In our last posting, we demonstrated a calendar-based perpetual system in the indexes.  We showed that it's easy to do better than the bellwether “S&P performance” that is touted everywhere.  This Monthly Perpetual System kicked the stuffings out of merely buying and holding the index via being short nearly as often as long.  Specifically, you want to be long the indexes from the 22nd of the month through the following 6th, and then short from the 7th through the 21st.

If you've been following this column, you know we like to combine discoveries.  Therefore, a logical next question could be “how can we boost performance by plugging previous signals into our latest methodology” (or vice versa)?  This time, we don't have the luxury of comparing apples to apples, because the Monthly Perpetual System is not a day trading system. Therefore, perhaps not surprisingly, there's no benefit to following the day-of-the-week indicator, the 4- or 5-day indicator, or cups and caps only when conforming to the Monthly Perpetual System direction.  Too much of Monthly's results depend on overnight price moves.

Undaunted, we then ask another question.  We now know what days we'd normally want to be long and short--can we isolate when it's good to be short in the “buy timeframes” or long in the sell ones?  Obviously, if the answer is yes, we can make the Monthly Perpetual System�"an already powerful tool�"even better. 

Figure 1 demonstrates the results of being long our filtered days-of the-week indicator, The Dynamic Daily One, from the 7th though the 21st of the month (the worst performing time) and short during the positive 22nd through the 6th timeframe. 

You get similar good results by waiting until the following open to exit the trade.  This implies that we can overlap Dyanamic Daily One with Monthly Perpetual, and have ongoing overnight signals.  (It wouldn't be a day system, in other words, although new signals of entering, exiting or reversing will be available every day just after the close).  If this is confusing, don't worry�"we plan to give daily signals in the four indexes starting tomorrow.  At that time, we'll further explain the overall concept.

Art Collins is the author of Market Beaters, a collection of interviews with renowned mechanical traders. He is currently working on a second volume. E-mail Art at artcollins@ameritech.net.