Markets in Transition – Crude Oil

As I began my last post I continue to understand the trading mantra, “I don’t care.”  I do care as to whether the shift in trend is towards buying or selling, but I don’t care about the why or what or where.  This, for the most part, allows me to concentrate on the momentum. The strength of the momentum determines the trend, whether that be on an hourly basis or a tick basis.  When you consider momentum on an hourly or daily basis it becomes more attached to a “binary event.”

Binary Events come in various sizes with regard to “strength” and “intensity”.  Tsunami’s are predicted according to the strength and intensity of an earthquake.  The stronger the quake the greater probability for a larger,  more intense tsunami in the form of a massive wall of water carrying literally tons of momentum.  As it rolls over land it obliterates everything in its path.  Weekly reports on crude can and often do provide many opportunities to trade once the violent knee jerk motion subsides and I would not consider some of them to be major in strength or intensity.  However, the further the “quake” goes up the chain towards reaching – foreign currency reserves – namely the U.S. dollar the resulting tsunami will roll across many commodities and sectors.

binaryeventHere’s the caveat, the canary in the coal mine, the domino that kicks off the race to the exits in all it’s forms, being either from the long side or short side.  China is expected to report that its total FX reserves declined $3.2125 trillion from $3.3 trillion.  A drop of approximately $118 billion.  Which the world needs to see in order to keep the “status quo” or a continuance of the quietly higher massive December 2015 outflow of $108 billion.

So, a reported number that would be below $118 billion or substantially below for January 2016 outflows would kickstart in mass  a short squeeze across the board in most commodity and materials linked sectors.

Here’s what BofA strategist Claudio Piron is expecting – a far smaller outflow.

“We forecast China FX reserve changes and estimate a USD37.5bn fall in January – (USD29.1bn decline adjusting for a negative FX valuation effect). Note that the standard error of the forecast is large at USD24.5bn, which would give us a downside of USD84.5bn fall. We caution that this is guidance and we attempt to be as transparent as possible so investors can gauge the odds in what is a key release for the markets. Note too this is based on onshore CNY FX volumes and our estimate maybe biased down as there are no real time volumes for offshore CNH.”

 

Futures Traders Should Participate Not Anticipate– the current volatility should remain high in that the markets may be bracing or be subject to a larger “trend change” from short to long – ala a massive short squeeze.  Should that be the case – do your best not to trade with emotions and let your signal generator do its work.  A larger “player” short squeeze should switch the “runners” to the upside.  Protect yourself against the urge to succumb to “counter trend” trading.  You don’t want to be missing out on all the fun so participate instead of attempting to anticipate the next turn in the other direction.  Which, by the way, is likely to be much shallower than you think because those needing to cover shorts will create an avalanche of demand as the various derivative traders get involved.  It will be best to keep focused on the trading mantra –  “I don’t care” about the “who, what, when, or wheres.”

Check out the chart below for a snippet of Friday’s trade in Crude – “CL”  I trade using a tick chart and with prices moving all over the map to squeeze together the day would be to miss the trees in favor of the forest.  The chart included is the time I traded, which is 6 to 8 AM PST.  The balance of Friday’s session reflected a quickly changing market as it appeared several larger traders were “somewhat” squaring positions or just plain out taking sides.

2016-02-06_17-22-53_CRUDE

The gross ticks from the indicator “signal to signal” performance was +123 ticks.  Net numbers depend on your commission rate and “slippage.”  Deducting 25 ticks as “cost” would put the net ticks at +98 ticks or $980 per contract trading the front month – in two hours.

Sunday brings the perfect front for US retail traders – The 50th Super Bowl.  China will report their FX reserve numbers during the game — Globex opens at 6 PM EST – 3 PM PST – Do you know where your position is?

 

 

 

 

 

Markets In Transition – Economies Too?

financial money economyI fully understand today’s trading mantra of ” I don’t care!”  It makes total sense if you are just trading the number according to what your signal generator is telling you.  However, it can become a nagging problem when the trader in you surfaces and begins to haunt the thought process by questioning the “Who, What, When, and Why family.”  In case, you don’t recall them they usually show up along with their cousins, the twins “Doubt and Fear.”  They often invite themselves in for a “quick” cup of coffee and stay for the day and eat you out of your emotional house and home.  There are many days when being a “gnat on the elephant’s ass” is more difficult than imagined.

2030capitalaztionchartglobalWhen markets are in transition it produces incredible opportunity at the speed of light as thousands of orders race across networks pushing prices in all directions often simultaneously.  Check out the 2030 forecasted capitalization of global equity markets.  The nominal value in US dollars is 284.2 trillion.  According to the Federal Reserve, as of 2015, there are $1.39 trillion in circulation, of which $1.34 trillion are in Federal Reserve Notes.  Doesn’t take a rocket scientist to do the math. I’m not sure how much longer the system can rob Peter to pay Paul when they are both within the top 1/10th of 1%.  With the US and China dominating the world economic stage at the moment it is not a surprise that any international hiccups coming from either country carry the potential to create a global tsunami with an urgency to exchange capital.

When the U.S. dollar makes a substantial move in either direction it forces massive readjustments across the board.  Remember at the top of the “food chain” sits interest rates which are tied directly to the flow of dollars in and out of the various markets.  The U.S. dollar remains the dominant international currency  for trade but the brewing battle amongst the top tier isn’t over, leaving the “pissing contest” between the uber rich in place.

Interesting thought – the list of missing Chinese billionaires continues to grow.  As of the end of 2015, there were 36 missing Chinese executives.  That and a softening economy moving towards experiencing  a good old fashion western economic recession has triggered a recent string of landslides (down 7% within the first 30 minutes of trade) on the Shanghai exchange.  Makes you wonder if the same thing happened to a string of TBTF exec’s on Wall Street would the reaction be one of bewilderment, confusion, and potential panic or one of extreme relief!

Wednesday was the type of volatile trading day that many day traders live for.  Successfully trading it though takes the ability to move very quickly in and out without much regard for anything else but how many ticks you are tossing into your pile versus someone else’s pile.  So here is hopefully the best advice I can give you in developing the skills to step in and trade volatile and incredibly quick price swings.  buybuybuysellsellsell

“Learn to trade without emotions.” 

This is honestly easier said than done.  Ridding oneself of any number of old and no longer useful habits, i.e. the family members I mentioned above, is a process that can be confusing and incredibly frustrating.  But one that commitment to, is essential towards succeeding in rejecting the old habit in favor of embracing the new change.  Often, I have found that the new change can be taking two steps back in order to reset your thinking, and then make the necessary changes to an “old” habit by retooling it to fit your current situation.

Remember the key is being able to reduce and separate the “noise” from “opportunity”. This takes knowing and executing a well-defined strategy which allows you to see opportunities amongst the “chaos.” By trusting the mechanics of your strategy, you will be able to take advantage of them. 

Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of. 

Check out tomorrow’s post for charts of the $CL and $YM with trades and discussion.

Happy New Year…Are We There Yet?

The first trading day of 2016 produced an awesome volatile day with many “decoupling’s” taking place.  The finish of one year and the start of the new year often produce numerous “decouplings” as money begins to shift strategy.  China got things going coming into Monday morning with the major equity exchanges shutting down after dropping 7% in 7 minutes.  Being a trader, I live for volatile days. I also freely admit that I need to be careful of what I ask for.  Monday’s markets were a solid case in point.  Major moves across the board complete with “decouplings.”  It became important to not “multi-task” and attempt to trade too many markets.  Even with a large pile of “fun chips”,  it can become frustrating and costly.

fainting_trader_China_2016Word to the wise: please accept and embrace that we used to have the capacity to trade from morning till night, on little or no sleep and trade 100’s of contracts in multiple markets and classes. — Accept that in a given trading today,  there are many strategies firing orders in and out of the markets. News travels at the speed of light as do most trading platforms and as is often the case, there are way too many opportunities to trade.  The added caveat is that all are not going in the same direction at the same time and support/resistance is being reduced to liquid magma flowing  up and downhill as volatility ramps everything up a notch.  The swings can be both joyful and frustrating when “normal” highly correlated  markets “decouple” as the fear factor is thrown into the ring.  This was the case on Sunday afternoon into Monday morning as new years trading started with China kicking a huge, huge can down the Great Wall that rolled around the globe in seconds.

In the world of algorithmic trading, attempting to electronically trade in most of the futures markets using different algorithms will become a daunting task that will sour your spirit if you’re not careful.  Narrowing your focus to two maybe three of your favored futures will allow you to keep tabs on the ability of your trading strategy to actually fire actionable signals properly.

High-resolution 3d rendered binary tunnel for technology backgrounds

Being that, there are numerous strategies trading everything under the sun and that, the desire to trade everything tends to suffer greatly from the ability to actually monitor multiple markets and adjust strategy in line with the larger move(s).  Periods of indecision often produce “choppy” or range bound trading.  Algorithms fire constantly and when a large group either pauses or stops within a particular strategy it creates a vacuum of sorts.  The market will trade in a much tighter range but continue to fire buy and sell signals that meet the strategy guidelines but end up being stopped and reversed for a quick string of losses.  Adjusting strategy to smooth out signals is important and I personally find it much easier to keep that control in line when I apply it to a maximum of three markets on extreme volatile days.

Monday was such a day.

Are We There Yet?

To get back to the question asked in the title of today’s post, the simple answer is no – not likely.  More importantly, though, I believe it remains important to trade each day without an opinion as to what the “fair value” is or should be.  I leave that up to someone else to figure out and trade on.  I do, though, keep track of the weekly and monthly charts and keep an ongoing Elliott Wave count for the S&P 500, the DJIA, the NASDAQ, the Dollar/Euro, Crude Oil, Gold, and Silver.  Over the next week or so I will be updating the “counts” and how that relates all the way down to tick charts.

In the coming week I’ll take a look at Crude Oil.

crude_CL

S&P 500 ($ES) October 21, 2015

S&P500The ES started the session with some quick chop as traders paired off to decide direction.  The first 30 minutes easily gave way to stronger trends for the balance of the session.  Learning to trade without emotions seems to be the best methodology when stepping into the world of algorithmic trading.  You can’t care as to the who, what, where or when of any rally or decline. Nor can you pre-decide the strength of the buying or selling taking the market up or down 8 ticks or 48 ticks.

Trading is controlled by a myriad of computer programs on steroids.  The sheer volume of algorithms running complex equations and trading at the speed of light, (fiber optics) should not come as a surprise.  Understanding this makes it vividly clear that the old saying, “If you can’t beat ’em, join ’em.” remains valid for day trading in 2015.

Check out the chart below for today’s trades.  Again, I trade using the Diversified Trading Systems and DTS Trade Manager as an execution platform.

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Crude Oil – Trading CL – October 20, 2015

crude_CL

Crude Oil continues to be a profitable day trading the front month.  Currently,  that is the December 2015 contract.  Tuesday’s trade delivered winners trending both higher and lower.  Shorts proved to produce the larger moves.  There were also 3 periods of “whiplash” and counter trend trading.  I would describe “whiplash” trading as a small period of quick whippy 10 tick rallies and 10 tick nose dives coupled together back to back and taking back on Tuesday, 46 ticks.  I also include what some might consider a large amount for commissions, but the amount also includes slippage on entries.

 

Check out the chart below for today’s strategy trades.

 

2015-10-20_18-46-29