Cobra II Bonds
Cobra Bonds II is a trend following automated trading systems for Bond futures designed in August 2011. We modified the existing strategy Cobra Bonds (formerly Viper Bonds) to use stop order entries instead of limit orders and to hold positions until five minutes before the electronic close. The strategy can also be set though the StopOrder input to enter into trades using market orders.
The result is an improved strategy for automated trading based on an increased average profit per trade. Stop orders help us with automation since limit orders may or may not get filled and cancelling and replacing the limit order as soon as it is placed (to a market order) will add slippage almost every time. Buy limit orders placed at the bid when cancelled and replaced to a market order will hit the offer. It is possible to test a trading system by adding the criteria that limit orders are not filled until the price trades through the limit order by at least 1 tick. There are times when limit orders get filled in real time trading where the back test did not represent that trade since it only traded at the bid but did not trade through the bid/limit order price on long trades or through the offer/limit price for short trades.
Stop orders can actually get less slippage (if limit orders are cancelled and replaced at the market) since the buy stop price can be at the offer while the sell stop price can be at the bid. In our experience, about half the time, the stop order gets 1 tick of slippage while half of the time it does not. For US Treasury Bond futures, this can create an average slippage and commission scenario of 1 tick + 1 round turn commission or $31.25 + $5 = $36.25.
Market orders can also be used by changing the StopOrder input to 0 (instead of 1 for stop orders). Back testing shows that stop orders show better performance than limit orders and market orders show better performance than stop orders. Our default setting for this strategy enters at the market. Approximately, half the time the market will be at the offer and half the time the market will be at the bid. Even when using market orders, our experience shows that half the time we get slippage while half the time we do not.
Cobra II Bonds Trading in April 2012
Can I purchase the open code?
I have spent hundreds of thousands of dollars developing strategies. There has been a great deal of trial and error in the last 15 years to determine what works best. I do offer the the open code to my strategies. I consider this my intellectual property. You can purchase this strategy and any of the other strategies on the Purchase page. You must also fill out a Non-Disclosure Agreement in order to purchase any of the open code strategies.
How does Cobra work? The details of the strategy are proprietary. In general, I combine my own pattern based entry technique as well as my own trend indicator. If the trend is up, then we take long trades if the long pattern setup is there. If the trend is down, then we take short trades if the short pattern setup is there. The goal is to trade the trend and get in before the trend accelerates but to also ensure that we have the trend correct. We are not looking to call tops and bottoms but could be described as a “middle trend finder” and to get a piece of the trend somewhere in the middle. It is a day trade strategy.
What is the history? When was it designed?
I designed the Cobra trading system in 2005 for the stock indexes with the creation of Cobra I stock indexes. In 2008, I decided to reduce the daily risk for traders looking to quantify daily risk within a system by limiting the system to one trade. I made the modification of limiting it to one trade in Cobra II and also added a profit target. Cobra and Cobra II have the same entry criteria.
In 2009, I added Cobra III which has a more selective entry criteria than Cobra I and Cobra II but like Cobra II, in that it has one entry per day and a profit target.
In 2008 and 2009 I also added other markets such as Crude Oil, Euro Currency futures and forex, and 30 Year Bonds.
The trend indicator for non stock index markets is different since the stock index market use New York Stock Exchange market internals such as $TICK, $ADV, $DECL, etc. This is the main difference. The trend indicator between non stock index markets is the same.