lease the trading system through Mesa Software and Mesa Systems.
Mr. Ehlers received his BSEE and MSEE from the University of Missouri and did his doctoral work at The George Washington University, specializing in Fields & Waves and Information Theory. John has been a registered Commodity Trading Advisor since 1997. He is an electrical engineer and has been a Senior Engineering Fellow for some of the largest Aerospace Companies in the world. Mr. Ehlers has been selling popular MESA technical indicator package to active traders since 1984. His software has received 25 Readers’ Choice Awards from Stocks & Commodities, where he is a contributing writer. Along with being a contributing writer for Stocks & Commodities, he also contributes to Futures, and Active Trader Magazines. He has also authored three books: “Mesa and Trading Market Cycles†(first and second editions) and “Rocket Science for Trader.†He also is a frequent speaker at conferences and seminars worldwide. John is currently the President of MESA Software and continues to actively trade using the various systems and indicators he has developed.
Michael Barna has been a registered futures industry participant since 1998. He is an experienced programmer in a variety of languages supporting his research and development in AI applied to the financial markets. Besides developing systems and actively managing his own portfolio, Mike has also been an engineer and pilot in the Aerospace industry. As an engineer and research pilot he developed missile and laser defense systems employing AI and other leading edge technologies. Mike received a BS in Mathematics for Arizona State University and a MS in Astronautical and Aeronautical Engineering from Stanford University. Mike currently resides in California with his family.
How Does it Work?
The easy answer is, R-Mesa eRL works just like R-Mesa 5, as they contain the same logic. But how does R-Mesa 5 work, you ask.
R-Mesa 5 is the first major upgrade of the R-Mesa system, which was originally formed by merging the R-BREAKER S&P daytrading program (a perennial Futures Truth magazine top ten trading system) with the MESA cycle-measuring program by John Ehlers. The upgrade includes additional patterns and rules which were added to handle directionless markets lacking intraday follow through.
The MESA cycle logic was founded on the principles of Information theory and is implemented in the program by filtering the signals from noise using the computational power of computers. The mathematical engine in MESA cycle theory is the Burg algorithm.
The MESA logic models the market as a generalized filter. This filter is driven by a white noise generator. (White noise consists of all frequencies with a uniform power amplitude.) The output of the filter is compared with the samples of actual market price data. The result of the comparison is fed back to adjust the filter so that, ultimately, the filter output is a good replica of the true data in the time domain, within the constraints of the filter.
The result of the combination is trading signals dynamically adjusted to current measured market conditions; employing support and resistance lines as well as pivot points to form trading signals
R-MESA5 eRL trades on 45 minute bars and uses $420 money management stops and a 4.2 point reversal, so you never risk more than about $900 (plus slippage) on any given day. R-MESA eRL trades about twice a week on the average, and never trades more than twice a day. The system also filters out trading signals on FOMC announcement days and reversal signals generated within the same bar as the original signal.
Attain Comments:
After a few months of watching R-Mesa run on the E-mini Russell, Attain clients started trading it in May, and while it did have a rough spot initially, the system has performed quite consistently since its release - garnering honors as the top performing day trading system in August.
The list of things to like about R-Mesa eRL is quite long, but tops on the list has to be the fact that R-Mesa eRL could not have been optimized. The worry with many new systems is that they have been "curve fit"" to the data, but in this case - the system was designed for the S&P futures, and released before Russell futures were even trading in earnest - meaning its not even supposed to be running on the data it looks so good on.
The fact that R-Mesa 5 was released over two years ago is also a great sign - as it allows us to treat the last 30+ months as a complete walk forward test for R-Mesa eRL. While no clients were trading it 20 months ago, the logic was released then, and we can view the whole time as the critical post release period where investors see whether the hypothetical testing was achievable or pie in the sky.
These are not just good signs for R-Mesa eRL, but also for the struggling R-Mesa 5 S&P system, which despite being down this year is one of Attain's top ranked system. There are very few day trading systems robust enough to perform on not just out of sample data, but also on out of "sector" data from a completely different index. That speaks volumes about the abilities of the R-Mesa system, despite its losses so far this year.
For those with room in their portfolio for a Russell day trading system, R-Mesa eRL sure looks like a good choice.
- Jeff Malec
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can
carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading
losses are material points which can adversely affect investor returns.
Feature | Week In Review | Chart of the Week |
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Feature | Week In Review | Chart of the Week |
September is typically a very bearish month for US stocks as traders begin to readjust their portfolios for the remainder of the year. Surprisingly, the stock market looked fairly strong last week as all four stock indices climbed higher. The Nasdaq led the way with gains of 2.06% for the week, with SP futures closely following at +1.83%. Small caps also traded higher with Russell 2000 futures climbing +1.81% and SP Midcap futures climbing +1.52%.
Most likely the rally in the stock market was a reflection of the sell off in the energy markets. With the oil pipelines beginning the come back online in the Gulf of Mexico and the promise of increased production by OPEC, $70 per barrel crude oil prices seem to be a thing of the past for now. Crude Oil prices fell -5.17% and Unleaded Gas futures fell -10.26% for the week, although consumers probably won’t notice the difference as the pump anytime soon. Heating Oil (-9.31%) and Natural Gas (-3.66%) also traded lower last week.
Hurricane Katrina’s effects can still be felt in the tropical commodity markets. Sugar futures, which were enjoying a strong bullish run before the hurricane, continue to trade higher climbing +1.58% last week. On the flip side Cotton futures reversed course from a downward trend and climbed +4.21% last week.
In the treasury markets US bonds turned lower (rates higher) last week, after rallying in August. The benchmark 30 year bond fell -1.01%, while the shorter term 10 year note dropped only -0.55%. Elsewhere, the US Dollar has proven to be resilient with the US Dollar Index climbing +0.74 last week, while Eurocurrency futures fell -1.12%. The Canadian Dollar (+0.90%) and Australian Dollar (1.24%) also look strong and have been trending higher over the last few weeks.
*Day Trading**
It was a slow climb up last week with S&Ps trading in a mere twenty point range and the eRL trading in about a fifteen point range. Several systems decided to stay on vacation following the Labor Day weekend and took no trades during the shortened week.
A handful of systems were able to capitalize on the mini bull- run last week, but the returns were much more modest than a typical week for day traders. Among the winners, R-Mesa S&P had two small winning trades for gains totaling +$950, RC Success ES traded three out of four trading days last week for a gain of +$235 per contract, and Helix ES traded just two times last week for a gain of +$140 per contract.
Compass traded one time only last week on Friday and was able to squeak out a small gain of +$25. Similarly, Impetus eRL traded once and broke even after fees.
On the losing side last week, Clipper traded twice for losses amounting to -$98.30, while the Electric Daybreaker portfolio was unprofitable by -$252.50; with losses in the eMD and NQ but gains in the ES. Elsewhere, BWT Zones eRL was active as usual, trading an average of nearly twice per day - but losing -$680 per contract for the week, while BWT Zones SP took four small losing trades totaling -$1,275.
**Swing Trading**
After a tough month of August and inauspicious start to September two weeks ago, swing trading systems finally moved back in the right direction last week, with several systems seeing moves higher in their equity curves as stock indices drifted higher.
Eclipse eRL needed a good week, and it got one - holding long as the Russell market advanced over 1.4% for the week. Eclipse rolled its position from the September futures to the December contract, netting gains of $1,110 on the closed out trade.
Elsewhere, Apollo ES held long for a single day for a gain of $132.50, while Axiom Index ES also made money on the long side with gains of $132.50 before being stopped out using its trailing stop.
All other swing trading systems were quiet, with Tzar holding short in the ES and NQ, and Axiom holding long in the Nasdaq. All three systems created closed out trades by exiting their positions in the September contract and initiating new ones in the December contract. Tzar ES and Tzar NQ had closed out losses of -$1167.50 and -$680, respectively, while Axiom NQ managed gains of $330 on its closed out trade. Axiom eMD, Axiom eRL, and Tzar eRL remained flat and out of the market the entire week.
Meanwhile, the ever stubborn Mesa Bonds and Mesa Notes, which act more like long term systems at times than swing traders, held onto their long positions and watched as bond prices headed steadily lower for most of the week to cut -$1187(Bonds) and -$546(Notes) off of the open trade profits of Mesa Bonds and Mesa Notes.
**Long Term**
Last year long term trend following systems had a great fourth quarter that made up for an entire year of losses. Traders are hoping for a repeat performance in ’05 as trend followers have been down for most of this year, and there are some small signs of hope as trends are returning in markets like coffee, sugar, and the Nikkei.
Historically a very choppy and volatile market; coffee futures have been trending lower for most of 2005. Since hitting their peak price during March, the coffee market has fallen nearly -36% due to great growing conditions and market saturation. Systems that have jumped on board for the downward trend include Axiom LT which is short in the London Coffee market for open trade profits of +$465.00 per contract, and Andromeda which closed out a profitable trade last week for gains of +$8056.25 per contract.
Sugar has been trending in the opposite direction - gaining approximately 27% since mid-April. Trading systems have been active in sugar as well with Axiom LT holding long in the London Sugar for open trade profits of +$551.70 per contract, and Aberration Plus has been holding long for gains of +$700.40 in the NY contract.
Nikkei traders have been enjoying bullish trend as well with the market rallying nearly 14% since May. Systems with long positions include Aberration Plus which is making +$4650.00 per contract in open trade profits on the long position.
Closed out trades from last week in clued Andromeda exiting Eurodollars on its breakeven stop for a loss of -$62.50 per contract, Axiom LT exiting crude for a loss of -$2130.00 per contract, and reversing short in the Dollar Index for a loss of -$855.00 per contract. Finally SEMA4 Symmetry entered long in the Canadian Dollar.
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IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can
carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading
losses are material points which can adversely affect investor returns.