Index, Forex and Diversified Trading

using simple mechancial solutions

Brent Penfold trading since 1983
and helping others since 2001!

International Best Seller! Now translated into;
German, Polish, Japanese, Korean and Simplified Chinese.

Could you please tell me the difference between IndexTrader and IndexAlert? Correct me if I'm wrong but does IndexTrader have different signals to IndexAlert?  What is the advantage of subscribing to a newsletter each year with an on-going cost as opposed to purchasing IndexTrader which is a one off cost?
Good question. IndexTrader and IndexALERT are two different animals. IndexTRADER is a fully disclosed 100% mechanical model while IndexALERT is a newsletter. IndexTrader and IndexALERT are both simple mechanical pattern based recognition models. IndexTrader only discloses 4 patterns while IndexALERT trades a larger portfolio of patterns (4 of them are IndexTrader's patterns)... which are not disclosed to subscribers. The benefit of IndexTrader is that people learn a simple but robust methodology and gain an insight into what works (and will hopefully continue to work into the future .... but as you know there are no guarantees when it comes to the markets). IndexALERT is a newsletter service where I do all the work and over the longer term it makes much more money than IndexTrader as it trades more patterns. I suppose it comes down to whether people wish to become independent and do their own stuff or if they are time poor and would like to use a signal service. Once learning IndexTrader they can go off and discover their own patterns ... while using the same simple Trade Plan IndexTrader uses ...I certainly don't have a mortgage on patterns. For those who don't mind relying on me ... and hope to make more money then IndexTrader... they can subscribe to IndexALERT.

Hi Brent. I've been on your email list for a few years and usually just have a casual glance through the results table. I've just been reading through the list of your upcoming workshops and initially was interested in your master trader workshop. However I then had a good look through your website at the different subscriptions you have available. I have traded equities spasmodically over the last 10 years with reasonable level of success. I'm reasonably familiar with technical analysis having completed a diploma of technical analysis many years ago. As I have other interests and employment it has often been difficult for me to consistently devote enough time to my trading to be as successful as I would like. If anything money management would be my weak point. Something that was simple, provided a strict set of rules and would fit into my time poor lifestyle would be ideal. Looking through your models I started to think maybe there might be something in them that may suit me. I have a few questions: I have never traded the futures markets. Do your subscriptions provide advice on how to place orders etc? With regard to opening accounts can you provide any direction on a good advisor/broker for new traders? Based on what I have written above would you have any recommendations on which of your models/newsletters you think would be most appropriate for me to begin with? Realistically what level of starting capital would be ideal to trade your methods? Your thoughts would be much appreciated.

Thanks for your email. I hope I can answer your questions to your satisfaction as many of them relate to “personal” advice and I’m only licensed to give “general” advice. But I’ll give it a go. My newsletters provide everything you need to trade: The index/currency market, entry, stop and exit instructions. Subscribers just copy, paste and email the orders direct to their broker. I’ve attached today’s IndexALERT and ForexALERT for your review. For brokers who are familiar with my newsletters and orders types you can refer to the following link;

Now for what is best for you.

It depends.

If you’re time poor then a newsletter subscription would be more appropriate (either IndexALERT or ForexALERT). If you wish to become independent then you would consider one of the short-term models (SpiTrader/IndexTrader) or medium-term trend trading strategies (BBTT/Key Levels). Everything is fully disclosed and 100% mechanical. Alternatively, if you have never traded futures before then you may prefer not to commit a lot of money initially. If this was the case then you could consider a newsletter subscription which is only AUD490 per quarter. And as a side bar you are not locked into an initial 12 month subscription. People can keep subscribing on a 3-month basis for as long as they like…and when they’re comfortable they can subscribe for 12 months and receive a good saving. But initially a quarterly subscription would possibly be the best way to put your toe in. And even before that. Get a copy of my book Trading The SPI. For $30 it will give you an insight into how I think about the markets and how I approach trading. It’s no good subscribing to a service or purchasing a model of mine if you’re not comfortable with how I engage with the markets.

If you do decide to subscribe its difficult to advise what an appropriate account balance to start with because it contains personal advice. However I can tell you what I have done. In the attached real time results you’ll see I opened a small account to demonstrate how people could trade IndexALERT.

IndexALERT trades 8 global index futures: Spi, Nikkei, Taiwan, Hang Seng (ASIAN PORTFOLIO), Ftse, Dax, Mini Nasdaq and E-Mini SP500 (ALL = GLOBAL PORTFOLIO). My simple money management rule was to only trade the signals for the ASIAN PORTFOLIO whenever the account was under $40,000 and trade all the signals when the account was over $40,000.

I opened this demonstration account on the 1st November 2005 when the ASX200 was at 4468. At time of writing (May 2009) the ASX200 is down to 3779.

Over this period the ASX200 has fallen -15%.

As you can see my small IndexALERT account has enjoyed +123% gain.

That is what I did….but then it’s my newsletter that I’m trading…so I know it’s easier for me. And if you enjoy the same success with one of the newsletters and in time you wish to become independent then you could consider purchasing one of the models out of your trading profits.

But to start with you should take up a free trial of either IndexALERT or ForexALERT and get a free look and feel for professional futures trading.

I hope this helps.

Can I use your Index Alert service on CFD Indices?
I really can't say as I don't trade CFDs, however since both CFDs and futures trade off the same physical index you would expect them to trade the same. However I have received the following observation regarding the tracking of CFDs compared to  Futures. These are a very interesting observations.

" .... I hope that you still remember our last correspondences about IndexALERT, which I asked whether I could use CFDs to trade the services ... Well I have been watching for about 2 months the movement between the indices futures market with CFD indices (from XXX) and here is what I have  found;

1. The spread is considerably wider for some CFD indices (more than 2 points) such as Hang Seng 10 points, Nikkei 20 points. 

2. The difference between future prices and CFD prices on some markets are 'huge' such as FTSE 22 points, Nikkei 23 points in which cfd prices are always less than the real future market prices. 

3. The movement, CFDs were less responsive, it’s understandable as its like 'a shadow' from the real market ... but in some occasions it can be costly......"

Can the mechanical trading system that you have built be used forever, or will there come a time when it will not work, and if so how you will identify this?
Good question. The simply answer is I don’t know. As you know there are no guarantees in life and all that us traders can do is to manage our risk the best we can. For developing a trading methodology the biggest risk we face is “curve fitting” an idea/model to historical data. When we do this we expose ourselves to an illusion of competency which at best is foolish and at worst financially expensive. So the idea is to build “robust” methodologies that can hold up under both bullish and bearish market conditions across multiple markets. 

In my opinion my mechanical systems and IndexALERT are robust models. They all embrace a logical investment philosophy and employ simple rules. They do not utilise any technical indicators for their trade set-ups so there are no parameters that have been optimized to improve the results. 

So to address your question whether IndexALERT will continue to work as well into the futures as it has in the past, I can’t say as only time will tell us. However I can say I believe its simplicity will hold it in good stead and help it to maintain its robustness going forward. 

Now to the question of how to recognise when IndexALERT has lost its edge. 

This is a very good question as I actually trade every recommendation that IndexALERT makes so naturally this is a question I always have in the back of my mind when I’m trading.  Consequently its also in my interest to be sensitive to IndexALERT’s™ performance.

I'm a big believer in measuring and trading equity momentum (see Trading The SPI).

Equity momentum monitors and measures the financial health of a methodology's trading edge. If the momentum is positive the methodology is going well. If it turns negative then the methodology may be losing its edge.

So the first thing subscribers see in IndexALERT is its equity momentum. I recommend to subscribers (because this is what I do) to trade the signals when the equity momentum is positive and to step to the sidelines when it turns negative.  When it turns negative this will be the first sign we'll receive as to whether or not IndexALERT has lost its edge. At this time you would not trade the signals and wait for positive equity momentum to return (i.e. profitability).

With your IndexAlert service should I trade all the signals to get your performance or can I trade only some and experience the same performance result? For example I only trade SPI & DAX markets.
To duplicate IndexALERT’s performance you would have to trade every signal. You could not do so with just trading the SPI and DAX signals.

What account size do I need to trade all of the signals to get the same performance?
This is a difficult question to answer as it falls into “personal” advice and I’m only licensed to give “general” advice. In addition every trader is different regarding their appetite for risk (drawdown), financial position and investment objectives. And not every trader uses the same money management strategy.

So this is a very difficult question to answer and I can only offer general advice. For example if you choose to only trade the SPI and DAX signals and the model shows that hypothetically the worst largest accumulative loss (drawdown) was $10,000 (and I’m only guessing here as I haven’t run IndexALERT over just the SPI and DAX) then you would have to determine what percentage loss you would want it to represent? For example if you would wish to limit your worst lost to only 30% of your trading capital then you would need $30,000 in your trading account. In addition there is every possibility that IndexALERT’s™ future drawdown on the SPI and DAX portfolio will be greater than $10,000 (if that is the correct figure) so you may want to double it to $20,000. If you still wished to limit your worst drawdown to 30% then you would need to have $60,00 in your trading account.

Now historically IndexALERT’s™ worst accumulative drawdown on the Global portfolio (all 8 index markets) has been roughly AUD25,000. In addition to the drawdown you would also need to keep in mind the capital required to fund the margin requirements.

I hope this makes sense?

Am I correct in assuming IndexALERT uses support & resistance levels combined with a breakout methodology for the alert service and that you are not using your patterns (like you use for SpiTrader and IndexTrader)? Can I know why?
IndexALERT does use patterns to identify potential support and resistant levels. It may sound a little confusing as most traders associate support and resistance levels with fibonacci price retracements/extensions, trend lines, double tops/bottoms, swing highs/lows etc. What I use in my models and IndexALERT are simple price patterns.

Does IndexAlert go off the same signals as IndexTrader and how long have you traded it?
IndexALERT does incorporate IndexTrader but it is also more then IndexTrader. IndexTrader contains a portfolio of 4 patterns.  IndexALERT trades a larger portfolio of patterns which do include the 4 patterns IndexTrader has. I started trading IndexTrader with the expanded portfolio (SPI and Hang Seng) in November 2002 and added more markets as my account balance grew  and I started trading IndexALERT in January 2004 when I launched it.

Does the IndexALERT's back tested results include slippage and brokerage?

How many people trade the IndexALERT system and does that make a difference to slippage?
Well that's a personal question and I hope you can understand my preference to keep that information to myself. But to answer the second part of your question about whether too many people will make a difference to slippage, I don't know. However I suspect it won’t for a number of reasons. Firstly IndexALERT is only available to private traders. Since institutional traders dominated the futures markets (i.e. CTAs running managed futures hedge funds) I can’t believe that IndexALERT with its private subscribers will cause too much of a ripple. And secondly IndexALERT only trades liquid markets. The equity indices are one of the most liquid sectors traded where thousands of contracts are executed each day. So I can't imagine IndexALERT private subscribers will make much of a splash in these huge markets. But I suppose you can never know until you experience some wild slippage. If down the track I feel too many subscribers are entering and exiting at my levels and are disadvantaging me since I als trade IndexALERT then I’ll stop receiving new subscriptions and cease the service.

What was the largest draw down when trading all indexes?
Roughly AUD25,000 (which does include an estimate for brokerage and slippage),

Are the Nasdaq and SP500 markets the full contract or E-minis?
The E-minis.

When does IndexALERT come out? The portfolio I trade will span across 24 hours. What time I will receive the orders daily?
I attempt to get the email out by 9:00am each morning.

I enjoyed the seminar again and will probably subscribe to IndexALERT.  However, I'm concerned that as more people subscribe, slippage will increase and expectancy will suffer.  How many/what volume is there at the moment and at what stage do you stop accepting new subscribers.
I'm glad you enjoyed my presentation and I hope I didn't bore you too much going over the old ground of why we lose so often ... even I was getting tired of it! That's a good question about IndexALERT. Essentially it is my policy that once I feel too many people are entering and exiting at my levels and causing me too much slippage then I will remove the particular model or IndexALERT from the web site. As you know I trade everything I offer and that's my priority.

Naturally people who have the models will continue to have them. Subscribers will continue to receive IndexALERT  but I won't accept new subscribers. I'll then monitor my slippage and see how it goes ...letting the new subscribers fall away (not allowing them to renew) until I'm happy with the remaining subscriber group. It'll then become a closed group and I'll only accept new subscribers if old ones roll off.

I suppose the question is how many subscribers will it take to impact my fills. I don't really know. I think it'll have to take a large number because global indices are huge. Our SPI is probably the smallest index but its still averaging around 20,000 contracts a day which is plenty. So I think there will be plenty of room for traders to jump in and out at my levels.

But as I said. If I'm disadvantaging myself then I'll pull the models and stop accepting new subscribers. 

Is it possible to get your brokers details to verify actual trades?
No worries. Matt Andronicus is my broker and you can get his details off my web site on the Broker page above.

What happens to the daily newsletter when you go on holidays or if you get sick?
When I go away I let my subscribers know in advance and I suspend their subscription until I return. When I'm sick I keep going. If I feel I'm not even able to do that I will send out a newsletter to manage any open positions but I wont initiate any new trades.

My situation is - I’m an institutional only ASX broker, traded equities for years, dabbled with bonds + SPI.  Your alert came along at a point I’m looking to diversify (primarily commodities/currencies). Although I watch markets all day I can’t be on the phone to brokers, I would need to setup an a/c with a futures broker who had some software where I could set and forget orders on markets which trade in my time zone (and I’d probably have my wife do this at home). Can you recommend a broker who would have the right software?
Firstly I'm not sure whether going with a broker who has the software to allow you to set and forget is the way to go?  

I suppose the ultimate electronic broker you can use is Interactive Broker (IB) who have the most competitive brokerage and they allow third party applications which plug into IB's order execution software. These 3rd party applications allow you to set and forget ... if you can work them out! 

Now it all sounds perfect.  

I have used IB years ago and they were fantastic, however it takes some courage to set and forget. The are no issues when the world operates perfectly. Your PC will never go down, it'll be on 24 hours a day. It will never receive a virus. IB's Asian Server in Hong Kong similarly will never go off line when you have an open position and Telstra's telephone exchanges will never experience interruptions etc, etc. 

Can you see where I'm going with this?  

I suppose it depends on how brave you want to be. However you can always bet that when you have a large position on Murphy's Law will strike and you'll receive a huge bite on the backside! Your PC may become infected, your brokers' server may go off line etc. etc. 

So my general advice is not to be too worried about going electronic. As you know my orders are involved and I think you or your wife will have more peace of mind when the order is handed over to a human broker - an old fashion Client Advisor.  

I personally use a Client Advisor.

For a list of brokers who are familiar with IndexALERT you can click on the Brokers link above.

Btw I don't receive any benefit from suggesting certain brokers. I do it because I know they can execute my types of orders.

Disclaimer: Active trading carries a high level of risk and may not be suitable for all people. The high degree of leverage provided by futures can work against you as well as work for you. Before deciding to trade you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your risk capital and therefore you should not trade money that you cannot afford to lose. You should be aware of all the risks associated with active trading and seek advice from an independent financial adviser if you have any doubts. Past performance is no assurance of future performance.

Under Chapters 6D and 7 of Australia’s Corporations Act 2001 I am authorised to carry on a financial services business to provide general advice on futures to Australian wholesale clients. Accordingly any opinions, conclusions and or other information expressed by myself do not contain personal advice. Visitors will need to with, or without the assistant of a person licensed to give personal advice, to determine whether any general advice expressed by myself is appropriate for them given their particular needs, financial situation and investment objectives.