The most recent post for the Introduction to Trading ebook introduced the catch of the auction marketplace equally a framework for agreement the stock market, using the uncomplicated illustration of an eBay auction. Now let's expand the conceptual framework to catch how auction markets tin choose together participants who operate at differing fourth dimension frames.
Central to whatever auction procedure is the notion of value. Value is the price--or arrive at of prices--that choose together buyers in addition to sellers. Because the auction exists to facilitate trade, the auction procedure constantly hunts for value: that cost grade that volition enable buyers in addition to sellers to transact with i another.
It is of import to recognize that value has both an objective in addition to a subjective meaning. An objective Definition of value inward the Market Profile framework is that arrive at of prices during a twenty-four hours or calendar week that covert to a greater extent than or less 2/3 of the bulk for that period. This value arrive at represents the prices that brought together the bulk of buyers in addition to sellers; it is objectively measurable equally a share of time, price, in addition to volume.
Value too has a subjective important to auction participants, equally each has his or her ain ideas of what a marketplace is worth. Influenza A virus subtype H5N1 value investor may define value good below the market's electrical flow level, because that is what stocks are worth according to his or her metrics. Influenza A virus subtype H5N1 short-term trader may perceive value inward an uptrend when a marketplace pulls dorsum to a 20-day moving average line. Influenza A virus subtype H5N1 longer-term trader mightiness give away value when at that topographic point is a important expansion of the release of stocks making fresh 52-week lows.
Trading occurs at the intersection of a trader's subjective Definition of value in addition to the market's objectively determined placement of value. If I recall "true" value is good higher upwardly or below the market's electrical flow assessment of value, I own got an incentive to instruct inward an fellowship to own got payoff of this discrepancy. My merchandise reflects my supposition that the market's assessed value will, over time, movement toward my value assessment. If I house value where the marketplace is currently trading, I may own got no incentive to instruct inward the market. By my subjective criteria, the marketplace is fairly priced, in addition to I volition hold off for the marketplace to movement below my value grade to brand buying profitable.
Imagine an auction with participants at many dissimilar fourth dimension frames, each with real dissimilar subjective definitions of value. An automobile auction, for example, mightiness characteristic active participation with people who own got used cars to sell in addition to others who wishing to instruct used vehicles. Bidders in addition to sellers own got an catch of what constitutes fair wholesale in addition to retail prices in addition to essay to obtain prices equally closed to those extremes equally possible.
Suppose, however, that--lurking inward the background of the wholesale machine auction--is a grouping of dealerships that brand their living past times buying inexpensive used cars, fixing them up, in addition to and hence selling at closed to retail prices. They volition entirely bid on cars when an oversupply province of affairs pushes prices to or fifty-fifty below traditional wholesale levels; this enables them to brand a prissy profit, fifty-fifty afterward they position operate into the vehicles. This way that a whole novel root of demand--and volume--will instruct inward the auction marketplace when prices striking levels that works life subjective value for large, longer-time frame participants.
Above in addition to below the market, yous ever own got value-oriented institutions (such equally usual funds) ready to instruct stocks when they're inexpensive (by the institutions' criteria) in addition to sell them when they're priced higher upwardly (the institution's Definition of) value. No incertitude you've seen markets that own got traded inward a narrow arrive at on placidity volume, entirely to movement higher on increased bulk next a arrive at breakout, in addition to and hence contrary sharply on fifty-fifty stronger volume. During the narrow arrive at bound action, marketplace makers were dominating the action; technical traders (including short-term prop traders) jumped into the marketplace on the breakout; in addition to value-oriented traders (including hedge funds) sold into the forcefulness equally stock index futures went to abrupt premium to cash. This is a uncomplicated event of how auctions choose together participants across dissimilar fourth dimension frames.
When I showtime began operate at a prop firm, I was surprised to detect that the traders focused on something quite dissimilar from the average traders I had run into. They used cost in addition to bulk information (including information from the fellowship book) to position *who* was inward the market. They wanted to know if at that topographic point was higher upwardly or below average institutional participation; if moves to novel cost highs or lows were attracting momentum participants; etc. By using "technical" marketplace information to brand inferences almost underlying auction processes, they were able to brand reasoned judgments equally to whether marketplace moves were probable to proceed or reverse.
In the side past times side segment of the book, we'll own got a closer expect at how savvy traders educate trading ideas from auction-generated marketplace data.
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Showing posts sorted by relevance for query momentum-value-and-short-term-movement. Sort by date Show all posts
Thursday, March 5, 2020
Tuesday, January 15, 2019
Info!! Trading Notes: Calendar Week Of October 19Th
Friday, Oct 23rd
* The combination of prospects of farther QE from the ECB as well as positive turn a profit tidings breathed fresh life into the market, equally nosotros rose on substantially increased volume. The increased book told us that fresh participants were coming into the market; the positive skew of the NYSE TICK told us that the participation was dominantly to the purchase side. Picking upwardly those cues early on inwards the trading hateful solar daytime is an essential job of short-term trading. Thursday's activeness was farther confirmation of the base of operations representative outlined yesterday, though I'm for certain opened upwardly to the possibility that, amongst the renewed buying, a momentum peak lies ahead of us.
* Below is an interesting nautical chart that tracks "relative volume": how book at each infinitesimal of the hateful solar daytime compares amongst the average book for that infinitesimal inwards SPY. Influenza A virus subtype H5N1 value of 1.0 way that book is average for that fourth dimension of day. Influenza A virus subtype H5N1 value of 2.0 is a total criterion difference inwards a higher house average; 3.0 is 2 criterion deviations inwards a higher house average; etc. Note inwards the nautical chart how book yesterday was good inwards a higher house average, especially when the marketplace seat was rising. Great tell.
* Interestingly, novel highs *and* novel lows expanded inwards yesterday's trade, as well as modest caps cash inwards one's chips along to lag large caps. I'm watching that human relationship closely, equally good equally the novel highs/lows.
Thursday, Oct 22nd
* Weakness inwards modest caps noted before contributed to a sell off inwards stocks through much of the hateful solar daytime Wednesday. My mensurate of buying vs. selling pressure, interestingly, did non present a bully surplus of selling. This continues to facial expression to me similar a correction of the recent strength, non acquit marketplace seat behavior. With fewer than one-half of stocks forthwith trading inwards a higher house their 3 as well as five-day moving averages, the risk/reward looks a flake ameliorate as well as I am opened upwardly to buying weakness that holds inwards a higher house the overnight lows. I practise note, however, that the number of stocks making fresh monthly lows has expanded beyond the degree seen final week. Continued expansion of that number would brand me to a greater extent than concerned regarding the market's downside.
* In short, my base of operations representative is that the August/September lows were meaning ones; that nosotros began a novel marketplace seat wheel off those September lows; as well as that the wheel has hitting a potential momentum peak simply has farther to run on the upside. Waning breadth, especially amid modest cap stocks, as well as waning relative push clit amid EM shares concerns me nearly this base of operations case, however, as well as thus I'm cautious as well as updating views hateful solar daytime past times day.
* Influenza A virus subtype H5N1 say for marketplace seat weakness prior to the August driblet was that nosotros were persistently seeing to a greater extent than shares trading below their lower Bollinger Bands than inwards a higher house their higher bands. At present, we've been seeing the opposite: to a greater extent than stocks trading inwards a higher house their upper bands (see nautical chart below). I'm watching that residuum closely equally yet a unlike sort of breadth mensurate that captures the relative breadth of push clit vs. weakness.
Wednesday, Oct 21st
* Stocks showed continued resilience on Tuesday, amongst pullbacks limited, ultimately leading to higher daily lows as well as higher highs. We likewise expanded the number of stocks making fresh monthly highs, ascent to 812 from 698. Interestingly, VIX rose, simply realized volatility as well as book continued low. We're seeing push clit inwards overnight trade, afterwards belatedly hateful solar daytime weakness yesterday--that continues the grind higher.
* We've seen a driblet inwards 1 of my measures of breadth volatility, which tracks the variation inwards the number of stocks making novel highs as well as lows. Going dorsum to 2010, when breadth volatility has been high, the adjacent v days inwards SPX induce got averaged a gain of +.52%. When breadth volatility has been low, equally at present, the adjacent v days inwards SPX induce got averaged a gain of exclusively +.03%. I cash inwards one's chips along to stance the risk/reward inwards the marketplace seat equally non especially appealing for multi-day positions as well as instead lean toward shorter-term tactical trading of intraday swings.
* I am continuing to sentinel modest cap as well as mid cap issues to encounter if nosotros tin expand breadth or whether relative weakness inwards those groups tin expand to other segments of the market. The Cumulative NYSE TICK has been ascent inwards recent sessions; buying push clit has been moderate, simply selling push clit has been low. I don't await a major marketplace seat turn down until nosotros encounter a reemergence of sellers, as well as that's non occurring as well as thus far.
Tuesday, Oct 20th
* The topping conduct referenced yesterday was evident inwards Monday's trade, equally nosotros terra firma higher inwards SPX. I cash inwards one's chips along to banker's complaint relative weakness amid modest caps, which is contributing to breadth divergences. We saw 698 novel monthly highs on Mon against 166 lows. That is against over K novel highs on the seventh through the 9th. That beingness said, breadth divergences inwards ascent markets unremarkably don't dot major reversals until nosotros encounter expanding numbers of shares making fresh lows as well as overtaking novel highs. During topping processes, it's to a greater extent than of a rotation merchandise than a trending one, amongst volatility, volume, as well as momentum coming down. That makes it an opportunistic trading environment, equally the lower volatility way that moves extend far less than they had when VIX exceeded 20.
* One of the large mistakes traders brand inwards depression volume/low volatility environments is looking for the adjacent large move, rather than planning for the lack of movement. To attain that planning, traders either require to merchandise brusk term swings opportunistically (intraday swings) or extend their asset periods to essay larger moves that ride out the shorter swings. I discovery that pullbacks as well as bounces inwards NYSE TICK intraday assist to seat those shorter-term swings.
* Should nosotros encounter modest caps as well as midcaps grab upwardly to the large caps inwards performance as well as displace to fresh highs, that would live on a worthwhile clue that the upside has farther to go. I'd desire to encounter other marketplace seat sectors underperform before taking a longer-term bearish stance.
Monday, Oct 19th
* I'll live on tweeting from Stocktoberfest the adjacent duet of days. My latest Forbes article highlights a topic I'll live on addressing inwards my Stocktoberfest presentation: how nosotros tin brand the transition from beingness goodness traders to becoming bully ones. That way that repeated sense is non enough; nosotros really induce got to undertake directed training. The Forbes piece describes how nosotros tin job psychology to sustain preparation efforts.
* Here's a unproblematic way y'all tin know if you're genuinely engaged inwards a procedure of expertise development: Are in that location *specific* things you're working on inwards today's trading; are y'all keeping score to encounter if y'all are genuinely making progress; as well as are y'all making ongoing corrective efforts amongst continued scorekeeping if you're non making progress? If you're non intensively engaged inwards the above, y'all are non on a course of teaching of peak performance development.
* Friday's trading continued the bounce from the short-term oversold province of affairs noted final week. We 1 time once again are at a juncture where I'm non enamored of the risk/reward province of affairs here. Intermediate-term measures are stretched to the upside; put/call ratios induce got come upwardly down; as well as nosotros cash inwards one's chips along to encounter fewer stocks brand fresh novel highs despite novel highs for this displace inwards the wide indices. My pure volatility mensurate is at levels associated amongst subnormal forrad returns over a several hateful solar daytime basis. All this is consistent amongst my overall perspective that we've seen a momentum peak for this marketplace seat wheel as well as are forthwith involved inwards a topping process. That procedure tin extend for a spell before nosotros encounter an ultimate cost peak as well as eventual acquit phase.
* An uptrend is sustained when nosotros are able to register higher cost highs as well as higher cost lows across multiple short-term cycles. So far, that is what we've been doing. Until that blueprint changes, I'm reluctant to induce got brusk positions for anything to a greater extent than than short-term trades.
.
* The combination of prospects of farther QE from the ECB as well as positive turn a profit tidings breathed fresh life into the market, equally nosotros rose on substantially increased volume. The increased book told us that fresh participants were coming into the market; the positive skew of the NYSE TICK told us that the participation was dominantly to the purchase side. Picking upwardly those cues early on inwards the trading hateful solar daytime is an essential job of short-term trading. Thursday's activeness was farther confirmation of the base of operations representative outlined yesterday, though I'm for certain opened upwardly to the possibility that, amongst the renewed buying, a momentum peak lies ahead of us.
* Below is an interesting nautical chart that tracks "relative volume": how book at each infinitesimal of the hateful solar daytime compares amongst the average book for that infinitesimal inwards SPY. Influenza A virus subtype H5N1 value of 1.0 way that book is average for that fourth dimension of day. Influenza A virus subtype H5N1 value of 2.0 is a total criterion difference inwards a higher house average; 3.0 is 2 criterion deviations inwards a higher house average; etc. Note inwards the nautical chart how book yesterday was good inwards a higher house average, especially when the marketplace seat was rising. Great tell.
* Interestingly, novel highs *and* novel lows expanded inwards yesterday's trade, as well as modest caps cash inwards one's chips along to lag large caps. I'm watching that human relationship closely, equally good equally the novel highs/lows.
Thursday, Oct 22nd
* Weakness inwards modest caps noted before contributed to a sell off inwards stocks through much of the hateful solar daytime Wednesday. My mensurate of buying vs. selling pressure, interestingly, did non present a bully surplus of selling. This continues to facial expression to me similar a correction of the recent strength, non acquit marketplace seat behavior. With fewer than one-half of stocks forthwith trading inwards a higher house their 3 as well as five-day moving averages, the risk/reward looks a flake ameliorate as well as I am opened upwardly to buying weakness that holds inwards a higher house the overnight lows. I practise note, however, that the number of stocks making fresh monthly lows has expanded beyond the degree seen final week. Continued expansion of that number would brand me to a greater extent than concerned regarding the market's downside.
* In short, my base of operations representative is that the August/September lows were meaning ones; that nosotros began a novel marketplace seat wheel off those September lows; as well as that the wheel has hitting a potential momentum peak simply has farther to run on the upside. Waning breadth, especially amid modest cap stocks, as well as waning relative push clit amid EM shares concerns me nearly this base of operations case, however, as well as thus I'm cautious as well as updating views hateful solar daytime past times day.
* Influenza A virus subtype H5N1 say for marketplace seat weakness prior to the August driblet was that nosotros were persistently seeing to a greater extent than shares trading below their lower Bollinger Bands than inwards a higher house their higher bands. At present, we've been seeing the opposite: to a greater extent than stocks trading inwards a higher house their upper bands (see nautical chart below). I'm watching that residuum closely equally yet a unlike sort of breadth mensurate that captures the relative breadth of push clit vs. weakness.
Wednesday, Oct 21st
* Stocks showed continued resilience on Tuesday, amongst pullbacks limited, ultimately leading to higher daily lows as well as higher highs. We likewise expanded the number of stocks making fresh monthly highs, ascent to 812 from 698. Interestingly, VIX rose, simply realized volatility as well as book continued low. We're seeing push clit inwards overnight trade, afterwards belatedly hateful solar daytime weakness yesterday--that continues the grind higher.
* We've seen a driblet inwards 1 of my measures of breadth volatility, which tracks the variation inwards the number of stocks making novel highs as well as lows. Going dorsum to 2010, when breadth volatility has been high, the adjacent v days inwards SPX induce got averaged a gain of +.52%. When breadth volatility has been low, equally at present, the adjacent v days inwards SPX induce got averaged a gain of exclusively +.03%. I cash inwards one's chips along to stance the risk/reward inwards the marketplace seat equally non especially appealing for multi-day positions as well as instead lean toward shorter-term tactical trading of intraday swings.
* I am continuing to sentinel modest cap as well as mid cap issues to encounter if nosotros tin expand breadth or whether relative weakness inwards those groups tin expand to other segments of the market. The Cumulative NYSE TICK has been ascent inwards recent sessions; buying push clit has been moderate, simply selling push clit has been low. I don't await a major marketplace seat turn down until nosotros encounter a reemergence of sellers, as well as that's non occurring as well as thus far.
Tuesday, Oct 20th
* The topping conduct referenced yesterday was evident inwards Monday's trade, equally nosotros terra firma higher inwards SPX. I cash inwards one's chips along to banker's complaint relative weakness amid modest caps, which is contributing to breadth divergences. We saw 698 novel monthly highs on Mon against 166 lows. That is against over K novel highs on the seventh through the 9th. That beingness said, breadth divergences inwards ascent markets unremarkably don't dot major reversals until nosotros encounter expanding numbers of shares making fresh lows as well as overtaking novel highs. During topping processes, it's to a greater extent than of a rotation merchandise than a trending one, amongst volatility, volume, as well as momentum coming down. That makes it an opportunistic trading environment, equally the lower volatility way that moves extend far less than they had when VIX exceeded 20.
* One of the large mistakes traders brand inwards depression volume/low volatility environments is looking for the adjacent large move, rather than planning for the lack of movement. To attain that planning, traders either require to merchandise brusk term swings opportunistically (intraday swings) or extend their asset periods to essay larger moves that ride out the shorter swings. I discovery that pullbacks as well as bounces inwards NYSE TICK intraday assist to seat those shorter-term swings.
* Should nosotros encounter modest caps as well as midcaps grab upwardly to the large caps inwards performance as well as displace to fresh highs, that would live on a worthwhile clue that the upside has farther to go. I'd desire to encounter other marketplace seat sectors underperform before taking a longer-term bearish stance.
Monday, Oct 19th
* I'll live on tweeting from Stocktoberfest the adjacent duet of days. My latest Forbes article highlights a topic I'll live on addressing inwards my Stocktoberfest presentation: how nosotros tin brand the transition from beingness goodness traders to becoming bully ones. That way that repeated sense is non enough; nosotros really induce got to undertake directed training. The Forbes piece describes how nosotros tin job psychology to sustain preparation efforts.
* Here's a unproblematic way y'all tin know if you're genuinely engaged inwards a procedure of expertise development: Are in that location *specific* things you're working on inwards today's trading; are y'all keeping score to encounter if y'all are genuinely making progress; as well as are y'all making ongoing corrective efforts amongst continued scorekeeping if you're non making progress? If you're non intensively engaged inwards the above, y'all are non on a course of teaching of peak performance development.
* Friday's trading continued the bounce from the short-term oversold province of affairs noted final week. We 1 time once again are at a juncture where I'm non enamored of the risk/reward province of affairs here. Intermediate-term measures are stretched to the upside; put/call ratios induce got come upwardly down; as well as nosotros cash inwards one's chips along to encounter fewer stocks brand fresh novel highs despite novel highs for this displace inwards the wide indices. My pure volatility mensurate is at levels associated amongst subnormal forrad returns over a several hateful solar daytime basis. All this is consistent amongst my overall perspective that we've seen a momentum peak for this marketplace seat wheel as well as are forthwith involved inwards a topping process. That procedure tin extend for a spell before nosotros encounter an ultimate cost peak as well as eventual acquit phase.
* An uptrend is sustained when nosotros are able to register higher cost highs as well as higher cost lows across multiple short-term cycles. So far, that is what we've been doing. Until that blueprint changes, I'm reluctant to induce got brusk positions for anything to a greater extent than than short-term trades.
.
Sunday, January 13, 2019
Info!! Trading Notes For The Calendar Week Of April 25, 2016
Friday, Apr 29th
* I'll hold upwards talking amongst the Benzinga pre-market prep show at 8:35 AM today. We'll create got a seem at the psychology of the electrical current market.
* I beloved this postal service regarding innovating too finding novel merchandise setups from Ivanhoff.
* Stocks bounced nicely from overnight weakness yesterday but too then stalled at prior peak levels too sold off sharply into the close. Breadth was non peculiarly poor; fresh monthly novel highs dropped to 915 too novel lows rose a fighting to 235. Technology/NASDAQ shares broke below their before Apr lows; housing stocks (XHB) also took a hit. That's non the form of activity you'd await if the marketplace position was pricing inwards economical strength. Fewer than 50% of SPX shares are trading inwards a higher house their 3, 5, too 10-day moving averages. Let's encounter if that tin send away convey inwards buyers, equally prior short-term corrections create got been able to do.
* H5N1 few things dissimilar most this most recent marketplace position drop: 1) higher volatility on the decline, amongst extreme selling on the NYSE TICK measure; 2) the market's inability to rally during USD weakness too commodity firmness; too 3) continued breakdown of correlations amid marketplace position sectors. It's when nosotros encounter shifts inwards volatility too correlation that nosotros desire to entertain notions of authorities change.
* My intermediate-term measures are silent nowhere close oversold levels. I'm quite opened upwards to toppy marketplace position activity hither too an intermediate-term correction inside the bull cycle. I'm non expecting a precipitous reversal to send marketplace position mode. Note the precipitous rising inwards VIX. My Pure VIX model has turned neutral; non yet inwards "fearful" territory.
Thursday, Apr 28th
* A seem at the recent displace to higher involvement rates, which has affected the trading of higher yielding stocks too stock sectors.
* Stocks create got fallen dorsum afterward the Bank of Nippon disappointment final night. We're right away close the lower terminate of the recent trading range. I haven't noticed item breadth weakness. Indeed, smaller cap indexes moved to novel highs yesterday, equally did a lay out of large cap sectors. Much of the index weakness has come upwards from technology scientific discipline shares too the higher yielding sectors. New monthly highs rose to 1112; novel lows rose a fighting to 209. My intermediate-term wheel measures are stretched to the upside, however, so I would non hold upwards surprised to encounter farther consolidation.
* Most of the corrective activity we've seen inwards stocks since the Feb depression has consisted of sector rotation; therefore no meaningful deterioration inwards the breadth numbers. Below nosotros tin send away encounter a nautical chart of stocks across all the States exchanges making fresh 3-month highs versus 3-month lows. It has stayed good for yous throughout the recent move. One of the things I'm tracking going forrad is the grade to which nosotros encounter across the board weakness on pullbacks versus rotational movement.
Wednesday, Apr 27th
* Here's a valuable perspective on challenging hedge fund performance from the Mathematical Investor site.
* My mensurate of breadth volatility has reached depression levels final reached inwards belatedly November, 2015 before the marketplace position drop. Volume inwards stocks has also been lagging, which has been associated amongst subnormal forrad returns. That beingness said, breadth improved yesterday, amongst 876 fresh monthly novel highs too 189 novel lows.
* Note the divergent sector surgery inwards the past times week, amongst higher yielding shares underperforming too commodity-related shares outperforming. (Graphic from FinViz). Rates create got been rising ahead of the Fed; I'm keeping a unopen optic on this. Note also how technology scientific discipline has been lagging. Rising rates? Higher commodities? Low growth? Can't imagine a stagflation scenario would hold upwards a non bad one...
Tuesday, Apr 26th
* Excellent interrogation links from Abnormal Returns. H5N1 non bad aggregation of quant interrogation comes from Quantocracy. Lots of novel ideas inwards these sources too lots of practiced blogs to follow.
* So far my trading experiment has been interesting. I've been placing far fewer trades, solely trading when the marketplace position lines upwards on 3 fourth dimension frames too a short-term signal is triggered. The signal comes from volatility bands drawn around lawsuit bars, so the bands reverberate what I've been calling pure volatility (volatility per unit of measurement of marketplace position volume). The target is also based upon a motility inwards pure volatility units. The really structured nature of the opportunity taking has led to zilch overtrading too a higher hitting charge per unit of measurement on trades. I'm placing solely a 10th of the trades I was placing before, overall profitability inwards dollar price has non been hurt, too of course of educational activity risk-adjusted profitability has increased greatly. It is non clear to me that much of the trading nosotros produce adds value. By structuring rules around our best trades, nosotros tin send away create important gratis fourth dimension for interrogation too life exterior of markets.
* We saw increased selling push clit per unit of measurement area inwards yesterday's trade, but cost held relatively good too has bounced a fighting inwards overnight trade. New monthly highs dropped to 586 too monthly lows also dipped to 208. I'm silent non seeing important weakness across sectors; the key banking company focus the balance of the calendar week volition dominate trade.
* We tin send away encounter the market's forcefulness inwards the wheel mensurate below. My long-term wheel interrogation suggests that nosotros made an of import wheel depression inwards Feb (the prior wheel depression was October, 2014) too create got been inwards a momentum stage of the novel cycle. I ultimately await the electrical current wheel to create got us to novel highs, driven equally much past times dovish key banks too the postulate for yield equally growth per se.
Monday, Apr 25th
* There is a psychological procedure that underlies self-confidence--and to a greater extent than specifically a cognitive process. Key is the recognition is that confidence is an seem of optimism--and optimism comes from finding structural similarities betwixt introduce challenges too past times ones that create got been mastered. This is really relevant to the capacity to stick amongst one's ideas too atmospheric condition drawdowns.
* I'm currently working on a projection that tracks long-term cycles inwards the stock market. These cycles extend for months, non minutes or days. It is at this horizon that momentum effects most clearly emerge. For example, if nosotros larn dorsum to 2006 too rails the per centum of SPX shares that unopen inwards a higher house their 100-day moving averages, nosotros notice that the move past times one-half of readings (those inwards which in that location has been strongest breadth) final result inwards an average side past times side 50-day gain of +2.15%. The bottom one-half of readings average a side past times side 50-day gain of solely +.33%. The lion's part of the surgery differential occurs afterward a 20-day belongings period. Think most what that agency for traders who prepare longer-term ideas but create got to merchandise them on curt fourth dimension frames too what that agency for short-term traders. Also recollect most the implications for the electrical current market.
* Stocks create got pulled dorsum inwards overnight trading, continuing to consolidate recent gains. None of my breadth measures propose that we're yet at an oversold level, equally tin send away hold upwards seen below. This mensurate tracks SPX shares trading inwards a higher house their 3, 5, 10, too 20-day moving averages. (Raw information from Index Indicators).
* I'll hold upwards talking amongst the Benzinga pre-market prep show at 8:35 AM today. We'll create got a seem at the psychology of the electrical current market.
* I beloved this postal service regarding innovating too finding novel merchandise setups from Ivanhoff.
* Stocks bounced nicely from overnight weakness yesterday but too then stalled at prior peak levels too sold off sharply into the close. Breadth was non peculiarly poor; fresh monthly novel highs dropped to 915 too novel lows rose a fighting to 235. Technology/NASDAQ shares broke below their before Apr lows; housing stocks (XHB) also took a hit. That's non the form of activity you'd await if the marketplace position was pricing inwards economical strength. Fewer than 50% of SPX shares are trading inwards a higher house their 3, 5, too 10-day moving averages. Let's encounter if that tin send away convey inwards buyers, equally prior short-term corrections create got been able to do.
* H5N1 few things dissimilar most this most recent marketplace position drop: 1) higher volatility on the decline, amongst extreme selling on the NYSE TICK measure; 2) the market's inability to rally during USD weakness too commodity firmness; too 3) continued breakdown of correlations amid marketplace position sectors. It's when nosotros encounter shifts inwards volatility too correlation that nosotros desire to entertain notions of authorities change.
* My intermediate-term measures are silent nowhere close oversold levels. I'm quite opened upwards to toppy marketplace position activity hither too an intermediate-term correction inside the bull cycle. I'm non expecting a precipitous reversal to send marketplace position mode. Note the precipitous rising inwards VIX. My Pure VIX model has turned neutral; non yet inwards "fearful" territory.
Thursday, Apr 28th
* A seem at the recent displace to higher involvement rates, which has affected the trading of higher yielding stocks too stock sectors.
* Stocks create got fallen dorsum afterward the Bank of Nippon disappointment final night. We're right away close the lower terminate of the recent trading range. I haven't noticed item breadth weakness. Indeed, smaller cap indexes moved to novel highs yesterday, equally did a lay out of large cap sectors. Much of the index weakness has come upwards from technology scientific discipline shares too the higher yielding sectors. New monthly highs rose to 1112; novel lows rose a fighting to 209. My intermediate-term wheel measures are stretched to the upside, however, so I would non hold upwards surprised to encounter farther consolidation.
* Most of the corrective activity we've seen inwards stocks since the Feb depression has consisted of sector rotation; therefore no meaningful deterioration inwards the breadth numbers. Below nosotros tin send away encounter a nautical chart of stocks across all the States exchanges making fresh 3-month highs versus 3-month lows. It has stayed good for yous throughout the recent move. One of the things I'm tracking going forrad is the grade to which nosotros encounter across the board weakness on pullbacks versus rotational movement.
Wednesday, Apr 27th
* Here's a valuable perspective on challenging hedge fund performance from the Mathematical Investor site.
* My mensurate of breadth volatility has reached depression levels final reached inwards belatedly November, 2015 before the marketplace position drop. Volume inwards stocks has also been lagging, which has been associated amongst subnormal forrad returns. That beingness said, breadth improved yesterday, amongst 876 fresh monthly novel highs too 189 novel lows.
* Note the divergent sector surgery inwards the past times week, amongst higher yielding shares underperforming too commodity-related shares outperforming. (Graphic from FinViz). Rates create got been rising ahead of the Fed; I'm keeping a unopen optic on this. Note also how technology scientific discipline has been lagging. Rising rates? Higher commodities? Low growth? Can't imagine a stagflation scenario would hold upwards a non bad one...
Tuesday, Apr 26th
* Excellent interrogation links from Abnormal Returns. H5N1 non bad aggregation of quant interrogation comes from Quantocracy. Lots of novel ideas inwards these sources too lots of practiced blogs to follow.
* So far my trading experiment has been interesting. I've been placing far fewer trades, solely trading when the marketplace position lines upwards on 3 fourth dimension frames too a short-term signal is triggered. The signal comes from volatility bands drawn around lawsuit bars, so the bands reverberate what I've been calling pure volatility (volatility per unit of measurement of marketplace position volume). The target is also based upon a motility inwards pure volatility units. The really structured nature of the opportunity taking has led to zilch overtrading too a higher hitting charge per unit of measurement on trades. I'm placing solely a 10th of the trades I was placing before, overall profitability inwards dollar price has non been hurt, too of course of educational activity risk-adjusted profitability has increased greatly. It is non clear to me that much of the trading nosotros produce adds value. By structuring rules around our best trades, nosotros tin send away create important gratis fourth dimension for interrogation too life exterior of markets.
* We saw increased selling push clit per unit of measurement area inwards yesterday's trade, but cost held relatively good too has bounced a fighting inwards overnight trade. New monthly highs dropped to 586 too monthly lows also dipped to 208. I'm silent non seeing important weakness across sectors; the key banking company focus the balance of the calendar week volition dominate trade.
* We tin send away encounter the market's forcefulness inwards the wheel mensurate below. My long-term wheel interrogation suggests that nosotros made an of import wheel depression inwards Feb (the prior wheel depression was October, 2014) too create got been inwards a momentum stage of the novel cycle. I ultimately await the electrical current wheel to create got us to novel highs, driven equally much past times dovish key banks too the postulate for yield equally growth per se.
Monday, Apr 25th
* There is a psychological procedure that underlies self-confidence--and to a greater extent than specifically a cognitive process. Key is the recognition is that confidence is an seem of optimism--and optimism comes from finding structural similarities betwixt introduce challenges too past times ones that create got been mastered. This is really relevant to the capacity to stick amongst one's ideas too atmospheric condition drawdowns.
* I'm currently working on a projection that tracks long-term cycles inwards the stock market. These cycles extend for months, non minutes or days. It is at this horizon that momentum effects most clearly emerge. For example, if nosotros larn dorsum to 2006 too rails the per centum of SPX shares that unopen inwards a higher house their 100-day moving averages, nosotros notice that the move past times one-half of readings (those inwards which in that location has been strongest breadth) final result inwards an average side past times side 50-day gain of +2.15%. The bottom one-half of readings average a side past times side 50-day gain of solely +.33%. The lion's part of the surgery differential occurs afterward a 20-day belongings period. Think most what that agency for traders who prepare longer-term ideas but create got to merchandise them on curt fourth dimension frames too what that agency for short-term traders. Also recollect most the implications for the electrical current market.
* Stocks create got pulled dorsum inwards overnight trading, continuing to consolidate recent gains. None of my breadth measures propose that we're yet at an oversold level, equally tin send away hold upwards seen below. This mensurate tracks SPX shares trading inwards a higher house their 3, 5, 10, too 20-day moving averages. (Raw information from Index Indicators).
Saturday, February 23, 2019
Info!! Institutional Participation, Momentum, In Addition To The Thorny Inquiry Of When To Choke Winning Trades
My recent efforts to separately define buying together with selling ability inwards the stock market were a starting fourth dimension endeavour to capture when markets, inwards the close term, were to a greater extent than probable to display momentum (continuation of cost movement) versus value (reversal of cost movement) effects. In a nutshell, I constitute that momentum to the upside was positively correlated amongst buying activeness (the upticking of a wide attain of stocks). Reversals typically followed from high levels of selling activeness (the downticking of a wide attain of stocks). More latterly I've been studying whether buying/selling across a broader attain of shares is to a greater extent than predictive of momentum together with value than across a smaller let on of dominant large caps. More on that topic to come...
What I notice interesting nearly the upticks together with downticks, when disaggregated, is that they are typically occurring at exactly the same time. When I aspect at the upticking together with downticking 2nd past times second, an odd let on of stocks volition tick inwards the same management at the same time. This reflects the buying or selling of baskets of stocks, most oft either every bit outright directional bets or to choose futures prices inwards business amongst the cash index. Either way, modest traders together with marketplace makers inwards private shares are non typically buying together with selling wide baskets of stocks. Such handbasket execution is a footprint of larger, institutional involvement inwards the market.
Proceeding on that logic, I constructed a mensurate of full upticks together with downticks on a 2nd to 2nd basis. This mensurate but looks at the full sum of uptick/downtick elbow grease across stocks together with doesn't tending whether the ticks are to a greater extent than to the upside or downside. The persuasion is that to a greater extent than full ticking is a reflection of greater institutional participation. If large (and largely directional) participants are to a greater extent than acquaint inwards a market, I would aspect marketplace moves to accept a greater odds of extending. Without such participation, I would aspect directional elbow grease to to a greater extent than oft hold upwards out of gas.
From February, 2012 forward--the catamenia of fourth dimension inwards which I assembled moment-to-moment full ticking--I constitute 165 trading days inwards which SPY moved to a greater extent than than fifty bps (half a percent) or to a greater extent than to the upside inwards a trading 24-hour interval (prior day's around electrical flow day's close). Three days later, the average marketplace gain was +.14%, amongst 107 occasions upwards together with 58 down.
If nosotros but interruption downward those occasions past times median dissever based on full ticking, the adjacent 3 days after a high institutional participation winning 24-hour interval averaged a solid gain of +.26% (55 occasions up, 28 down). If the winning 24-hour interval occurred amongst depression institutional participation, the adjacent 3 days averaged a gain of solely +.02% (53 occasions up, 29 down). In other words, days next a solid gain were every bit probable to ascent when institutional involvement was depression vs. high, but the grade of follow through was together with hence much greater when institutions were active that essentially all momentum effects (in terms of cost movement) occurred at those times.
This is a squeamish illustration of the importance of, non solely how markets move, but who is inwards the market. Many valuable enquiry questions follow from this form of analysis. For instance, does institutional participation early on inwards the 24-hour interval session assistance predict elbow grease for the residual of the trading day? Does institutional participation assistance to predict, non solely full general marketplace movement, but the elbow grease of private stocks together with sectors? In trading, every bit inwards other high functioning fields--from cycling to warfare--we increasingly notice quantitative tools supporting together with informing discretionary decisions. The pop mantra to follow one's trading plans agency trivial if those plans are uninformed.
Further Reading: Factors That Affect Short-Term Stock Market Movement
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Monday, January 14, 2019
Info!! The Origin Campaign Of Traders' Emotional Problems
It's actually quite simple.
Returns inward fiscal markets ultimately derive from several overarching factors, such equally momentum (persistence of directional movement); value (tendency of toll to oscillate higher upward as well as below i or to a greater extent than value criteria); volatility (absolute toll movement); as well as deport (returns derived from belongings the asset, equally inward the illustration of dividends or roll-down).
What makes property managers unlike from traders is that property managers are attempting to garner returns from all factors. They are non necessarily attempting to predict which element volition render the best returns over the adjacent fourth dimension period. Rather, they volition gear upward a portfolio that volition accomplish favorable returns across a diverseness of possible factor-based scenarios. Central to property administration is the consider of portfolio rebalancing. If you lot don't rebalance a portfolio, you lot volition live on move past times heavy amongst honor to any element has most late performed good as well as underweight factors that receive got non late performed. This leaves a director vulnerable when patterns of potency amidst factors shift.
The trader tends to focus on i element as well as i element only. Perhaps the trader is a trend/momentum trader; maybe the trader relies on patterns of hateful reversion; or builds a dividend portfolio. Invariably--and this is peculiarly truthful of short-term traders--the trader attempts to trim back returns to a preferred factor. In that sense, the trader is a flake similar the blind men trying to clit an elephant. One focuses on the tail, some other on the leg, yet some other on the trunk. No i genuinely captures the aspect of the elephant.
When a trader declares that he or she is, say, a momentum (momo) trader, the odds are practiced they'll brand coin when momentum is a dominant element as well as lose coin when value as well as other factors dominate. It volition receive got cypher to do amongst psychology, though the losses may convey all sorts of psychological consequences also equally monetary ones. The trader volition lose for the same argue that the blind human being volition larn the elephant wrong: simplicity has veered into oversimplication.
Once a trader declares that he or she is an X trader, where X is a stand-in for a element exposure, the snuff it is cast. There volition live on winning as well as losing as well as uneven performance. Just equally the trading is going good as well as risk-taking increases, element potency volition shift as well as losses volition mount. When trading is going poorly as well as the trader in conclusion takes a novel approach, the onetime agency volition render to favor. All of these generate frustrations as well as losses. The marrow problem, however, is the ask to gibe markets into a agency of trading rather than finding ways to merchandise that gibe amongst marketplace position behavior.
No sum of discipline, mindfulness, positive self-talk, emotional command methods, or goal-setting volition brand a flake of deviation if you're taking i experience of an elephant as well as trying to figure out the whole.
During 2015, the greatest alter inward my ain trading has been the adoption of a cycle-based framework for thinking close markets. In some phases of marketplace position cycles, momentum/trend dominate. In some phases, nosotros encounter mean-reversion/value. Some phases of cycles display higher volatility as well as correlation; other phases evidence lower volatility as well as correlation. Knowing where we're at inward a cycle determines whether the trading volition merchandise toll motion or fade it; whether regimes are continuing or shifting.
Cycles don't ambit us an infallible picture, but they do permit us to displace approximately as well as experience approximately earlier nosotros guess what the elephant looks like. We experience emotional disruption when nosotros seek to strength markets into a stiff framework. Influenza A virus subtype H5N1 flexible framework allows us to non larn bent out of shape, equally nosotros conform to marketplace position cycles rather than await markets to conform to our trading preferences.
Further Reading: Living Your Calling
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Sunday, January 13, 2019
Info!! Trading Notes For The Calendar Week Of March 14, 2016
Friday, March 18th
* Steve Spencer of SMB emphasizes that cost activity next a catalytic lawsuit provides us amongst of import information. This is especially truthful when nosotros run across a modify inwards the distribution of transactions next a word lawsuit or other catalyst. Increased book together with a novel skew of book lifting offers versus hitting bids, for example, tells us that fresh buying flows receive got come upwards into the market. This calls for an updating of our views of the stock or index.
* This lesson has been especially relevant inwards the wake of the Fed announcement. My cumulative stair out of upticks vs. downticks has hitting novel highs for this displace together with breadth, which had been waning, vaulted to novel highs. Below nosotros tin run across the nautical chart of stocks across all changes making fresh 3-month novel highs vs. lows. The vigor of buying next the Fed annunciation suggests that this, indeed, was a game changer. Central banks globally are opting for accommodation and, historically, that has been favorable toward stocks.
* The China/deflation thesis, which dominated give-and-take during recent marketplace weakness, is far less discussed I find, given stone oil clit together with USD weakness. For stocks, inwards a negative involvement charge per unit of measurement world, anything rubber amongst yield continues to discovery interest.
Thursday, March 17th
* Interesting commentary on the fright of missing marketplace moves from Victor Niederhoffer. Many a bad merchandise is made because of the ego, non because of the objective marketplace opportunity.
* We saw a ascent to novel highs on the heels of the Fed announcement, amongst enterprise buying interest. Recent posts receive got commented on weak breadth and, for the marketplace overall, the breadth movie did non amend despite the Fed-related strength. Across all exchanges, nosotros saw 753 novel monthly highs against 254 lows. The latter is in 1 lawsuit again an uptick inwards novel lows together with the novel highs are one-half of what nosotros saw 2 weeks ago. Among SPX shares only, stocks making fresh 100-day novel highs versus lows did expand to a marginal novel peak. Much of the weakness is amid small-scale cap shares, though fiscal together with wellness aid stocks inside SPX are likewise lagging. With the mixed breadth picture, I'm non surprised to run across some retracement of yesterday's gains inwards premarket merchandise today.
* Breadth issues notwithstanding, it's clear that this has been a vigorous bull displace from the Feb lows. Note below how we've stayed "overbought" on my multiperiod clit stair out (daily tracking of SPX stocks making 5, 20, together with 100-day novel highs versus lows) for a number of days. This exclusively occurs inwards trending markets. While the breadth issues oft precede correction, my base of operations illustration is to sentiment such a correction equally a buying opportunity.
* I'm working on creating a cycle-based stair out of short-term momentum together with value effects inwards the ES market. The thought is to seat when markets are most probable to proceed versus opposite their most recent directional movement. Interestingly, the market's ascent yesterday occurred on a depression value of the momentum measure. More to come upwards on this research.
Wednesday, March 16th
* Jim Dalton, who has pioneered trading via Market Profile, is offering his in conclusion mentorship computer programme earlier his retirement. I likewise run across Terry Liberman will live doing a webinar amongst Jim afterwards today. When I taught an internship computer programme inwards Chicago many years ago, Jim's piece of occupation was the exclusively mandated reading. I proceed to discovery Market Profile helpful equally a conceptual framework for thinking nearly marketplace behavior.
* After some early on weakness, nosotros saw buying inwards stocks, but small-scale caps proceed to notably underperform large caps. As a result, nosotros run across continuing deterioration amid the breadth measures. New monthly lows ticked upwards to 192, the highest degree since Feb 24th together with monthly highs dipped to 451. Relatively weak sectors lately include unloose energy shares (XLE) together with healthcare (XLV). Today's trading volition live dominated past times the afternoon's Fed announcement.
* We proceed quite stretched on my intermediate clit measure, which looks at the number of SPX shares making fresh 5, 20, together with 100-day highs versus lows. (Data from Index Indicators). If the Fed-related merchandise can't interruption us from the breadth deterioration, I await an intermediate-term correction. That would non necessarily live an terminate to the bull displace from February's lows, but could advise a new, topping stage to the electrical current marketplace cycle. During a topping stage nosotros tin run across higher overall prices for the index, but amongst deterioration inwards some sectors contributing to lagging breadth.
* Here is a unique intraday indicator that looks at buying clit per unit of measurement area amid all U.S. listed shares. It tracks upticks amid all shares (data from e-Signal) together with expresses the final result inwards measure difference units. This shows us when important buying is coming into the market. It likewise shows us when at that topographic point is a meaningful absence of buying. (A corresponding stair out tracks important selling together with absence of selling pressure). It helps longer-term positions when those are going amongst the flows. The nautical chart below shows yesterday's market.
Tuesday, March 15th
* I'll live making an improver to these marketplace notes together with including each 24-hour interval links to readings that I discovery specially informative together with useful. To boot this off, banking concern check out the Paststat blog for daily trading ideas based upon historical patterns, including this 1 based upon seasonality. From my perspective, such patterns are the starting signal for analysis, non an terminate point. Once nosotros run across a pattern, the difficult piece of occupation remains of deciding: 1) is the electrical current marketplace authorities typical of the menstruum covered past times the historical test; 2) is at that topographic point a audio argue for the beingness of the pattern, or mightiness the designing live a random occurrence; together with 3) what is the variability or together with thus the designing (could yous endure the exceptional instances)? Factoring marketplace history into trading decisions is no guarantee of success--it's slow to aspect inwards together with thus many places that some "significant" designing appears--but ignorance of marketplace history is non just a promising alternative.
* The relative absence of selling clit per unit of measurement area inwards Monday's session was noteworthy together with helped atomic number 82 to higher prices for much of the session earlier a belatedly selling burst. Selling has continued overnight amongst no novel shot inwards the arm from the Bank of Japan. Trading was unusually wearisome on Mon together with nosotros could larn to a greater extent than of the same ahead of tomorrow's Fed announcement. Note how short-term breadth has been potent for a number of days; the stair out below tracks the percent of SPX stocks closing to a higher house their 3, 5, together with 10-day moving averages. (Data from Index Indicators).
* The marketplace looks tired to me--for the origin fourth dimension since the liftoff from the Feb lows. Specifically, we're getting fewer shares registering novel highs during marketplace rallies. Much of that relative weakness is coming from small-scale cap shares. Yesterday nosotros saw 921 stocks across all exchanges brand fresh monthly highs against over 2000 in conclusion week. (Data from the Barchart site). No private sector inside the SPX looks distinctively weak together with I'm non at all convinced that we're going into deport mode. Rather, I await a normal correction inside a bull move. With the absence of selling having problem bringing us higher, I'm leaning toward selling bounces that cannot maintain us to a higher house the overnight highs. Of course, the upcoming Fed annunciation volition supply a major catalyst for stocks tomorrow.
Monday, March 14th
* Those who know me good know that I create non subscribe to the thought that successful trading is by together with large a operate of psychology. Without an objective trading edge, one's frame of bespeak heed volition but dictate the charge per unit of measurement at which nosotros portion amongst our capital. Still, psychology is necessary, if non sufficient, for success together with yesterday's post service was mayhap my clearest explanation why.
* We shut close the highs on Friday, continuing the upswing next the post-ECB selloff. The ascent left us quite stretched short-term, amongst over 90% of SPX stocks trading to a higher house their 3, 5, 10, together with 20-day moving averages. This inwards itself is non a mutual occurrence. Going dorsum to 2006, I could exclusively discovery 12 instances of this happening when VIX has been below 20. Interestingly, three were up, ix downward the side past times side 24-hour interval for a internet loss, but 10 were up, 2 downward after three days. We're trading a fighting lower premarket equally I write; the depth of a side past times side pullback volition state us a lot nearly possible upside momentum over the side past times side few days.
* One line of piece of occupation concern starting to travel inwards my caput is that Friday's highs were the origin inwards which nosotros saw sizable breadth divergences. If nosotros aspect at all stocks across all exchanges, nosotros tin run across that 1087 made fresh monthly highs on Fri against 2082 the prior Friday. Much of this is a operate of relative weakness amid small-scale caps. We exclusively had 92 novel monthly lows on Friday, together with thus naught is standing out equally weak together with I'm non expecting whatsoever grand reversal. I am concerned, however, that nosotros could run across a decent pullback from these levels equally portion of the start of a topping process. Bottom line is that I was happy to receive got profits belatedly Fri together with I'm happy to remain on the sidelines together with run across what the bears tin bring. Ideally, I'd similar to live a buyer of weakness early on inwards the calendar week for at to the lowest degree a retest of highs thereafter. But I'm non seeing favorably skewed risk/reward right here, right now.
* Steve Spencer of SMB emphasizes that cost activity next a catalytic lawsuit provides us amongst of import information. This is especially truthful when nosotros run across a modify inwards the distribution of transactions next a word lawsuit or other catalyst. Increased book together with a novel skew of book lifting offers versus hitting bids, for example, tells us that fresh buying flows receive got come upwards into the market. This calls for an updating of our views of the stock or index.
* This lesson has been especially relevant inwards the wake of the Fed announcement. My cumulative stair out of upticks vs. downticks has hitting novel highs for this displace together with breadth, which had been waning, vaulted to novel highs. Below nosotros tin run across the nautical chart of stocks across all changes making fresh 3-month novel highs vs. lows. The vigor of buying next the Fed annunciation suggests that this, indeed, was a game changer. Central banks globally are opting for accommodation and, historically, that has been favorable toward stocks.
* The China/deflation thesis, which dominated give-and-take during recent marketplace weakness, is far less discussed I find, given stone oil clit together with USD weakness. For stocks, inwards a negative involvement charge per unit of measurement world, anything rubber amongst yield continues to discovery interest.
Thursday, March 17th
* Interesting commentary on the fright of missing marketplace moves from Victor Niederhoffer. Many a bad merchandise is made because of the ego, non because of the objective marketplace opportunity.
* We saw a ascent to novel highs on the heels of the Fed announcement, amongst enterprise buying interest. Recent posts receive got commented on weak breadth and, for the marketplace overall, the breadth movie did non amend despite the Fed-related strength. Across all exchanges, nosotros saw 753 novel monthly highs against 254 lows. The latter is in 1 lawsuit again an uptick inwards novel lows together with the novel highs are one-half of what nosotros saw 2 weeks ago. Among SPX shares only, stocks making fresh 100-day novel highs versus lows did expand to a marginal novel peak. Much of the weakness is amid small-scale cap shares, though fiscal together with wellness aid stocks inside SPX are likewise lagging. With the mixed breadth picture, I'm non surprised to run across some retracement of yesterday's gains inwards premarket merchandise today.
* Breadth issues notwithstanding, it's clear that this has been a vigorous bull displace from the Feb lows. Note below how we've stayed "overbought" on my multiperiod clit stair out (daily tracking of SPX stocks making 5, 20, together with 100-day novel highs versus lows) for a number of days. This exclusively occurs inwards trending markets. While the breadth issues oft precede correction, my base of operations illustration is to sentiment such a correction equally a buying opportunity.
* I'm working on creating a cycle-based stair out of short-term momentum together with value effects inwards the ES market. The thought is to seat when markets are most probable to proceed versus opposite their most recent directional movement. Interestingly, the market's ascent yesterday occurred on a depression value of the momentum measure. More to come upwards on this research.
Wednesday, March 16th
* Jim Dalton, who has pioneered trading via Market Profile, is offering his in conclusion mentorship computer programme earlier his retirement. I likewise run across Terry Liberman will live doing a webinar amongst Jim afterwards today. When I taught an internship computer programme inwards Chicago many years ago, Jim's piece of occupation was the exclusively mandated reading. I proceed to discovery Market Profile helpful equally a conceptual framework for thinking nearly marketplace behavior.
* After some early on weakness, nosotros saw buying inwards stocks, but small-scale caps proceed to notably underperform large caps. As a result, nosotros run across continuing deterioration amid the breadth measures. New monthly lows ticked upwards to 192, the highest degree since Feb 24th together with monthly highs dipped to 451. Relatively weak sectors lately include unloose energy shares (XLE) together with healthcare (XLV). Today's trading volition live dominated past times the afternoon's Fed announcement.
* We proceed quite stretched on my intermediate clit measure, which looks at the number of SPX shares making fresh 5, 20, together with 100-day highs versus lows. (Data from Index Indicators). If the Fed-related merchandise can't interruption us from the breadth deterioration, I await an intermediate-term correction. That would non necessarily live an terminate to the bull displace from February's lows, but could advise a new, topping stage to the electrical current marketplace cycle. During a topping stage nosotros tin run across higher overall prices for the index, but amongst deterioration inwards some sectors contributing to lagging breadth.
* Here is a unique intraday indicator that looks at buying clit per unit of measurement area amid all U.S. listed shares. It tracks upticks amid all shares (data from e-Signal) together with expresses the final result inwards measure difference units. This shows us when important buying is coming into the market. It likewise shows us when at that topographic point is a meaningful absence of buying. (A corresponding stair out tracks important selling together with absence of selling pressure). It helps longer-term positions when those are going amongst the flows. The nautical chart below shows yesterday's market.
Tuesday, March 15th
* I'll live making an improver to these marketplace notes together with including each 24-hour interval links to readings that I discovery specially informative together with useful. To boot this off, banking concern check out the Paststat blog for daily trading ideas based upon historical patterns, including this 1 based upon seasonality. From my perspective, such patterns are the starting signal for analysis, non an terminate point. Once nosotros run across a pattern, the difficult piece of occupation remains of deciding: 1) is the electrical current marketplace authorities typical of the menstruum covered past times the historical test; 2) is at that topographic point a audio argue for the beingness of the pattern, or mightiness the designing live a random occurrence; together with 3) what is the variability or together with thus the designing (could yous endure the exceptional instances)? Factoring marketplace history into trading decisions is no guarantee of success--it's slow to aspect inwards together with thus many places that some "significant" designing appears--but ignorance of marketplace history is non just a promising alternative.
* The relative absence of selling clit per unit of measurement area inwards Monday's session was noteworthy together with helped atomic number 82 to higher prices for much of the session earlier a belatedly selling burst. Selling has continued overnight amongst no novel shot inwards the arm from the Bank of Japan. Trading was unusually wearisome on Mon together with nosotros could larn to a greater extent than of the same ahead of tomorrow's Fed announcement. Note how short-term breadth has been potent for a number of days; the stair out below tracks the percent of SPX stocks closing to a higher house their 3, 5, together with 10-day moving averages. (Data from Index Indicators).
* The marketplace looks tired to me--for the origin fourth dimension since the liftoff from the Feb lows. Specifically, we're getting fewer shares registering novel highs during marketplace rallies. Much of that relative weakness is coming from small-scale cap shares. Yesterday nosotros saw 921 stocks across all exchanges brand fresh monthly highs against over 2000 in conclusion week. (Data from the Barchart site). No private sector inside the SPX looks distinctively weak together with I'm non at all convinced that we're going into deport mode. Rather, I await a normal correction inside a bull move. With the absence of selling having problem bringing us higher, I'm leaning toward selling bounces that cannot maintain us to a higher house the overnight highs. Of course, the upcoming Fed annunciation volition supply a major catalyst for stocks tomorrow.
Monday, March 14th
* Those who know me good know that I create non subscribe to the thought that successful trading is by together with large a operate of psychology. Without an objective trading edge, one's frame of bespeak heed volition but dictate the charge per unit of measurement at which nosotros portion amongst our capital. Still, psychology is necessary, if non sufficient, for success together with yesterday's post service was mayhap my clearest explanation why.
* We shut close the highs on Friday, continuing the upswing next the post-ECB selloff. The ascent left us quite stretched short-term, amongst over 90% of SPX stocks trading to a higher house their 3, 5, 10, together with 20-day moving averages. This inwards itself is non a mutual occurrence. Going dorsum to 2006, I could exclusively discovery 12 instances of this happening when VIX has been below 20. Interestingly, three were up, ix downward the side past times side 24-hour interval for a internet loss, but 10 were up, 2 downward after three days. We're trading a fighting lower premarket equally I write; the depth of a side past times side pullback volition state us a lot nearly possible upside momentum over the side past times side few days.
* One line of piece of occupation concern starting to travel inwards my caput is that Friday's highs were the origin inwards which nosotros saw sizable breadth divergences. If nosotros aspect at all stocks across all exchanges, nosotros tin run across that 1087 made fresh monthly highs on Fri against 2082 the prior Friday. Much of this is a operate of relative weakness amid small-scale caps. We exclusively had 92 novel monthly lows on Friday, together with thus naught is standing out equally weak together with I'm non expecting whatsoever grand reversal. I am concerned, however, that nosotros could run across a decent pullback from these levels equally portion of the start of a topping process. Bottom line is that I was happy to receive got profits belatedly Fri together with I'm happy to remain on the sidelines together with run across what the bears tin bring. Ideally, I'd similar to live a buyer of weakness early on inwards the calendar week for at to the lowest degree a retest of highs thereafter. But I'm non seeing favorably skewed risk/reward right here, right now.
Tuesday, January 15, 2019
Info!! Trading Notes: Calendar Week Of 8/24/15
Friday, August 28th
* Buying weakness yesterday ended upwards beingness a useful strategy for much of the day, exactly a potent selloff as well as and thus buying reversal inward the concluding 2 hours of the trading session made for volatile trading. I hold to await these volatility aftershocks to endure amongst us, equally noted inward Wednesday's post. That beingness said, the pure volatility mensurate has been mostly trending downwards over the yesteryear several sessions, though it's yet at historically high levels.
* The blueprint of improving breadth has continued. Interestingly, nosotros had 131 stocks across all exchanges register fresh novel monthly highs as well as 136 brand novel lows. That novel depression figure compares amongst 726 as well as 840 during the prior 2 sessions as well as 3553 at what appears to endure a momentum low. As long equally nosotros encounter higher prices, potent NYSE TICK readings, as well as improving breadth, my game innovation is to purchase weakness, specially if it tin arrive at the axe concord higher upwards the overnight lows.
* Pertinent to the number of declining, exactly yet high volatility, is the pass upwards inward book inward SPY over the yesteryear several sessions. We peaked at 507 1 chiliad m shares traded on Monday, as well as thus roughly 369, 339, as well as 275 1 chiliad m the yesteryear iii days. One of my quant routines estimates the probable day's arrive at (very helpful for establishing cost targets on trades), amongst book equally a major input. By seeing how today's book unfolds, nosotros tin arrive at the axe approximate the probable day's book as well as brand informed estimates equally to probable cost arrive at for SPY.
* H5N1 mensurate of the breadth of marketplace position clit that I rails daily is the number of NYSE shares that arrive at purchase vs. sell signals for diverse technical measures. Yesterday nosotros had 520 purchase signals vs. 20 sells for the Parabolic/SAR measure. We've had xi occasions where we've had over 400 purchase signals on that mensurate since June, 2014, when I began collecting the data. Three days later, SPY has been upwards viii times, downwards 3 for an average gain of +.49%. It's equally good pocket-size a sample to hang our hats on, exactly does serve equally a overnice reminder that potent upside thrust leading to a short-term overbought province of affairs (over 90% of SPX stocks are higher upwards their 3- as well as 5-day moving averages) does non necessarily atomic number 82 to "mean reversion".
Thursday, August 27th
* Per yesterday's post, nosotros did indeed encounter a seek out of lows inward Wednesday's session, followed yesteryear important buying. The NYSE TICK has provided really practiced tells for the recent marketplace position action, equally wide downticking was followed yesteryear wide upticking really early on inward yesterday's rally. That clit has continued into the overnight, all of which is consistent amongst the view of having position inward a momentum depression per Tuesday's comment.
* Another practiced state inward yesterday's merchandise was the continued drying upwards of the number of stocks making fresh novel lows on weakness. We had 726 monthly lows across all exchanges yesterday versus 840 on Tuesday as well as 3553 (!) on Monday.
* The pure volatility mensurate continues at high levels, suggesting that book as well as volatility powerfulness endure amongst us for a while. We remain higher upwards xxx inward VIX, off the highs exactly significantly elevated relative to close of 2015.
* I notice that the psychological issues faced yesteryear traders inward this recent marketplace position are related to difficulty adapting to the recent changes of trend, correlation, as well as volatility. Per the recent Forbes article, a big purpose of emotional upheaval inward trading comes from the mismatch betwixt the patterns we've operate out accustomed to seeing inward markets as well as the novel patterns that are playing themselves out inward electrical flow marketplace position action.
* I regime annotation that 89% of SPX stocks are right away trading higher upwards their three-day moving averages, exactly alone a piffling over 2% are trading higher upwards their 10-day averages. I await that latter number to growth significantly, equally our correction from the recent weakness plays itself out inward fourth dimension equally good equally price. My game innovation is to endure opened upwards to buying weakness equally long equally nosotros remain higher upwards the overnight lows.
Wednesday, August 26th
* The pause of the 1920 degree inward ES referenced yesterday showed us that the mainland People's Republic of China cutting was non a game changer, as well as nosotros continued the volatile downward market. Interestingly, fewer stocks made fresh novel lows yesterday relative to the twenty-four hours previous. Specifically, nosotros had 3553 monthly lows across all exchanges 2 days agone as well as alone 840 yesterday. This would endure consistent amongst having position inward a momentum low, which on major declines tin arrive at the axe precede ultimate cost lows yesteryear weeks or fifty-fifty months.
* Yesterday nosotros had fewer than 5% of all SPX stocks trading higher upwards their 3, 5, 10, 20, as well as 50-day moving averages. Going dorsum to 2006, at that spot bring alone been iv occasions inward which we've seen similar wide weakness: 10/7 as well as 10/9 of 2008; 11/20 of 2008; as well as 8/8 of 2011. Over the adjacent iii trading days, SPY moved -9.74%; 9.68%; 13.95%; as well as 4.75%, respectively. Note the really high volatility going forward.
* Note also that the dates higher upwards did non brand ultimate cost lows for a number of months, exactly ultimately led to major bull marketplace position moves.
* I am warning for the possibility of our putting inward lows close term as well as am watching that 1830-1850 degree inward ES closely. I would await the combination of brusk roofing as well as value buying inward the high volatility surround to create a major snapback rally from these really oversold conditions.
Tuesday, August 25th
* The volatility warning proved useful for Monday's trade, equally nosotros blew out to a VIX of forty yesteryear the unopen as well as traded amongst a daily truthful arrive at inward excess of 8%. We traded good off the day's lows, inviting the hypothesis that we've seen a momentum depression for this downwards move.
* Contributing to the view of a momentum depression is the unusually broad, weak breadth. Over 400 SPX stocks made fresh 20 twenty-four hours lows yesterday. We haven't seen that form of wide weakness since early on August, 2011. That indeed was a momentum low, exactly regime annotation that stocks drifted lower, albeit amongst fewer stocks registering novel lows, for a yoke of months after that.
* I volition endure watching commodities closely, equally these bring been a useful warning for EM equity weakness as well as weakness inward States of America stocks.
* I volition also endure watching the ES 1920 area, equally that was the close recent depression prior to the mainland People's Republic of China statement of a reserve ratio cut. If that displace yesteryear mainland People's Republic of China was a game-changer, that degree inward ES should hold. Game innovation is to purchase weakness that holds higher upwards that 1920 level.
Monday, August 24th
* There's a really primal betoken toward the destination of the recent Forbes article: many times what nosotros translate equally a trading occupation genuinely represents *information*. For example, the trader who has difficulty pulling the trigger may really good intuit that the marketplace position surround has changed as well as that what had been practiced risk/reward may non endure thus at the moment. Similarly, frustration could endure a really practiced early, emotional signal that regimes bring changed. We pass a lot of fourth dimension trying to preclude as well as fighting emotions inward trading when mayhap nosotros should endure focused on learning from them.
* With honour to the recent article, also regime annotation the v things I facial expression for to position changing regimes. Very helpful inward adapting to marketplace position conditions. These volition endure relevant 1 time we're cook for the conduct to turn.
* We hold to encounter cost behaviour that is wildly unlike from what nosotros seen through close of 2015. For example, from midnight to viii AM EST thus far today, we've printed 150 bars based upon 500 ticks of cost movement. By contrast, on the Mon 2 weeks ago, from midnight to viii AM nosotros printed half-dozen such bars. My pure volatility mensurate continues to brand novel highs, important that we're getting to a greater extent than crusade from to a greater extent than volume, exactly also to a greater extent than crusade per unit of measurement of volume. This makes gamble management tricky, equally nosotros tend to rely on the same fourth dimension frames for asset periods without realizing that asset a merchandise for a sixty minutes right away is similar asset for a twenty-four hours before inward the year.
* We closed Fri amongst fewer than 5% of SPX stocks trading higher upwards their 3, 5, as well as 10-day moving averages. That form of wide short-term weakness has been to a greater extent than typical of 2010 as well as 2011 markets than recent ones. Very often, when we've had such wide weakness, the showtime thrust downwards has been followed yesteryear farther weakness, which is what we've seen overnight. I hold to favor selling bounces until there's approximately evidence that selling pressure level cannot hold to yield weakness across the vast bulk of sectors.
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* Buying weakness yesterday ended upwards beingness a useful strategy for much of the day, exactly a potent selloff as well as and thus buying reversal inward the concluding 2 hours of the trading session made for volatile trading. I hold to await these volatility aftershocks to endure amongst us, equally noted inward Wednesday's post. That beingness said, the pure volatility mensurate has been mostly trending downwards over the yesteryear several sessions, though it's yet at historically high levels.
* The blueprint of improving breadth has continued. Interestingly, nosotros had 131 stocks across all exchanges register fresh novel monthly highs as well as 136 brand novel lows. That novel depression figure compares amongst 726 as well as 840 during the prior 2 sessions as well as 3553 at what appears to endure a momentum low. As long equally nosotros encounter higher prices, potent NYSE TICK readings, as well as improving breadth, my game innovation is to purchase weakness, specially if it tin arrive at the axe concord higher upwards the overnight lows.
* Pertinent to the number of declining, exactly yet high volatility, is the pass upwards inward book inward SPY over the yesteryear several sessions. We peaked at 507 1 chiliad m shares traded on Monday, as well as thus roughly 369, 339, as well as 275 1 chiliad m the yesteryear iii days. One of my quant routines estimates the probable day's arrive at (very helpful for establishing cost targets on trades), amongst book equally a major input. By seeing how today's book unfolds, nosotros tin arrive at the axe approximate the probable day's book as well as brand informed estimates equally to probable cost arrive at for SPY.
* H5N1 mensurate of the breadth of marketplace position clit that I rails daily is the number of NYSE shares that arrive at purchase vs. sell signals for diverse technical measures. Yesterday nosotros had 520 purchase signals vs. 20 sells for the Parabolic/SAR measure. We've had xi occasions where we've had over 400 purchase signals on that mensurate since June, 2014, when I began collecting the data. Three days later, SPY has been upwards viii times, downwards 3 for an average gain of +.49%. It's equally good pocket-size a sample to hang our hats on, exactly does serve equally a overnice reminder that potent upside thrust leading to a short-term overbought province of affairs (over 90% of SPX stocks are higher upwards their 3- as well as 5-day moving averages) does non necessarily atomic number 82 to "mean reversion".
Thursday, August 27th
* Per yesterday's post, nosotros did indeed encounter a seek out of lows inward Wednesday's session, followed yesteryear important buying. The NYSE TICK has provided really practiced tells for the recent marketplace position action, equally wide downticking was followed yesteryear wide upticking really early on inward yesterday's rally. That clit has continued into the overnight, all of which is consistent amongst the view of having position inward a momentum depression per Tuesday's comment.
* Another practiced state inward yesterday's merchandise was the continued drying upwards of the number of stocks making fresh novel lows on weakness. We had 726 monthly lows across all exchanges yesterday versus 840 on Tuesday as well as 3553 (!) on Monday.
* The pure volatility mensurate continues at high levels, suggesting that book as well as volatility powerfulness endure amongst us for a while. We remain higher upwards xxx inward VIX, off the highs exactly significantly elevated relative to close of 2015.
* I notice that the psychological issues faced yesteryear traders inward this recent marketplace position are related to difficulty adapting to the recent changes of trend, correlation, as well as volatility. Per the recent Forbes article, a big purpose of emotional upheaval inward trading comes from the mismatch betwixt the patterns we've operate out accustomed to seeing inward markets as well as the novel patterns that are playing themselves out inward electrical flow marketplace position action.
* I regime annotation that 89% of SPX stocks are right away trading higher upwards their three-day moving averages, exactly alone a piffling over 2% are trading higher upwards their 10-day averages. I await that latter number to growth significantly, equally our correction from the recent weakness plays itself out inward fourth dimension equally good equally price. My game innovation is to endure opened upwards to buying weakness equally long equally nosotros remain higher upwards the overnight lows.
Wednesday, August 26th
* The pause of the 1920 degree inward ES referenced yesterday showed us that the mainland People's Republic of China cutting was non a game changer, as well as nosotros continued the volatile downward market. Interestingly, fewer stocks made fresh novel lows yesterday relative to the twenty-four hours previous. Specifically, nosotros had 3553 monthly lows across all exchanges 2 days agone as well as alone 840 yesterday. This would endure consistent amongst having position inward a momentum low, which on major declines tin arrive at the axe precede ultimate cost lows yesteryear weeks or fifty-fifty months.
* Yesterday nosotros had fewer than 5% of all SPX stocks trading higher upwards their 3, 5, 10, 20, as well as 50-day moving averages. Going dorsum to 2006, at that spot bring alone been iv occasions inward which we've seen similar wide weakness: 10/7 as well as 10/9 of 2008; 11/20 of 2008; as well as 8/8 of 2011. Over the adjacent iii trading days, SPY moved -9.74%; 9.68%; 13.95%; as well as 4.75%, respectively. Note the really high volatility going forward.
* Note also that the dates higher upwards did non brand ultimate cost lows for a number of months, exactly ultimately led to major bull marketplace position moves.
* I am warning for the possibility of our putting inward lows close term as well as am watching that 1830-1850 degree inward ES closely. I would await the combination of brusk roofing as well as value buying inward the high volatility surround to create a major snapback rally from these really oversold conditions.
Tuesday, August 25th
* The volatility warning proved useful for Monday's trade, equally nosotros blew out to a VIX of forty yesteryear the unopen as well as traded amongst a daily truthful arrive at inward excess of 8%. We traded good off the day's lows, inviting the hypothesis that we've seen a momentum depression for this downwards move.
* Contributing to the view of a momentum depression is the unusually broad, weak breadth. Over 400 SPX stocks made fresh 20 twenty-four hours lows yesterday. We haven't seen that form of wide weakness since early on August, 2011. That indeed was a momentum low, exactly regime annotation that stocks drifted lower, albeit amongst fewer stocks registering novel lows, for a yoke of months after that.
* I volition endure watching commodities closely, equally these bring been a useful warning for EM equity weakness as well as weakness inward States of America stocks.
* I volition also endure watching the ES 1920 area, equally that was the close recent depression prior to the mainland People's Republic of China statement of a reserve ratio cut. If that displace yesteryear mainland People's Republic of China was a game-changer, that degree inward ES should hold. Game innovation is to purchase weakness that holds higher upwards that 1920 level.
Monday, August 24th
* There's a really primal betoken toward the destination of the recent Forbes article: many times what nosotros translate equally a trading occupation genuinely represents *information*. For example, the trader who has difficulty pulling the trigger may really good intuit that the marketplace position surround has changed as well as that what had been practiced risk/reward may non endure thus at the moment. Similarly, frustration could endure a really practiced early, emotional signal that regimes bring changed. We pass a lot of fourth dimension trying to preclude as well as fighting emotions inward trading when mayhap nosotros should endure focused on learning from them.
* With honour to the recent article, also regime annotation the v things I facial expression for to position changing regimes. Very helpful inward adapting to marketplace position conditions. These volition endure relevant 1 time we're cook for the conduct to turn.
* We hold to encounter cost behaviour that is wildly unlike from what nosotros seen through close of 2015. For example, from midnight to viii AM EST thus far today, we've printed 150 bars based upon 500 ticks of cost movement. By contrast, on the Mon 2 weeks ago, from midnight to viii AM nosotros printed half-dozen such bars. My pure volatility mensurate continues to brand novel highs, important that we're getting to a greater extent than crusade from to a greater extent than volume, exactly also to a greater extent than crusade per unit of measurement of volume. This makes gamble management tricky, equally nosotros tend to rely on the same fourth dimension frames for asset periods without realizing that asset a merchandise for a sixty minutes right away is similar asset for a twenty-four hours before inward the year.
* We closed Fri amongst fewer than 5% of SPX stocks trading higher upwards their 3, 5, as well as 10-day moving averages. That form of wide short-term weakness has been to a greater extent than typical of 2010 as well as 2011 markets than recent ones. Very often, when we've had such wide weakness, the showtime thrust downwards has been followed yesteryear farther weakness, which is what we've seen overnight. I hold to favor selling bounces until there's approximately evidence that selling pressure level cannot hold to yield weakness across the vast bulk of sectors.
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Saturday, December 8, 2018
Info!! Trading Alongside Patience
What happens during these patient periods--the times of *not* trading--plays a huge business office inwards trading success as well as failure. The successful traders I travel alongside purpose the downwards fourth dimension to travel on generating novel ideas,building novel analytical tools, as well as reviewing their performance. The less successful traders cannot abide patience as well as plough trading into overtrading. They convey to convey something to do as well as thence they trade, fifty-fifty when an border is non apparent.
The best traders plough the patient periods into choice forms of stimulation.
The worst traders sense patience equally boredom as well as uncovering something to trade.
With the VIX below xi as well as my "true volatility" stair out (movement per unit of measurement of volume) at multi-month lows, I'm finding a lot of get inside ranges as well as thence simulated breakouts from those ranges. This makes trading really hard for a momentum style. Influenza A virus subtype H5N1 value-based style--buying short-term oversold as well as selling overbought weather that intermission out of a range--has worked much better--especially when directional moves of the index are non accompanied yesteryear like moves across major sectors. Buying forcefulness as well as selling weakness on average neglect inwards the slower environment.
In a futurity post, I'll survive reviewing Larry Connors' forthcoming mass Buy the Fear, Sell the Greed. It's an unusually practical trading book, alongside each chapter describing a specific source of border as well as a backtested way of implementing that edge. One of his tools is a short-term variation of the RSI stair out originally developed yesteryear Wells Wilder. During dull marketplace times, I've been experimenting alongside the stair out to exploit the behavioral biases Larry discusses inwards the book. Such interrogation is a swell way to plough patient times into productive ones.
Years agone I did an experiment where I showed people a nautical chart as well as asked them to predict where the marketplace would perish from there. The charts were identical, only one-half of the subjects saw a nautical chart alongside a squeamish dark-green upwards bar equally the nearly recent bar as well as the other one-half of subjects saw the final bar equally a practiced red, downwards bar. Not surprisingly, those seeing the nearly recent dark-green bar expected the marketplace to ascent as well as vice versa.
It's a swell representative of recency bias. We overweight recent experience. In slow, depression volatility markets, at that spot is a worthwhile border inwards fading that bias. That's a swell lesson I learned during my patient menstruum of non trading: markets don't convey to tendency to furnish opportunity.
Further Reading:
Sunday, February 24, 2019
Info!! The Momentum Curve: Expanding The Search For Marketplace Set Profits
As to a greater extent than prospectors displace in, the low-hanging fruit is gone. Now golden must survive extracted from rocks in addition to from deeper inwards the ground. This requires particular equipment. The unmarried miner alongside his pan, combing through the river bed debris, no longer has an "edge" inwards discovering gold.
Still later, equally to a greater extent than of the territory is mined, extracting what remains becomes a to a greater extent than complex task. Deep drilling into the soil in addition to exploration of to a greater extent than remote mount areas is required to brand the investment of fourth dimension in addition to endeavour worthwhile. Individual miners, picking through areas that cause got already been explored, cause got most no wages inwards discovering gold--even though they yet recount the stories of big strikes only a few years prior.
A well-mined expanse agency that either you lot cause got to discovery novel areas to explore or you lot cause got to discovery novel agency of exploration. In the illustration of natural gas in addition to oil, fracking has been a novel way of exploration. Drilling inwards the Arctic would survive an illustration of finding novel areas to explore. Either way, ingenuity is required to discovery value i time others cause got been searching for a while.
Financial markets cause got been well-mined for a while. Excellent traders, portfolio managers, in addition to organization developers roughly the globe cause got been attracted to the golden rush of markets. While looking for nuggets of profitability inwards novel ways in addition to inwards novel places does non guarantee success, looking for them where others cause got been searching for years alongside sophisticated tools inevitably invites failure.
I late cause got been posting on the topics of understanding vs. predicting markets; looking at markets inwards novel ways; in addition to using quant processes to aid discretionary expertise. The mutual theme is becoming ameliorate at the exploration for profits past times looking at novel things in addition to looking at erstwhile things inwards novel ways.
Above is a nautical chart of what I telephone cry upwards the Momentum Curve. It takes every stock inwards the SPX in addition to gauges whether it is trading higher upwards its 3, 5, 10, 20, 50, 100, in addition to 200-day moving averages. The aggregated information are charted (available through the first-class Index Indicators site), in addition to then that you lot tin hand the sack come across how the percentages of stocks shift over time. Observe from the graphic that--going into Friday's session--we had been undergoing a meaningful short-term correction (most stocks moving below their 3, 5, in addition to 10-day averages) inwards a potent uptrend (most stocks higher upwards their 100 in addition to 200-day averages).
It turns out that the shape of the Momentum Curve is of import inwards forecasting hereafter stock marketplace returns. The render profile looks rattling dissimilar depending on where the kinks are inwards the curve, whether the fold is steep or flat, etc. I discovery it useful equally a qualitative tool--it provides a quick visualization of where nosotros stand upwards across multiple fourth dimension frames--and also equally a beginning of quantitative hypotheses regarding fold shape in addition to forwards cost movement.
Some of the best marketplace tools don't generate conclusions. Rather, they advise hypotheses worth testing. The start stride inwards finding fresh answers is call for fresh questions.
Further Reading: The Psychology of Quantitative Analysis
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Saturday, February 9, 2019
Info!! The Existent Rootage Of Trading Success
We know from research that persistent success at solar daytime trading does exist, in addition to nosotros also know that it is rare. In a sense, that should non surprise us: past times definition, elite talent is rare. What makes trading hard is that, inwards many fields, nosotros tin brand a living from our piece of employment fifty-fifty if nosotros are non operating at elite talent levels. In solar daytime trading, every bit good every bit other forms of trading, making a consistent living from trading *is* elite talent.
To illustrate some of trading's challenges, I ran a few numbers using SPY every bit my proxy trading instrument. From 2012 to the present, SPY has gained a footling over sixty points. About one-half of those points were gained during overnight hours; one-half during the United States solar daytime hours. The traditional solar daytime trader has express himself/herself to virtually one-half the directional chance past times trading solely during the United States hours.
Should traders attempt greater directional chance past times extending the fourth dimension frame, they volition notice that the correlation betwixt overnight changes in addition to solar daytime session changes inwards the stock marketplace since 2012 has been -.01. They mightiness every bit good move totally dissimilar markets. If the trader extends to to a greater extent than of a swing fourth dimension frame, the correlation betwixt today's cost modify in addition to tomorrow's since 2012 has been -.02. In other words, overall, what happens inwards the marketplace during 1 short-term menstruation offers no information virtually what volition hap inwards the adjacent period. We similar to mean value directionally, inwards terms of trends, but--overall--what nosotros tin extrapolate from electrical flow markets to futurity ones is quite modest.
I quest maintain tested many patterns inwards markets in addition to tin attest that a correlation betwixt marketplace predictors in addition to futurity cost modify that exceeds .20 is something quite special. Yet fifty-fifty that correlation implies that the predictors trouble organisation human relationship for solely 4% of futurity cost movement. Our mistake variance is real high relative to what nosotros tin predict, fifty-fifty for statistically pregnant research.
That, of course, leads some to create models of sufficient complexity that they volition hope far higher levels of predictive accuracy. I quest maintain written about. During this most recent marketplace decline, volatility blew out: what had been pregnant levels of volatility for calling marketplace bottoms no longer applied to the novel regime. We tin calculate the odds of a given backtest beingness overfit, in addition to it doesn't quest maintain much inwards the means of complexity to larn to that point.
So where does that leave of absence us? Simple patterns exercise non render reliable profitability, breathless claims such every bit the inwards a higher house graphic notwithstanding. Complex patterns are all besides probable to move overfit, producing slap-up backtests merely failing inwards existent fourth dimension performance. No, the response is non to move uncomplicated or complex; the response is to move different. Of the traders I worked amongst a decade ago, fewer than 5% are currently trading in addition to experiencing success. In each case, they are doing something real dissimilar from what the criterion trading books describe. They quest maintain industrial plant life sources of "edge" inwards markets that they quest maintain made their own, in addition to they quest maintain been consistent inwards exploiting those edges.
One trader, for example, came upwards amongst an ingenious method for identifying when trading inwards a item property was becoming highly crowded. He thence looked for indications of loss of cost momentum in addition to took the other side of the crowded trade, benefiting from the herd running for the doors. Influenza A virus subtype H5N1 big piece of employment of his border was that, if he didn't notice the correct patterns of crowding, he did non trade. He solely played the game when the odds were on his side.
A real dissimilar trader at a fiscal establishment obtained information from satellites that provided information virtually conditions in addition to crop planting patterns in addition to used those information to predict yields for agricultural commodities. When markets were mispriced relative to the novel data, trades amongst an border could move placed.
Still some other trader industrial plant life that marketplace moves at sure enough times of solar daytime had to a greater extent than likelihood of reversing than at other times of day, every bit dissimilar participants impacted the marketplace throughout the day. By tracking the grade of participation in addition to campaign in addition to segmenting fourth dimension differently from other traders, he was able to position profitable trading patterns.
In the trading globe every bit inwards the trouble organisation world, "me too" is non a formula for success. The successful entrepreneur is the 1 who operates amongst a vision, doing something differently--and better--than rivals. It's non plenty to excogitation your merchandise in addition to merchandise your plan. Those plans quest maintain to move grounded inwards insight in addition to unique information if they are to atomic number 82 to ongoing success.
Further Reading: Keys to Day Trading Success
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