"Smart Money" ProxyTrader Rules Update

In the course of developing the ProxyTrader system I originally had decided that I would keep proprietary  two simple rules that provided a significant increase in profit and winning trades and would provide these signals to my subscribers.  The rationale for holding these rules back was the expressed concern from a large number of subscribers that a full release of the formula would cause a loss of effectiveness of the system over time because of large traders who would gradually degrade the system.

Since the actual signals have become common knowledge and we still have not seen any effect on trades I have decided to bow to the pressures of the larger subscriber pool and release the rest of the rules.

All in all, I am happy about this decision as I have always believed in full disclosure which allows followers to feel more comfortable about the signals and their derivation, and so with no further ado.....THE RULES

RULE 1: THE BUY SIGNAL

     When we get a basic signal to exit from a "SELL" trade (see manual), we do not automatically enter a "BUY" trade until the following conditions are met.

     A. Price of the underlying index we are following must be LOWER than the previous reporting period. (We want to be BUYING on pullbacks.)

     B. SIMULTANEOUSLY, we look back at the previous two weeks of Open Interest as reported by the CoT. Open Interest must be SUCCESSIVELY LOWER for the preceding two weeks...(not just lower than two weeks ago, but rather last week's OI must be lower than the week before and this week's OI must be lower than last week's).

     If both conditions are not met simultaneously we will WAIT for that condition before initiating a "BUY" trade.

RULE 2: THE SELL SIGNAL

     When we get a basic signal to exit from a "LONG" trade (see manual), we do not automatically enter a "SELL" trade until the following conditions are met.

     A. Price of the underlying index we are following must be HIGHER than the previous reporting period. (We want to be SELLING on rallies.)

     B. SIMULTANEOUSLY, we look back at the previous two weeks of Open Interest as reported by the CoT. Open Interest must be SUCCESSIVELY  LOWER for the preceding two weeks...(not just lower than two weeks ago, but rather last week's OI must be lower than the week before and this week's OI must be lower than last week's).

     If both conditions are not met simultaneously we will WAIT for that condition before initiating a "SELL" trade.

THAT'S IT!...By using these simple filters, we have seen an increase in 20% over the bottom line Return On Investment numbers and increased our winning percentages accordingly.

After release of the original system in June of 2001 I implemented a "stop" system to protect profits and reduce drawdowns.  The rules for this one are simple as well. 

LONG TRADES

If you are in a trade and it exhibits a loss of 13% from the highest profit shown during the course of the trade, exit the trade and wait for the following setup. (This is a trailing stop)

1. Price to return above the exit price(in the case of long trades)

2. CoT report still indicates a "Buy" setup

3. A "buy" is indicated  in accordance with the entry rules (ie. Price is down from previous week, OI is down for last two successive weeks.

If the above qualifications are met we would re-enter the long trade.

SHORT TRADES

If you are in a trade and it exhibits a loss of 13% from the highest profit shown during the course of the trade, exit the trade and wait for the following setup. (This is a trailing stop)

1. Price to return BELOW the exit price(in the case of short trades)

2. CoT report still indicates a "SELL" setup

3. A "SELL" is indicated  in accordance with the entry rules (ie. Price is up from previous week, OI is down for last two successive weeks.

If the above qualifications are met we would re-enter the short trade.