Info!! The Psychology Of Quantitative Analysis

Early this forenoon I began my weekly routine of model building.

As a idea experiment, imagine taking every technical indicator out in that location too conducting a large factor analysis.  The element analysis would bring down the release of indicators to a smaller cluster of factors that are relatively uncorrelated.  

This is of import because it turns out that many indicators, from a purely mathematical advantage point, are criterion the same thing.  Influenza A virus subtype H5N1 14-day RSI, for instance, may correlate real highly with a 14-day charge per unit of measurement of alter too a 14-day stochastics.  If you lot hold off at all 3 indicators, you're actually looking at 1 variable measured 3 ways, non 3 unique variables.

What you lot actually wishing are unique variables that are significantly correlated with forrad cost movement.

The bad tidings is that the many technical indicators out in that location actually merely boil downwards to a handful of unique variables.  The expert tidings is that, overall, these unique variables create possess statistically meaning predictive validity with honour to the prospective motion of stock index prices.  The challenging tidings is that fifty-fifty this meaning predictive value leaves the lion's part of the hereafter motion of stock index prices unexplained.

So imagine I position a handful of unique predictive variables from with the large array of technical indicators too I position the expressions of those variables that minimize their overlap.  From these few variables--it's of import to bring down the likelihood of overfitting the data--I comport a regression analysis too become far at a statistically predictive model over an identified marketplace position regime.

Over the regime, let's tell the model has been 65% accurate inwards forecasting the management of S&P 500 Index prices over the adjacent 3 trading sessions.  When the model has given its strongest signals (top quartile of forecasts), the average three-day make inwards SPY has been .64%.  When the model has given its weakest signals (bottom quartile of forecasts), the average three-day loss inwards SPY has been -.28%.  This surgical operation has held upwards good inwards out-of-sample testing.

Is this a expert model?  It possesses a statistically meaning "edge" too silent its R-squared, the amount of variance accounted for inwards hereafter index prices, leaves most 90% of hereafter activeness unpredicted.  Influenza A virus subtype H5N1 total 35% of the time, the model has been incorrect inwards identifying hereafter cost direction.  And yet, a model that gets marketplace position management correct two-thirds of the fourth dimension is meliorate than throwing darts, assuming that nosotros stay inwards the stationary regime that nosotros backtested (an of import assumption).

What quantitative function accomplishes for me psychologically is that it clearly identifies what is known too what is unknown.  It gives me a feel for when in that location is an objective border too it provides a feel for the fragility of that edge.

Does quant modeling "take emotion out of trading"?  No, but it does something to a greater extent than important.  It replaces the emotions associated with overconfidence too confirmation biases with a dissimilar laid upwards of emotions: the humble honour for what is unknown, the wishing to expand the frontier of the known, too the felt imperative to rapidly adjust to what Victor Niederhoffer calls "ever-changing marketplace position cycles". 

Further Reading:   
Predictability every bit a Market Variable

Quant Reading:
See publications department of Marcos Lopez de Prado's site

Info!! A Dissimilar Manner Of Touchstone Forcefulness As Well As Weakness Inward The Stock Market

One of my industrial plant inwards progress is tracking the release of NYSE stocks each twenty-four hours that give purchase signals as well as sell signals across unlike technical indicators.  Above are charts for NYSE stocks giving purchase vs. sell signals for Bollinger Bands (top chart) as well as the Commodity Channel Index (bottom chart).  (Raw information from the Stock Charts site).  As a rule, nosotros encounter the release of purchase signals peak ahead of cost during a marketplace wheel as well as the release of sell signals anticipate a wheel cost low.  Sell signals for the electrical flow wheel peaked inwards mid-January, amongst fewer sell signals posted at the belatedly January/early Feb lows.  Buy signals for the electrical flow wheel peaked early on inwards February.

One interesting facet of the Bollinger mensurate is that it is the absence of weakness--and non but the presence of strength--that alerts us to a rigid stock market.  When the marketplace is gear upwards to plow over, at that topographic point are typically weak shares as well as sectors leading the agency as well as that shows upwards every bit a relatively elevated release of sell signals for the Bollinger Band measure, fifty-fifty every bit the index cost has been nigh highs.  On the other hand, when real few stocks as well as sectors are weak, the marketplace oft drifts higher, every bit selling pressure level is minimal.

For example, I looked at the menses from early on May, 2014 (when I outset began assembling these data) to the acquaint as well as broke downwardly the release of sell signals for the Bollinger Band mensurate inwards a unproblematic median split.  When nosotros had few sell signals, the side past times side v days inwards SPY rose past times an average of +.37%.  When nosotros had to a greater extent than sell signals, the side past times side v days inwards SPY rose past times an average of solely +.06%. 

Interestingly, daily sell signals for the Bollinger Band mensurate correlate solely +.07 amongst the RSI mensurate as well as solely +.21 amongst the MACD measure.  The absence of sell signals for those latter 2 indicators has non led to superior returns going forward.  Indeed, when we've had few MACD sell signals, the side past times side v days inwards SPY convey averaged a attain of solely +.09% vs. +.34% when we've had many sell signals.  

It appears that separating the release of purchase as well as sell signals as well as looking inside each indicator captures unlike fourth dimension frames as well as unlike patterns of momentum as well as reversal.  This strikes me every bit a nigh promising surface area of research, peculiarly when nosotros focus on technical indicators that are non highly correlated.

Further Reading:  Technical Indicators From the Bottom Up
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Info!! When Technical Analysis Industrial Plant In Addition To When It Doesn't

Above nosotros come across a nautical chart of the ES futures going dorsum to January 23rd (blue line) drawn from early on this morning.  Influenza A virus subtype H5N1 novel information betoken is plotted every fourth dimension nosotros come across 500 cost changes inward the contract.  This agency that the X axis is denominated inward cost crusade (volatility) units, non inward fourth dimension units.  When markets ho-hum downwardly (such every bit during overnight hours or at midday), nosotros depict fewer "bars".  When nosotros come across an upswing inward movement, nosotros depict a greater release of bars.  Thus, when cipher is happening inward the market, cipher is actually happening inward the chart.

The lookback flow going to January 23rd is ane that I identified every bit a stable marketplace regime.  In statistical terms, the distribution of prices over that flow was stationary.  I run uncomplicated tests inward Excel to compare book too buying/selling distributions inside that lookback flow to position when nosotros accept a stable regime.  Within stable regimes, nosotros tin dismiss role uncomplicated technical indicators, such every bit overbought/oversold measures, to assist us position candidate purchase too sell areas.  The overbought/oversold stair out inward cerise looks at how cost deviates from its 50-bar average inward touchstone departure units.

As a rule, inward a stable regime, I desire to last a buyer of higher cost lows (oversold areas where cost remains higher than at the prior oversold levels) too a seller of lower cost highs (overbought areas occurring at successively lower cost highs).  When the recent marketplace is non stable (significant differences inward participation too inward the demeanour of the participants), at that spot is no a priori argue for believing that technical indicator readings drawn from the recent by volition last relevant to the immediate future.  

What that agency inward do is that using touchstone preset levels on touchstone technical measures to derive trading signals inward all markets is a really inefficient process.  Much of the time, we'll last inappropriately extrapolating the by into the future.  When those strategies yield (predictably) random results, traders drib dead frustrated too and hence await to trading psychology to cure their woes. Clueless coaches are apt to render those traders alongside less than helpful advice to "follow your process" too remain "disciplined" inward trading.  Slavish adherence to a random procedure volition entirely yield consistently random results.

Technical analysis is similar menu counting inward blackjack.  It plant if at that spot is a constant release of decks from which cards are drawn.  If the release of decks inward the shoe changes randomly, knowing the release of human face upwards cards played inward the recent by volition non render information close the release probable to present upwards inward the future.  If at that spot is a relatively constant laid upwards of participants inward the marketplace too their buying too selling activeness falls inside stable parameters, nosotros tin dismiss brand a reasonable inference every bit to the probability of forthcoming buying or selling.

The smart trader is non looking for where to purchase or sell.  The smart trader is looking to come across if the electrical flow marketplace activeness is stable relative to the activeness of the recent past.  The smart trader watches the dealer too figures out when menu counting genuinely yields a betting edge.

Further Reading:  A Dynamic Approach to Technical Analysis
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Info!! Looking At Technical Indicators From The Bottom Up

Typically, if nosotros desire to role a technical indicator to justice the forcefulness or weakness of a given marketplace index, nosotros volition only apply that indicator to the cost serial for that index.  Suppose, however, nosotros took a unlike approach, from the bottom up, rather than the overstep down.  Suppose nosotros applied the indicator to every unmarried stock inside the index together with gauged forcefulness together with weakness via the breadth of private purchase together with sell signals.

Above are iii charts that accept a bottom upwards sentiment of the recent market.  (Data obtained via the fantabulous Stock Charts site).  The overstep nautical chart volition endure familiar to readers; it's the residuum of NYSE stocks trading to a higher identify their upper Bollinger Bands vs. below their lower Bands.  The middle nautical chart utilizes the Parabolic Stop together with Reverse (SAR) indicator developed yesteryear Welles Wilder together with takes the disclose of NYSE stocks at the unopen each 24-hour interval giving purchase vs. sell signals.  The bottom nautical chart shows the disclose of purchase vs. sell signals for each NYSE stock for the Commodity Channel Index (CCI). 

Note that at that spot is a identify unit of measurement resemblance amidst the charts, but differences also.  Each indicator operates amongst unlike parameters on unlike fourth dimension frames.  The links inwards the paragraph to a higher identify explicate how each indicator is constructed together with how purchase together with sell signals are derived.  I mean value of each of the indicators equally a prism through which nosotros tin hand notice run into the breadth of forcefulness together with weakness across the entire market.  No 1 prism provides a perfect indicate all the time, but when you lot run into mutual patterns amidst the prisms, it's mostly worthy of attention.

As a rule, nosotros run into peaks inwards the numbers of stocks giving purchase signals ahead of cyclical peaks inwards the wide marketplace (SPY) together with nosotros run into peaks inwards the numbers of shares giving sell signals ahead of cyclical troughs.  You tin hand notice run into how the indicators peaked--but stayed positive--prior to the recent September marketplace overstep together with how they conduct maintain troughed ahead of yesterday's rally inwards stocks together with conduct maintain straightaway turned positive.

We conduct maintain many ideas close whether markets *should* merchandise higher or lower, but bottom-up measures similar this demo whether they are truly strengthening or weakening.  I volition characteristic regular updates of the indicators for those interested inwards next the signals.

Further Reading:  Breadth Volatility together with Market Cycles
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Info!! Going Dorsum To Schoolhouse For Your Trading

Well, it's a snowy Sabbatum inwards Mia as well as I are listening to love songs as well as going dorsum to school.  There's no meliorate formula for a total life than to alive meaningfully as well as larn constantly.  That way, you're ever growing: inwards your pump as well as inwards your head.

Going dorsum to schoolhouse is an practise I furnish to periodically that keeps me fresh as a trader.  It's actually a furnish to the procedure past times which I learned trading.  For good over a year, at the halt of the twenty-four hours I printed out charts of the marketplace (price/volume) as well as charts of every indicator that I believed could stimulate got value inwards anticipating marketplace moves.  I knew that, for whatsoever express catamenia of time, indicators could randomly appear to stimulate got value.  Over the course of pedagogy of weeks as well as months, however, patterns recurred that helped me focus on the measures that added truthful value.  It was through those initial explorations that I discovered trading patterns inwards NYSE TICK (upticks/downticks amidst all NYSE stocks) as well as breadth divergences.  Those remain staples of how I await at markets to this day.

When I returned to trading after a 5 yr hiatus during which I worked total fourth dimension at a hedge fund as well as was non allowed to merchandise for compliance reasons, 1 of my get-go steps was to acquire dorsum to school.  I observed novel patterns, including the relationships amidst macro markets as well as how movements inwards currencies, rates, as well as commodities were related to moves inwards stocks.  Carefully reviewing marketplace demeanor infinitesimal past times minute, twenty-four hours past times day, gave me a fresh appreciation of book as well as volatility as well as the ways inwards which large institutional participants assist to deed the market.  This led to novel ways of viewing the uptick/downtick as well as breadth data, as good as novel ways to stair out buying as well as selling pressure level to hold upwards on the correct side of the marketplace movers.

Still later, I felt my trading results were non what they should be.  Specifically, I became disenchanted amongst my quantitative models as well as looked at why they occasionally broke down.  I began focusing on the inquiry of whether cycles be inwards the marketplace as well as whether those could assist the identification of relative highs as well as lows.  Once again, I made a twenty-four hours to twenty-four hours study, infinitesimal past times minute, as well as returned to school.  What I constitute was that measurement cycles inwards chronological fourth dimension was non peculiarly effective.  More properly, I constitute that cycles are meliorate identified inwards event time than chronological time.  That led to novel ways of measurement overbought as well as oversold markets, as good as new ways of assessing volatility.    

So straight off it's dorsum to school.  I'm reviewing recent markets as well as the close meaningful recurring patterns among  the measures I track.  What I'm finding is that I follow a lot of things that ultimately are non crucial to decision-making.  I could hold upwards much to a greater extent than efficient past times tracking a to a greater extent than express ready of unique data.  I'm likewise finding existent value inwards looking at how shorter-term cycles are nested inside longer-term ones; i.e., viewing cycles inwards context.  This was peculiarly helpful inwards identifying the marketplace plough this week.

There are 3 of import lessons inwards all this:

1)  In getting dorsum to schoolhouse as well as looking at markets through fresh eyes, nosotros tin suit to changing markets as well as nosotros tin continuously grow as traders. If you lot precisely stimulate got a passion for trading, you'll overtrade.  It's a passion to empathize as well as original markets that tin drib dead along you lot going through the ups as well as downs of your equity curve.

2)  None of the close of import information that shows upwards inwards my reviews is a traditional technical marketplace measure, such as a nautical chart blueprint or canned oscillator.  None.  The value is inwards novel information as well as novel ways of organizing the data.  If you're tracking the information other people are tracking as well as if you're assembling the information the means others are, you're precisely non going to accomplish distinctive returns;

3)  The best means to improve your trading psychology is to improve your trading.  People promise they'll merchandise meliorate if they improve their mindset, command their emotions, etc.  All that tin hold upwards useful, but cannot substitute for genuine insight as well as information.  When you lot become dorsum to school, you lot cement your ain learning.  That is what gives us the confidence to stimulate got adventure as well as remain amongst trades when the odds are amongst us.  

OK, Mia as well as I are finishing the end song as well as heading to the basement.  That's where the practise room is located as well as where nosotros occur trunk after working on mind.  That's a unlike school, but 1 that is as important. 

Keep growing.

In all respects.

Further Reading:  Learning From Our Trading
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Info!! Tracking An Oversold Marketplace In Addition To To A Greater Extent Than Fuel To Offset The Marketplace Week

*  Above nosotros tin move run across that we're coming off an unusually oversold degree on the composite indicator that I've created from ii technical measures.  What we're looking at is a ten-day moving average of daily purchase signals versus sell signals for every NYSE stock for ii indicators:  Bollinger Bands as well as Parabolic SAR.  (Raw information from the splendid Stock Charts site).  Going dorsum to June, 2014, when I began collecting these data, if nosotros split upwards the signals into quartiles, nosotros abide by that the strongest composite indicator readings direct hold led to a adjacent 10-day supply of +.32%.  The weakest composite indicator readings direct hold led to a adjacent 10-day supply of +.42%.  All other readings direct hold averaged a adjacent 10-day supply of alone +.08%.  In other words, most of the recent cost activity is attributable to short-term momentum as well as hateful reversion.  There has non been much of an border trading middle-level marketplace strength.

*  The telephone commutation to making the most from setbacks as well as failures inwards your trading.

*  Taking a fresh as well as skeptical await at bonds as well as more practiced reading for the marketplace week from Abnormal Returns.

*  The How of Trading takes a await at the importance of merchandise planning.

*  Perspectives on Hellenic Republic as well as other timely topics from The Reformed Broker.

*  Why keeping a mag is a neat psychological tool.

*  Excellent perspective from Barry Ritholtz:  We've had large intra-year corrections on average, exactly the neat bulk of the end 35 years direct hold finished amongst positive surgery inwards stocks.

Have a neat get-go to the trading week!

Brett
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Info!! Trading Notes: Calendar Week Of October 12Th

Friday, Oct 16th

*  Yesterday's abrupt rally as well as novel high unopen for this displace fits with the "buy weakness, sell strength" thought from yesterday's posting as well as is consistent with the thought of a marketplace that may receive got topped inwards upside momentum, but non price.  It was interesting to run across that nosotros had 609 stocks brand fresh monthly highs yesterday, downwardly from the 1274 novel highs terminal Friday.  Such breadth divergences tin give notice survive expected to dice on if nosotros indeed receive got made a momentum peak for this cycle.  It's when nosotros run across pregnant expansion of stocks/sectors making fresh short-term lows that nosotros demand to seriously consider the market's downside.

*  Meanwhile, volatility continues to survive crushed with VIX closing roughly 16, downwardly from roughly 27 belatedly inwards September.  My pure volatility mensurate also hitting novel lows as well as is getting unopen to levels that are associated with subnormal upside returns.  It has been challenging for traders to suit to the reduced volatility, which punishes trading on momentum as well as rewards patient, counter-trend entry execution as well as quick, tactical profit-taking.

*  Influenza A virus subtype H5N1 projection I volition start out this weekend is gauging the expectable size as well as duration of moves based upon volatility regimes.  My sense is that such an approach could aid making trading far to a greater extent than flexible as well as adaptive than it currently is for many traders.

Thursday, Oct 15th

*  So here's my query of the day:  Why practise thus many bastions of capitalism pursue alter via centralized planning?  From large corporations to finance firms, capitalist enterprises increasingly rely on key planning every bit they grow.  Indeed, if countries ran their economies the way many companies run their businesses, we'd sentiment them every bit communist/socialist bureaucracies hopelessly out of date.  We extol "leadership" inwards corporations as well as large organizations; maybe that's how dictators retrieve of themselves inwards centrally planned economies.

*  Influenza A virus subtype H5N1 adept purchase merchandise early on inwards the 24-hour interval reversed on the WalMart word as well as stocks traded off through much of the session yesterday, though they've recovered inwards overnight trading.  This dorsum as well as forth is what we'd hold off if nosotros late hitting a momentum peak for the electrical flow cycle as well as immediately are engaged inwards a topping process.  In that scenario, buying weakness as well as selling forcefulness makes sense.  Yesterday closed with farther weakness, every bit nosotros had 348 stocks brand novel monthly highs as well as 261 register fresh monthly lows.  That novel lows figure is the highest we've seen since Oct 2nd.

*  The weak retail sales divulge as well as WalMart word highlights what seems to survive a changed story:  instead of economical increment justifying a Fed hike, there's increasing verbalize of economical weakness as well as no hike this year.  If the topping out scenario holds, thus we're seeing a cycle peak cresting below the prior peak, volatility bottom at higher levels, as well as increasing concerns of recession--all bearish on a longer fourth dimension frame.  I volition dice on to monitor breadth measures to run across if this scenario is playing out.

*  I've heard from multiple sources that this has been a hard trading environment, with pathetic P/L, for many traders.  Per yesterday's entry, we're seeing reduced volatility inwards stocks as well as reduced volatility of volatility.  In such an environment, induce fails to extend--and becomes to a greater extent than consistent inwards failing to extend.  That form of reversal manner is hard for traders wanting to merchandise momentum or trend.  I'm non certain many traders explicitly run on adapting to changes inwards volatility regimes.  In such cases, sticking to a procedure is really a failure to adapt.

Wednesday, Oct 14th

*  Per yesterday's postal service nosotros indeed saw cost consolidation inwards Tuesday's session as well as we've immediately worked off the short-term overbought conditions.  According to the Index Indicators stats, at Tuesday's unopen nosotros had nether 19% of SPX stocks unopen higher upwards their three-day moving averages as well as nether 32% unopen higher upwards their five-day averages.  In general, especially every bit uptrends mature, I similar to survive a buyer when the bulk of shares autumn below their short-term moving averages as well as lighten upwards when the bulk are short-term stretched as well as rolling over.  My leaning is toward the purchase side if nosotros run across selling dry out upwards higher upwards the overnight cost lows.

*  Below is an interesting nautical chart that looks at the volatility of the pure volatility measure that I track, with the nautical chart going dorsum to August 17th.  Notice how the volatility of volatility spiked during the August reject as well as has since returned nigh levels seen prior to the market's drop.  Vol of vol tells us something virtually the stability of cost action, which inwards plow tells us something virtually the participation of marketplace makers.  If a marketplace is dominated past times marketplace makers, nosotros oscillate betwixt bid as well as offering as well as bulk cannot displace cost a keen deal.  If marketplace makers push clitoris dorsum as well as the gild bulk becomes to a greater extent than sparse, a given unit of measurement of bulk tin give notice deport on cost much to a greater extent than greatly.  Interestingly, when vol of vol is inwards its highest quartile since belatedly 2013, the side past times side 4 days inwards the ES futures average a gain of +.34%.  When vol of vol is inwards its lowest quartile, the side past times side 4 days average a loss of -.05%.  As marketplace cycles mature, nosotros tend to run across a crushing of vol but also of vol of vol.  I believe we're seeing a maturation of the acquaint marketplace cycle; if that's the case, nosotros should start out to run across breadth divergences on farther strength.  Yesterday's weakness alongside minor caps mightiness survive the starting fourth dimension of that pattern.

Tuesday, Oct 13th

*  Last week's punchy postal service on why nosotros merchandise emotionally seems to receive got struck a chord.  The hits on the postal service receive got been virtually 4x average as well as it's already dice 1 of the arrive at 10 posts inwards terms of hits.  One reader took law-breaking to the linguistic communication as well as style of the post, as well as I understand with that view.  One of the things I've learned every bit both psychologist as well as bring upwards is that how you lot deliver a message has every bit much deport on every bit the message itself.  But business office of that deport on is saving the punchy style for the most of import messages.

*  We had a irksome vacation merchandise yesterday, with rangebound action.  One mensurate that helped my trading yesterday was looking at the extremes inwards the NYSE TICK.  (I typically expression at one- as well as five-minute readings during the day).  If nosotros don't receive got many positive or negative extremes, it agency that institutions but are non active inwards the market.  It takes large, handbasket executions to acquire TICK higher upwards +800 or below -800.  If you lot don't acquire those extremes early on inwards the morning, you lot tin give notice anticipate a irksome 24-hour interval as well as oftentimes a rangy one.

*  As my intermediate term forcefulness nautical chart below shows, nosotros dice on to survive stretched to the upside.  This mensurate is a five-day moving average of 5, 20, as well as 100-day highs vs. lows alongside SPX stocks.  (Raw information from Index Indicators).  In a rigid cycle, this volition arrive at out ahead of price.  I noted yesterday that I wasn't thrilled with risk/reward as well as indeed we've pulled dorsum inwards overnight trade.  I would non survive surprised to run across farther consolidation near-term, but am non expecting an outright deport move.

 

Monday, Oct 12th

*  The weekend article on "flourishing" is, inwards my view, 1 of the most of import topics inwards psychology broadly as well as trading psychology specifically.  By as well as large, traders practise a decent task of keeping themselves out of damaging, negative states of heed as well as body.  They don't necessarily brand special efforts to hold themselves inwards optimal states.  As a result, nosotros never genuinely sense how good nosotros could perform across many areas of life, including trading.

*  This past times week's entries receive got focused on rigid marketplace breadth as well as the favorable implications of high buying strength.  That has led to buy-the-dips trading as well as has done good to this point.  Breadth continued rigid on Fri with 1274 novel monthly highs, the highest figure inwards a week.  (Raw information from the Barchart site).  We to a greater extent than oftentimes than non run across pregnant corrections afterward a catamenia of waning breadth.  That exactly hasn't been occurring to this point.

*  That existence said, I'm non enamored of the risk/reward right here.  As the nautical chart below depicts, nosotros receive got come upwards downwardly quite a flake on the Pure Volatility mensurate (volatility per unit of measurement of bulk inwards the ES futures), as well as that has historically led to subnormal returns.  We're also stretched to the upside on many of my indicators, which inwards the past times has occurred nigh momentum peaks (not necessarily cost peaks).  The put/call ratios receive got come upwards down; all that leads me to believe nosotros could acquire some consolidation early on inwards the week.  

*  Should nosotros acquire some pullback this week, my leaning would survive to resume the buying strategy.  Good short-term pullbacks would survive ones inwards which a bulk of shares unopen below their 3 as well as five-day moving averages as well as where nosotros run across to a greater extent than stocks give sell signals vs. purchase signals on the technical measures I follow, such every bit Bollinger Bands, Parabolic/SAR, as well as CCI.  The past times few days we've seen many to a greater extent than purchase signals than sells on those measures, but the divulge of purchase signals tailed off on Friday.

Info!! Trading Notes: Calendar Week Of September 7Th

Friday, September 11th

*  We're starting to view roughly expansion inward the publish of stocks registering fresh lows, amongst 213 novel monthly highs in addition to 305 novel monthly lows across all exchanges.  The novel highs is the lowest figure inward the past times iii sessions; the novel lows is the highest figure inward the terminal iii sessions.  I volition hold upwardly monitoring this closely, every bit it is consistent amongst a marketplace seat that is topping in addition to could exam recent cost lows.

*  I'm too watching unsmooth crude oil in addition to copper for indications of weakness, every bit those receive got been amidst commodities reflecting weakness inward emerging markets.

*  I receive got 1 model that is modestly bearish in addition to 1 that is neutral; both aspect 3-5 days out. We've seen roughly selling inward rate-sensitive stocks; banker's complaint the recent weakness inward TLT (rise inward rates).  I volition hold upwardly watching rates closely every bit nosotros approach the Fed meeting; given the odd grade of speculation almost what the Fed volition do, in that location could hold upwardly quite a fighting of volatility associated amongst that meeting.

Thursday, September 10th

*  Yesterday was a slap-up illustration of an occasion inward which cognitive flexibility is essential to trading.  Of course, one of the of import ways nosotros tin rest cognitively flexible is past times having many ideas or patterns that we're looking at, hence that nosotros tin speedily arrange to marketplace seat conditions.  I had mixed indications going into the day's trade, amongst models neutral to slightly bearish in addition to roughly indication of possible upside momentum over a several solar daytime period, per yesterday's post.  Once nosotros opened, however, book flows were decidedly negative in addition to stayed that agency for much of the session.  Because book stream is a volume-weighted stair out of upticks versus downticks for every stock, it captures the leaning of large traders to aggressively purchase or sell shares.  Below is yesterday's nautical chart for book stream at 5-minute information points.  Monitoring cumulative NYSE TICK is too rattling helpful inward this regard.

*  One matter nosotros saw yesterday in addition to in 1 lawsuit to a greater extent than today's overnight marketplace seat is that flows tin shift greatly from 1 fourth dimension zone to another.  I create non view high consistency of cost activity across Asian, European, in addition to the U.S.A. hours.  That has existent implications for short-term traders.  We had a bounce inward stocks inward Asian hours today in addition to late sold dorsum inward the the U.S.A. premarket.  Assuming trending behaviour tin hold upwardly hazardous to our wealth.

*  My models are mixed, 1 modestly bullish, 1 modestly bearish.  Not a potent signal, hence I'm happy to allow the record verbalize for itself.  I volition hold upwardly watching to view if nosotros tin rest higher upwardly yesterday's lows on whatever early on weakness inward today's trading.  I'm too watching commodity markets per recent posts.   

Wednesday, September 9th

*  Buying weakness per yesterday's post service turned out to hold upwardly a winning strategy--much to a greater extent than than I anticipated, every bit stocks receive got rallied difficult on the heels of forcefulness inward Japan.  This follow through suggests that equities are finding potent support, given perceptions that the Fed volition non hike in addition to other cardinal banks are opened upwardly to farther QE.  My models are neutral to rattling modestly bearish; no potent signals.  Influenza A virus subtype H5N1 total of 340 SPX stocks registered fresh five-day highs versus lows yesterday.  I need to view show of weakness earlier entertaining trades to the downside.  Until then, my leaning remains to purchase weakness that holds higher upwardly overnight lows.

*  We're short-term overbought, amongst almost 90% of SPX stocks higher upwardly their three- in addition to five-day moving averages.  Note inward the nautical chart below, however, that my intermediate-term stair out has moved off its lows in addition to is non yet extended to the upside. If nosotros tin function off the short-term overbought province of affairs to a greater extent than inward fourth dimension than price, I'd aspect farther upside.

*  An interesting momentum stair out takes the departure betwixt five-day novel highs vs. lows amidst SPX stocks in addition to compares that to the publish of 20-day novel highs vs. lows.  When the five-day highs/lows receive got exceeded the 20-day figure past times to a greater extent than than 300 (N = 17 since 2010), the adjacent iii days inward SPX receive got been 12 up, 5 downwards for an average gain of +.48%.  This blueprint tends to grab short-term thrusts off relatively oversold conditions, which is what nosotros receive got presently.

Tuesday, September 8th

*  A key to successful trading is too a key to living a successful life: diversification.  Trading many markets amongst an edge; trading many setups amongst edges; engaging inward many positive life pursuits--all of these polish out the personal every bit good every bit fiscal returns nosotros generate inward life.  Ironically, we're best positioned to accept life's large bets when nosotros receive got a host of smaller bets sustaining us.

*  We're trading smartly higher inward premarket trade, continuing a arrive at merchandise off the recent sell off lows. My novel models, which focus on medium volatility markets, are modestly bullish.  My game innovation for the solar daytime is buying weakness that holds higher upwardly overnight lows; longer-term I thin toward a resolution of the arrive at merchandise to the downside, testing those selloff lows a dyad weeks back.  I won't hold upwardly taking whatever curt trades, however, unless the models indicate that way.

*  The novel models reverberate the short-term hateful reversion patterns that are mutual inward higher volatility markets.  Patience inward buying dips in addition to selling bounces should hold upwardly rewarded on average.  I am carefully watching the percentages of stocks trading higher upwardly their short-term moving averages, every bit good every bit the percentages of stocks giving purchase vs. sell signals on traditional technical indicators. The erstwhile information tin hold upwardly constitute at the Index Indicators site; the latter is tracked via the Stock Charts site.

*  My pure volatility stair out continues quite elevated, suggesting that nosotros are inward a dissimilar authorities from the 1 that prevailed for much of 2015 in addition to that volatility should proceed inward the nigh term.  I proceed to spotter commodities every bit indications of global economical weakness, especially inward EM. 

Info!! Sector Update For February 8Th

Last week's sector update reported that the viii S&P 500 sectors that I assess for short-term trending were largely inwards a moderate downtrend mode, alongside economically sensitive sectors especially weak as well as defensive sectors displaying relative strength. I concluded, "Unless nosotros tin terminate sustain a province of affairs inwards which novel highs outnumber novel lows as well as confidence comes into the Financial, Materials, as well as Consumer Discretionary sectors, I await us to survive testing recent marketplace lows." We did, indeed, run across prices motion toward the bottom their recent arrive at inwards the depression 800s inwards the S&P 500 futures contract, only firmness belatedly inwards the calendar week as well as Friday's sharp rally on potent coin flow helped us concur back upward ane time more.

Recall that the Technical Strength mensurate of short-term trending varies from +500 (very potent uptrend) to -500 (very potent downtrend) for each sector, alongside numbers around nil (-100 to +100) representing a relative absence of trend. Here's how we're looking every bit of Friday's potent close:

MATERIALS: -220 (59%)
INDUSTRIAL: -120 (52%)
CONSUMER DISCRETIONARY: -160 (54%)
CONSUMER STAPLES: +120 (70%)
ENERGY: +180 (88%)
HEALTH CARE: +140 (93%)
FINANCIAL: -140 (44%)
TECHNOLOGY: +260 (84%)

We tin terminate run across that, despite the rally belatedly inwards the week, the sectors are nowhere close levels associated alongside potent uptrends as well as so cannot survive considered overbought. Indeed, nosotros all the same run across residuum weakness amidst Materials as well as Consumer Discretionary shares, likewise every bit Financial issues, though their Technical Strength has improved. Technology is the ane sector displaying a clear uptrend; banker's complaint that the NASDAQ Index is at 2009 highs, fifty-fifty every bit other indexes lag.

As nosotros human face at a longer fourth dimension frame as well as the per centum of stocks from each sector trading higher upward their 20-day moving averages, every bit reported past times Decision Point, nosotros run across that all of the sectors demo a bulk of shares trading higher upward that benchmark, alongside the exception of Financial stocks. Indeed, looking fifty-fifty farther out, nosotros tin terminate run across that over 50% of all S&P 500 stocks are forthwith trading higher upward their 50-day moving averages, upward from virtually 25% early on inwards the week.

This suggests that, alongside continued back upward inwards the depression 800 arrive at as well as Friday's strength, the intermediate-term tendency has turned bullish. Among the indicators that I follow daily via Twitter, nosotros volition desire to run across Demand overstep Supply going forwards as well as 20-day novel highs outnumber novel lows inwards gild to sustain the uptrend as well as challenge the 2009 highs.
.

Info!! Trading Notes: Calendar Week Of December 21St

Wednesday, Dec 23rd

*  After seeing breadth weakness dry out upwards per the finally post, nosotros finally saw buying come upwards into the marketplace seat yesterday afternoon, amongst around relief inwards petroleum too credit markets.  While this is non looking similar a vigorous rally thence far, it has continued into overnight merchandise too is non yet running into pregnant intermediate-term overbought conditions.  

*  I cause got an experimental mensurate that takes a expression at the human relationship betwixt expected VIX too actual VIX, based upon factors such every bit realized volatility too volume.  I'll last writing to a greater extent than nearly that mensurate inwards an upcoming post.  It has entered a arrive at that has seen negative average returns over a two-week horizon.

*  Here's around other unique mensurate that I've flora helpful.  It takes a moving average of purchase signals vs. sell signals for several technical trading systems across all listed NYSE stocks.  It's been a expert overbought/oversold measure.  Interestingly, essentially all forrad returns inwards stocks over a two-week horizon cause got either come upwards from momentum (when this mensurate is quite strong) or from hateful reversion (when the mensurate is quite weak).  In other words, when nosotros larn really rigid readings, it's non odd to cause got short-term follow through to the upside.  When nosotros larn really weak readings, it's non odd to larn a bounce over the side yesteryear side 2 weeks.  We are coming off a really weak reading.

Tuesday, Dec 22nd

*  Here's what I flora when I studied the most successful traders I've worked with--and here's what it could hateful for your trading functioning inwards the coming year.

*  We've had a few recent bouts of selloff inwards the stock indexes.  Interestingly, novel monthly lows across all stocks peaked on Dec 14th at 2025.  On Fri nosotros unopen lower inwards SPY but at that topographic point were solely 1131 novel lows.  Yesterday, novel lows peaked at 867.  My intermediate term indicators plough over off inwards oversold territory.  With continuing weakness inwards petroleum too high yield markets, rallies cause got been fleeting.  Breadth measures, however, are non weakening.  With a belatedly rally yesterday, it's the bulls' plough to demonstrate what they tin muster.  It is hard for me to envision a solid rally without pull inwards oil, weakness inwards the dollar, too firmness inwards those high yield bond markets.  I plough over off to picket those markets closely.

*  Here's a nautical chart y'all won't run across elsewhere:  It's a cumulative running full of purchase signals minus sell signals for the Commodity Channel Index (CCI) across all NYSE stocks.  Note the steady deterioration inwards cyberspace pull for most of 2015, which has accelerated recently.  Influenza A virus subtype H5N1 similar moving-picture demonstrate tin last flora when tracking cumulative purchase vs. sell signals for other technical systems.  Quite simply, to a greater extent than stocks are demonstrating pregnant weakness than pregnant strength.

Info!! Trading Notes For The Calendar Week Of May 2, 2016

Thursday, May 5th

*  I volition endure taking a sabbatical during May too June to operate on my side yesteryear side mass project, which is the tertiary mass of a textbook too an updating of short-term approaches to behaviour change.  The spider web log volition endure updated on weekends too I'll proceed to write the Forbes blog.

*  Worthwhile perspective on spotting your best trades from SMB.

*  Stocks continued weak yesterday, earlier bouncing inwards belatedly too overnight trading.  Breadth continued to weaken, amongst novel monthly highs expanding to 382, but fresh monthly lows likewise expanding to 834.  We're seeing item weakness amidst Asian stock markets, amongst the potent currencies weighing on shares there. 

*  We proceed short-term oversold, amongst roughly 30% of SPX shares closing to a higher house their short-term moving averages (see below).  The recent inability to rally off these oversold levels is making the electrical flow marketplace position province of affairs dissimilar from what we've seen during the rally off the Feb lows, every bit macro weakness weighs on the rally.  Payrolls tomorrow volition endure a major focus.

Wednesday, May 4th

*  Looking to abide by novel too useful books, apps, podcasts, too more?  Excellent resource: Josh Brown volition offering his listing on Product Hunt LIVE.

*  Stocks continued their weakness yesterday too inwards overnight merchandise today, amongst notable weakness amidst little caps contributing to negative breadth.  New monthly highs across all exchanges dropped to 304; novel lows expanded to 619.  VIX in 1 lawsuit over again jumped too closed to a higher house 16.  Global economical weakness has leave of absence a dominant marketplace position theme, amongst falling stocks too ascension bonds.  Short-term we're oversold, amongst roughly a tertiary of stocks closing to a higher house their 3, 5, too 10-day moving averages; on an intermediate-term basis, I silent am non getting oversold readings, but marketplace position forcefulness is waning.

*  The cumulative indicators mensurate tracks purchase vs. sell signals for all NYSE issues across a multifariousness of technical trading systems, such every bit Bollinger Bands, CCI, etc.  Throughout the rally since February, purchase signals get got handily outnumbered sell signals.  That looks to endure changing, given the recent weakness.

*  I'm keeping a unopen oculus on commodities, every bit yet around other possible indication of global economical weakness.  Specifically, I desire to encounter how commodities are behaving vis a vis a multifariousness of currencies, non simply USD.

Tuesday, May 3rd

*  Thanks to the Benzinga pre-market prep show for the chance to offering a few trading perspectives.

*  Unusually thoughtful post service from Dash of Insight on the importance of agreement analyses that nosotros read.

*  Stocks held to a higher house their Fri lows yesterday too rallied to the Fri highs earlier selling off over again inwards overnight trade.  We proceed a consolidation mode; novel monthly highs rose to 563 too lows dropped to 397.  About 50% of SPX shares closed to a higher house their 20-day moving averages too 60% to a higher house their 50-day averages (Data from Index Indicators).  I aspect those numbers to accomplish to a greater extent than oversold levels earlier the correction has run its course.  Note how nosotros get got been making lower highs on the breadth mensurate tracking the percentages of SPX shares to a higher house their short-term moving averages.

*  Sentiment, every bit measured yesteryear portion creation versus redemption for the SPY ETF, has turned to a greater extent than bearish for the yesteryear iii sessions, amongst cyberspace redemptions.  I'm watching that closely.

*  We saw buying pressure level nicely move yesteryear selling pressure level yesterday on the upticks/downticks measure.  Thus far, cyberspace selling too short-term oversold weather inwards the marketplace position get got leave of absence near-term buying opportunities for marketplace position participants.  My continued leaning is to sell marketplace position bounces that neglect to accept out prior day's highs.

Monday, May 2nd

*  The best model for making trading improvements comes from agreement the drivers of your most successful trades.  Re-engineering your best trading makes y'all your ain guru.

*  We saw a abrupt selloff on Friday, amongst NASDAQ shares taking out their early on Apr lows too novel monthly lows outnumbering novel highs, 583 to 513.  VIX striking 17 during the session earlier dropping on a belatedly rally.  That rally has continued modestly inwards overnight trading.  On a short-term basis, we're oversold, amongst fewer than 30% of SPX shares trading to a higher house their 3- too 5-day moving averages.  My intermediate measures, however, are non yet inwards oversold territory.  My leaning is to sell bounces that cannot accept out Friday's highs.

*  One trace of piece of job I get got nigh the marketplace position is the modify of regimes inwards recent sessions.  The weak dollar is buoying commodities but non stocks, too it's increase stocks (SPYG) underperforming value ones (SPYV).  Earnings get got non been impressive too nosotros seem to endure pricing inwards economical weakness.  It's far from clear that the deed to negative involvement rates has sparked either economical optimism or growth.  All that existence said, I am treating this every bit a correction inside a larger upward cycle, non every bit the get-go of a comport market.

*  Note how the realized volatility of VIX (implied vol) has striking depression levels at relative marketplace position peaks too has peaked at relative marketplace position bottoms.  We are coming off a rattling depression vol of VIX.

Trick A Technician's Direct To Subjective Trading

There's this affair almost us technicians on how nosotros analyze things inwards the nautical chart together with run across cost activity earlier they happen. It's similar we're on NZT or something.

With the surge of people inwards FB Groups together with social media who are instantly openly sharing their Tech Analysis together with Hype Charts, nosotros volition endeavor to beak almost the pop ways on how nosotros tin conk into the realm of Subjective Trading. Because sometimes, you lot only can't assistance it. The beastly menace inside you, urges all your trunk cells to Hype yourself. And inwards the process, hype others. This postal service is business office 2 of The Deadly Trading Mindsets. If you lot haven't read that postal service yet, I propose you lot do. 


Let's Begin.



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1. Using many indicators 

Don't similar a sell indicate on your chart? No worries! Just conduct hold out that loser that's going against you lot together with travel out all the ones that country you lot what you lot desire to hear. It's nada personal really. And besides, you'd await similar a pretty bad donkey ginyos!

"Good Vibes lang"

Maybe inwards the futurity when that indicator gives you lot that sweetness 3-Letter word, together with then you'll allow her bring together your lilliputian group.

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2. Switching to the Line Chart

Wicks are sometimes an eyesore to us technicians. "If non for that lousy shadow, the nautical chart would hold out PERFECT!" Influenza A virus subtype H5N1 Wick way Weak. That's why you lot run across roughly tech traders ignore wicks together with only conk for trunk to trunk analysis. And what ameliorate way to take away these darned things yesteryear switching to that trouble chart?

Problem Solved!

Kind of similar how makeup does its thing. So when you lot run across a trouble nautical chart posted somewhere that looks perfect, hold out careful. Be VERY careful.

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3. Channels together with Trendlines

Channels together with Trendlines are a universal thing. It tin hand you lot a projection or an guess of where things could go. But only similar whatsoever other tool, they conduct hold limits. 

Channels together with Trendlines piece of job on a real subjective level. Their placement volition depend on the eyes of the beholder. 

Example : You purchase on trendline back upward together with then all of a sudden price breaks downward from that trendline support. What exercise you lot do? Proceed to piece of job the horizontal back upward instead where it's withal a buy. (Thanks Fullmetal Chartist)

If prices conk along the edge of those two, it's belike a sign to purchase or sell right? But what exercise you lot exercise if prices conk beyond those levels? What if you lot similar using the LOGarithmic nautical chart instead of the LINear chart?

This is only me, but trendlines together with channels are illusions. The Moving Averages along amongst the Absolute Support together with Resistances or Pivot Points are the existent deal.

But what the hell? Let's all hold out subjective right?

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4. Switching Timeframes

You discovery yourself hopeful on a stock that you lot conduct hold but the brusk term nautical chart tells you lot it's gonna fall. So what exercise you lot do? Pep beak yourself yesteryear looking at the weekly or monthly charts - fifty-fifty if they haven't completed their candles yet.

"Okay lang yan! Long term ako jan."

InvesTraders commonly exercise this. Traders who are forced to instruct investors because of their long term analysis.

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5. Pattern Modification together with Form Fitting

You run across a blueprint that's awfully popular. But you're non quite certain if you're seeing what you're seeing. You don't confirm the blueprint amongst the network because, YOLO! "Why isn't anyone posting whatsoever charts?" You inquire yourself. Of course! Ikaw lang hinihintay magpost. So you lot conk amongst your ignorant gut together with claim the pattern!

And if you lot accidentally institute a blueprint that no ane else has, together with it worked the offset time, why else wouldn't it piece of job the adjacent time? So you lot conk along together with cite your pattern. Even pose a trademark. After all, you lot are instantly a stock-market ginyos!

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There's a fine trouble betwixt nautical chart sharing together with nautical chart hyping. If you lot are a proficient trader together with technician, there's no take to hype. What for? But if you lot exercise experience similar hyping, together with then yesteryear all way hype! But maintain it to yourself.

These are the large v on Subjective Technical Trading.

Any tearing reactions? Did I immature lady anything? Let me know inwards comments below.