Is there a Wow Factor? Chart, $ES

wowfactorThe answer to the title question is an unequivocal “Yes.”  It could be the widening of your eyes in amazement as the $ES trades in a 20 to 30  point range both to the downside and upside in 30 to 75-minute increments for a good five hours straight.  Using the right tools, (signal generator and a good auto trader) gives you a strong probability of pulling many, many ticks as the hoards of dollars get tossed about.  Wow is actually the word most often heard when this type of volatility is at your finger tips to take advantage of.

wile_e_coyoteThen why is that so many of us “gnats” are getting caught up in an old habit of “anticipate.”  That level of frustration you feel is when you realize it has happened again.  There was that moment of hesitation or disbelief in the signal change.  That nagging voice of doubt saying you are buying/selling too soon or too late.  When this happens I don’t know about you but I always feel like Wile. E. Coyote trying to stop himself before heading over the cliff.

I suggested yesterday that as “gnats” we need to participate and not anticipate.  To do the latter first literally never gets the sequence of events rolling.  The cause of not participating is similar but most often generated by different emotional memories within each of us.

Trading without emotions is of course, dependent on getting to the root, making some adjustments, and moving forward towards participating with comfort and ease.  Remember your competition, for the most part, doesn’t have emotions – at least on a participating basis.  There are hundreds if not thousands of algorithms calculating in just about all markets and firing off thousands of orders to buy and sell thousands of different forex, treasuries, equities, commodities, precious metals in cash, options, futures and other forms of derivatives.  The nominal value boggles the mind but it is safe to say that talented firms and traders have the ability to step in and facilitate buyers and sellers in exchanging their dollars and keep a tidy sum for themselves in the process.

wile_e_coyote_2The ongoing discussion remains to give up the old habits of having to know the who, what, where, when and why of every move before you’ll commit to participating.  Doing this allows doubt and fear into the equation and trying to work back to “participate” gets delayed even more.  There’s always trying to cover your procrastination by attempting to “play it safe” and put a bid or offer in the market that just “doesn’t” get filled – oh well!  Breaking a habit takes 28 days or so they say.  If we consider how many days, weeks and years we have given up to our “bad habits” taking 28 days to break them doesn’t seem like such a huge price to pay.

Dictionary.com defines “probability/statistics” as:

Probability / Statistics.

  1. the relative possibility that an event will occur, as expressed by the ratio of the number of actual occurrences to the total number of possible occurrences.
  2. the relative frequency with which an event occurs or is likely to occur.

It then becomes logical to conclude that when we anticipate more than participate we dramatically reduce the probability of success and that can be statistically shown.  Learning to move beyond our “bad habits” can be acheived.  The conversation is ongoing.

 

Check out the $ES chart which covers trading from 6:30 AM to 8:00 AM PST

2016-02-09_19-24-20_S&P_$ES

 

Markets In Transition..Continues – Part III

FATCAT_WALLSTI’m not sure what the BofA analyst is saying regarding China’s FX reserve numbers.  They reported a drop of $99.5 billion and that ‘kicked the can’ down the road for the US dollar for the time being.   There was a major shift of capital back into treasuries and out of equities and some commodities.  However, it would appear that while the Chinese Central Bank is attempting to pass the hot potato back to the dollar by defending the Yuan.  At the same time though with so many moving parts it is difficult to tell how severe the burns are.  The chain from the Yuan to the U.S. dollar and back can get tossed between several markets and sectors before it ends up back at the central banks.

2030capitalaztionchartglobalWithout a doubt, we are seeing some very high stakes being played out on an international monetary scale.  It would seem that to shift out of U.S. dollar positions has taken precedence and is more important than extending the stability of the global economy’s leader or number two is bound and determined to push itself into the number one position.   How that then transcends from one market to the next should always lead back to the currencies of the two major players, the U.S. and China.  At the moment, the pecking order remains fairly in line with the chart from last week, although I would lean more towards the top three being the U.S., China, and the EU.

Back to the markets responses to the China FX reserve number. While we wait for the interested parties to figure out how to prop up their economies without upsetting the proverbial “apple cart” there are more opportunities to trade than this mere human can keep track of — it has become essential to have a solid ‘auto-trader’ that performs for the better part – flawlessly.  Without it, I remain committed to the discussion of trading without emotions and operating with a tested and trusted signal generator. And without a less than expected number from China, the equity markets, of course, continued on their current trajectory with sudden and in some cases “Sid Vicious” turns.  It remains to be seen as to whether China will be able to reel in the mass exodus of reserve currencies.  At the moment the harder they attempt to prop up the yuan through the front door, by selling U.S. dollar reserves that are leaving out the back door and being moved back into the U.S. markets hand over fist!  The illusion remains that the U.S. has the best promise of a return.  The game remains afoot.

Check out the charts on the $ES for trades and discussion.

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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.

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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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Black Monday, October 19, 1987

economicsGetting Back in the Habit

I believe the best way to induct myself back into the creative habit of writing my market thoughts in a somewhat narrative format is to actually put down what I experienced during the day and how I dealt with it – trading wise. While I have experience trading many different futures markets I have been focused on Crude Oil, (CL), the 30-year bond future, (ZB), and the S&P 500, (ES). Each of the three markets presents its own set of trading quirks, but all tend to be controlled by algorithmic duck and cover at break neck speed programs running against a myriad of trade combinations to include but not be limited to; options, (greeks hedging), arbitrage hedging, futures spreads, component trading in the case of the NQ, FOMC and anything interest rate related in the case of the ZB, and EIA and OPEC announcements along with EUR/US $ gyrations as well as options hedging in the CL. And we can’t discount or forget the huge commercial users that move in and out of the market to adjust supply and demand needs.

 

Remembering_Black_Monday

Monday, October 19, 1987

 

Today is the anniversary of the Black Monday Crash of 1987. It’s hard to believe that it was 28 years ago occurring on Monday, October 19, 1987. The “crash” began in Hong Kong, moved west to the European markets and then jumped across the Atlantic to smash the U.S. markets. I was in London preparing to sign an employment contract with a major U.S. options trading firm that was expanding their European trading to include the European Options Exchange in Amsterdam, the Netherlands. I was going to sign my contract, go out for a celebratory dinner and spend the night in a swanky corporate apartment in Sloan Square and then head back to San Francisco the following day.   The sudden reversal of fortune(s) wasn’t apparent until I was watching the BBC Nightly News, which opened with a huge red arrow pointing down next to the DJIA and the number 508.

 

The probable primary causes for the declines were: program trading, overvaluation, illiquidity and market psychology. The selling by program traders was likely due to the avalanche effect tossed into play by the computerized selling which was kicked into gear as the required selling by portfolio insurance hedges attempting to engage their arbitrage and portfolio insurance strategies. This is turn produced a heavier reaction by program traders as the avalanches took hold triggering additional sell orders. Volume thinned as buyers scattered and the sellers hit the markets with wave after wave of market sell orders.

 

In 1987,  this was a massive and very destructive move down – a crash. In percentage terms, the largest one-day decline in the DJIA remains October 19, 1987. By the end of October of that year the Hong Kong market lost 45.5% the U.K market was down 26.45%, the U.S. market dropped 22.68% with Canadian markets slipping 22.5%. New Zealand markets were hit the hardest losing nearly 60% and taking several years to recover.

 

After the Crash of ’87, regulators overhauled trade clearing protocols, which brought some uniformity to most prominent market products. This was also the time when “circuit breakers” were developed and implemented. Giving exchanges the authority to halt trading in instances of extreme price declines in the major equity indexes, such as the DJIA, and S&P.

gdpdropsThe largest intraday point swing occurred on August 24, 2015, when the DJIA hit an intraday  high at 16,459.75 and an intraday low at 15,370.33 producing an intraday swing of 1089.42 points and a net change on the day of -588.40 points.  On a percentage basis October 19, 1987,  remains the leader for largest daily percentage losses at 22.6%.  The percentage change of October 28 and October 29, 1929, is 12.82% and 11.73% respectively.  The crash of 1929 kicked off a multi-year global depression with a two-day total percentage drop of 24.55%.  Although the DJIA suffered larger net change losses in 2008 with October drops of 733 points on the 15th, and 680 points on the 9th.  The DJIA also experienced a 777 point drop on September 29, 2008, and a 680 point drop on December 1, 2008.

The damage inflicted on the U.S. economy during the October 2007 to March 2009 financial crisis was hardest felt in the S&P which lost 57% of its value, with the NASDAQ losing 55% and the DJIA shedding 54%.  The recovery has been selective with many in the middle half of the income spectrum dropping off the “spectrum” altogether.  This trend is likely to continue for a bit longer, but the light at the end of the tunnel in terms of the “you know what” hitting the fan.  The longer term pictures continue to point to a major top in the equity markets being reached very within the next 12 to 18 months. Interest rates remain the larger caveat as to when rates will actually begin to rise  and then of course the $64 trillion question is how quick a quarter point rise turns into a half point rise to a full point rise as the global Central Banks attempt to stay in tandem with one another.

crude_CL

Crude Oil – (CL) December 2015 contract

I trade using the Diversified Trading Systems platform through Ninjatrader.  Within DTS, I primarily use the Eagle with UniRenko bars and Trade Manager as an execution platform. I run two algorithms that produce buy and sell signals.  I trade using an ATR trailing stop that is risk adjusted for each product.  Additional indicators include an ADXVMA alert, Price Action Swing oscillator, and Stochastics.

I continue to enjoy and recommend day trading over position trading.  I do not carry any futures positions overnight.  Currently,  my primary focus remains crude oil, (CL), the 30-year bond, (ZB), and the S&P, (ES).

Below is today’s chart for crude, (CL).  Future posts will include a trade by trade tracking.  On the chart below trades can be followed by longs being marked by the blue dots below the “green” bars and shorts marked by blue dots above the “red” bars.  I track trades from signal to signal and include all signals that are generated from the 9 AM EST opening to 2 PM EST.

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