tracking large traders inwards the market in addition to the volume realities that every short-term trader should know. The argue book analysis is of import is because the bulk of volume--and the shifts inwards volume--can endure attributed to the participation or non-participation of large marketplace participants. These institutional traders postulate maintain the resources to displace markets, in addition to hence it is critical to empathise when they are relatively active in addition to inactive inwards the markets you're trading.
I took a facial expression at the final fourteen days of trading inwards the ES (S&P emini) futures contract in addition to institute that the book of each 30-minute menstruum during the solar daytime correlated amongst the size of the high-low cost hit for that menstruum past times .78. That way that virtually 60% of the variance inwards volatility tin endure accounted for precisely past times knowing the book traded during that period. When nosotros position whether book is high or depression for a period, we're also able to brand an guess of probable volatility for that period.
Above nosotros run into the median book for each 30-minute menstruum inwards ES for the final fourteen trading sessions (top chart) in addition to the median high-low percent cost hit for those periods. The correlation betwixt book in addition to volatility is obvious. Also obvious is that book in addition to volatility shift substantially inside the trading day. Indeed, the median book of the 11:30 AM CT - 12 Noon CT bar is less than one-half of the median book for the market's opening 30-minute bar. The median cost hit per 30-minute period--the amount cost movement--is 40% smaller for the midday menstruum compared amongst the opening one.
This changing volume/volatility dynamic inside the trading solar daytime has of import implications for the intraday trader, including the placement of stops in addition to cost targets. I late corresponded amongst a rookie trader who placed his stops in addition to cost targets a fixed publish of points from this entry. While this provided the illusion of managing risk, it was ineffectual. The fixed halt signal was hitting precisely past times random cost motion during the busy periods of the day, taking the trader out of skillful trades. Conversely, during tiresome periods, the trader's cost targets were never hit, leading to reversals of his newspaper profits. The trader sought me out for aid inwards dealing amongst his emotions, but inwards fact his work was his failure to arrange to shifts inwards volatility.
This same work occurs amidst fifty-fifty relatively sophisticated traders who convey expectations of cost motion from the final solar daytime or 2 to the introduce trading day. They anticipate or in addition to hence motion than the marketplace is genuinely giving them, leading to premature exits from skillful trades on busy days in addition to failure to accept profits on trades when markets are slow.
So how tin nosotros guess the volatility of the solar daytime that we're currently trading, in addition to hence that nosotros tin arrange accordingly? The catch of relative book is that yous compare the book for the recent fourth dimension menstruum amongst the average book for that same fourth dimension menstruum over the past times X days. For example, I know that the median book for the fourth dimension menstruum of 12:30 - 1 PM CT is 113,785 contracts, amongst a criterion divergence of 53,262 contracts. If I run into book for that menstruum transcend 200,000 contracts during the trading day, I know that this is a pregnant boundary inwards book relative to the recent past. It alerts me that institutional traders are relatively active inwards this market, in addition to hence I volition pay detail attending to whether they are buying or selling (by analyzing NYSE TICK in addition to Market Delta for that period). It is out of such surges inwards participation that breakout moves in addition to trends are oftentimes born.
Conversely, if I know that if the opening one-half lx minutes of merchandise averages 259,412 contracts amongst a criterion divergence of 66,817 contracts in addition to run into that the electrical flow opening menstruum has alone traded 150,000 contracts, I know correct away that large traders are non dominating this market. This volition Pb to reduced volatility, in addition to it typically leads to a choppier trade, every bit marketplace makers force the marketplace to in addition to fro to brand their scalping profits. H5N1 marketplace dominated past times marketplace makers trades really differently from a marketplace dominated past times prop traders in addition to fund portfolio managers. By recognizing relative volume, yous tin also position who is relatively active inwards the marketplace--and that volition render yous amongst valuable clues every bit to how much--and what type of--opportunity is present.
Note: If at that topographic point is sufficient interest, I tin shipping existent fourth dimension relative book information via Twitter in addition to every bit utilisation of the indicator updates on the blog. The RSS subscription to Twitter is costless of charge; the weekly indicator updates typically seem on Mon prior to the marketplace open.
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Showing posts sorted by relevance for query relative-volume-and-volatility. Sort by date Show all posts
Showing posts sorted by relevance for query relative-volume-and-volatility. Sort by date Show all posts
Tuesday, February 18, 2020
Sunday, December 9, 2018
Info!! Lessons Inwards Trading Too Psychology - 4: Volatility
In hearing from many traders recently, I'm finding that they are having a hard fourth dimension adapting to the market's shifting volatility. With volatility declining--and the volatility of volatility waning--we larn choppier marketplace conditions. With volatility expanding--and greater vol of vol--we encounter momentum moves. Many times, traders are zigging when they should hold upwardly zagging because they are misreading--or *not* reading--market volatility.
Above is a tool I created inward almost forty minutes from historical information via the e-Signal platform. Here we're looking at the volatility (high/low range) inward each v infinitesimal bar inward SPY relative to the average attain for that same fourth dimension bar over the prior v trading sessions. So, for example, we're seeing how today's 9:30 - 9:35 AM EST bar compares inward size to the average 9:30 - 9:35 AM EST bar for the prior v trading sessions.
Note how, from the really root of trading yesterday, nosotros were seeing relative ratios below 1.0. That agency we're getting less motility inward each fourth dimension catamenia than we've seen over the by calendar week of trading. Very speedily that tin alarm you lot to the fact that this is non probable to hold upwardly a high momentum market. In the lower volatility environment, moves are less probable to extend in addition to nosotros desire to hold upwardly to a greater extent than selective almost taking trades in addition to opportunistic almost taking profits.
Note also how it would hold upwardly slowly to practise this relative volatility mensurate for whatever stock or index you're following. We typically await closely at cost movements in addition to trends; we're less probable to test how volatility is trending. Adapting our trading to the marketplace surroundings allows us to recognize when nosotros should hold upwardly trading moves in addition to when nosotros should hold upwardly fading them. That tin eliminate a helluva lot of frustration!
Further Reading:
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.
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* 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.
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Info!! Trading Notes: Calendar Week Of 8/31/15
Friday, September 4th
* We showed early on forcefulness yesterday, but book flows were suspiciously weak for much of the morn too failed to confirm the highs of the twenty-four lx minutes menses (see nautical chart below). Volume flow is a proprietary volume-weighted mensurate of upticks vs. downticks for all stocks traded across all exchanges too tells us whether size is to a greater extent than oftentimes than non leaning to the purchase side or sell side. Volume weighting the NYSE TICK achieves much of this purpose. Once nosotros began to come upwards off the highs, nosotros saw a steady reject inward book flows, every bit nosotros chop-chop turned negative on the day. Tracking such flows is my favorite way of "reading the tape": when the record does non confirm signals from quant models, I desire to quest heed to the tape. It to a greater extent than oftentimes than non way that something idiosyncratic is moving the market: something models aren't accounting for.
* We're trading significantly off yesterday's highs too then far this morning, with fresh selling inward premarket. All of this is consistent with the sentiment of an extended bottoming procedure next a potential momentum depression registered final week. As mentioned yesterday, during these high volatility periods, the percent of stocks trading inward a higher house their short-term moving averages ends upwards beingness a helpful overbought/oversold gauge. Yesterday, good over 80% of SPX stocks were inward a higher house their 3-day moving averages.
* My full general game excogitation is to sell bounces, peculiarly on tepid book flows, but we're quite short-term oversold here, too then I'm prepared to hold back for a reasonable bounce inward cost and/or time.
Thursday, September 3rd
* Buying weakness per yesterday's post service worked reasonably good yesterday, though a unopen aspect at NYSE TICK showed a two-way marketplace with active participation from both buyers too sellers. We hold to endure oversold on intermediate-term measures too nosotros soundless receive got solely a niggling over 20% of SPX stocks trading inward a higher house their five-day moving averages. My game excogitation remains to purchase weakness that remains inward a higher house the overnight lows.
* One of the ameliorate decisions I've made inward trading lately has been to plough my models off in 1 lawsuit it became clear that nosotros were trading inward a dissimilar volatility authorities from the 1 that has persisted for much of the final 2 or too then years. My latest projection is edifice models specific to defined volatility regimes. Early days, but results aspect promising. One intriguing finding is distinct short-term hateful reversion effects inward SPY for the electrical flow regime. For example, when the issue of five-day novel highs minus novel lows for SPX stocks is nix or above, the adjacent 5 days inward SPY receive got averaged a loss of -.12%. When the five-day novel highs minus lows receive got been below zero, the adjacent 5 days receive got averaged a gain of +.49%. In general, chasing short-term forcefulness or weakness has non been a winning strategy; higher volatility does non imply greater trending. (Raw information from the first-class Index Indicators site).
* I'm concurrently working on the best ways of defining volatility regimes, using realized volatility, implied volatility, too to a greater extent than esoteric measures of vol based on published query inward quant finance. This strikes me every bit a fruitful expanse of research. Also on the docket is a Definition of correlation regimes too investigation of how returns may vary every bit a portion of higher too lower correlations alongside stocks. The destination is to receive got a suite of models built out for a make of regimes, too then that at that topographic point are clear rules for turning off 1 beginning of trading signals too turning on another. I am non at all convinced that a unmarried model tin accurately capture a high proportion of variance inward forrad returns for stocks, which is or too then other way of maxim that stocks comport differently inward higher too lower volatility too correlation regimes. Having a laid of models to capture those differences could assist discretionary traders accommodate to their environments to a greater extent than quickly.
Wednesday, September 2nd
* Many thank you lot to Sean McLaughlin for hosting this podcast on taking your trading to the adjacent level. I'll endure elaborating many of these ideas too to a greater extent than at the first-class Stocktoberfest gathering.
* Once again, the selling of bounces has worked good inward trading the ES. We're at nowadays at an oversold point, however, where I am mindful of the possibility of putting inward a short-term bottom. Fewer than 1% of SPX stocks are trading inward a higher house their 3-day moving averages too my intermediate-term forcefulness mensurate is rattling oversold. Although nosotros saw weakness yesterday with 111 novel monthly highs too 431 lows, that is nowhere nigh the weakness final week, when nosotros registered 35 highs too 3553 monthly lows on the large spike down. My game excogitation is to purchase weakness that holds inward a higher house yesterday's lows too peculiarly that successfully tests yesterday's lows.
* VIX is over xxx too my pure volatility mensurate is significantly elevated. I await vol to hold inward the nigh term, which has large implications for sizing of positions too calculations of stops too targets on trades. The inability to accommodate to changes inward volatility--especially when nosotros receive got high vol of vol--is a major beginning of problems for traders inward the electrical flow market.
Tuesday, September 1st
* Selling bounces has worked good too we've come upwards off difficult afterward hours, resuming the reject inward the human face upwards of Asia weakness. Volume flows were bearish all twenty-four lx minutes menses on Tuesday, helping laid upwards the weakness. (Volume flow is a volume-weighted mensurate of upticks vs. downticks for all exchange-listed shares). The pure volatility mensurate remains elevated, too I hold to anticipate highly volatile trading. It is non clear to me that nosotros only caput lower inward a similar a shot line; intermediate-term measures are quite oversold. I receive got been treating each fourth dimension zone every bit a carve upwards day--Asia, Europe, U.S.--and that has been helpful inward framing short-term trades. There are considerable discontinuities of flows from 1 fourth dimension zone to the next; greater continuity inside each fourth dimension zone.
* Below is a nautical chart of a elementary five-period charge per unit of measurement of change, where each bar inward the ES futures represents 500 cost changes. It is 1 tool alongside many that I utilization to frame whether the marketplace is short-term overbought or oversold. One of my execution rules is to hold back for short-term overbought weather condition to sell too short-term oversold ones to buy. In volatile markets, that tin relieve a lot of messiness. Many a proficient sentiment is undermined past times misfortunate entry too instruct out execution. I'll endure discussing my utilization of such tools inward the Las Vegas conference for Trader4ACause.
* I hold to scout commodity markets, every bit good every bit Asian stocks, for indications of the economical weakness that is impacting stocks. This is or too then other expanse inward which monitoring activeness past times fourth dimension zone has been helpful. I hold to lean toward selling bounces, but am mindful that we're short-term oversold here, too then am content to hold back for shorts to endure squeezed earlier taking whatever swing positions.
Monday, August 31st
* We focus on setting goals too tracking our progress toward those goals, but a wealth of show suggests that a procedure focus is much to a greater extent than probable to Pb to positive outcomes. When nosotros emphasize doing the correct things, nosotros are most apt to create things right. This is a rattling of import topic, every bit much of the flight-and-fight disruption of information processing too decision-making occurs when we're P/L focused too non genuinely trading focused.
* My pure volatility mensurate has been percolating higher, too then I'm prepared for a proficient amount of motility inward stocks. H5N1 slap-up routine is to compare intraday book of SPY with the book at the same fourth dimension of twenty-four lx minutes menses for the past times several sessions. Because book too volatility correlate highly, the real-time tracking of relative book helps us intelligently justice the probable make for the day.
* We've come upwards off Friday's highs inward overnight trading, with weakness inward Asia too Europe. My game excogitation is to sell ES on bounces that neglect to receive got out overnight highs. I'm non at all certain we're done hearing most EM too mainland People's Republic of China weakness too associated commodity weakness; the sentiment of an effective quantitative tightening raised past times Deutsche Bank final week is 1 worth pondering for implications.
* We showed early on forcefulness yesterday, but book flows were suspiciously weak for much of the morn too failed to confirm the highs of the twenty-four lx minutes menses (see nautical chart below). Volume flow is a proprietary volume-weighted mensurate of upticks vs. downticks for all stocks traded across all exchanges too tells us whether size is to a greater extent than oftentimes than non leaning to the purchase side or sell side. Volume weighting the NYSE TICK achieves much of this purpose. Once nosotros began to come upwards off the highs, nosotros saw a steady reject inward book flows, every bit nosotros chop-chop turned negative on the day. Tracking such flows is my favorite way of "reading the tape": when the record does non confirm signals from quant models, I desire to quest heed to the tape. It to a greater extent than oftentimes than non way that something idiosyncratic is moving the market: something models aren't accounting for.
* We're trading significantly off yesterday's highs too then far this morning, with fresh selling inward premarket. All of this is consistent with the sentiment of an extended bottoming procedure next a potential momentum depression registered final week. As mentioned yesterday, during these high volatility periods, the percent of stocks trading inward a higher house their short-term moving averages ends upwards beingness a helpful overbought/oversold gauge. Yesterday, good over 80% of SPX stocks were inward a higher house their 3-day moving averages.
* My full general game excogitation is to sell bounces, peculiarly on tepid book flows, but we're quite short-term oversold here, too then I'm prepared to hold back for a reasonable bounce inward cost and/or time.
Thursday, September 3rd
* Buying weakness per yesterday's post service worked reasonably good yesterday, though a unopen aspect at NYSE TICK showed a two-way marketplace with active participation from both buyers too sellers. We hold to endure oversold on intermediate-term measures too nosotros soundless receive got solely a niggling over 20% of SPX stocks trading inward a higher house their five-day moving averages. My game excogitation remains to purchase weakness that remains inward a higher house the overnight lows.
* One of the ameliorate decisions I've made inward trading lately has been to plough my models off in 1 lawsuit it became clear that nosotros were trading inward a dissimilar volatility authorities from the 1 that has persisted for much of the final 2 or too then years. My latest projection is edifice models specific to defined volatility regimes. Early days, but results aspect promising. One intriguing finding is distinct short-term hateful reversion effects inward SPY for the electrical flow regime. For example, when the issue of five-day novel highs minus novel lows for SPX stocks is nix or above, the adjacent 5 days inward SPY receive got averaged a loss of -.12%. When the five-day novel highs minus lows receive got been below zero, the adjacent 5 days receive got averaged a gain of +.49%. In general, chasing short-term forcefulness or weakness has non been a winning strategy; higher volatility does non imply greater trending. (Raw information from the first-class Index Indicators site).
* I'm concurrently working on the best ways of defining volatility regimes, using realized volatility, implied volatility, too to a greater extent than esoteric measures of vol based on published query inward quant finance. This strikes me every bit a fruitful expanse of research. Also on the docket is a Definition of correlation regimes too investigation of how returns may vary every bit a portion of higher too lower correlations alongside stocks. The destination is to receive got a suite of models built out for a make of regimes, too then that at that topographic point are clear rules for turning off 1 beginning of trading signals too turning on another. I am non at all convinced that a unmarried model tin accurately capture a high proportion of variance inward forrad returns for stocks, which is or too then other way of maxim that stocks comport differently inward higher too lower volatility too correlation regimes. Having a laid of models to capture those differences could assist discretionary traders accommodate to their environments to a greater extent than quickly.
Wednesday, September 2nd
* Many thank you lot to Sean McLaughlin for hosting this podcast on taking your trading to the adjacent level. I'll endure elaborating many of these ideas too to a greater extent than at the first-class Stocktoberfest gathering.
* Once again, the selling of bounces has worked good inward trading the ES. We're at nowadays at an oversold point, however, where I am mindful of the possibility of putting inward a short-term bottom. Fewer than 1% of SPX stocks are trading inward a higher house their 3-day moving averages too my intermediate-term forcefulness mensurate is rattling oversold. Although nosotros saw weakness yesterday with 111 novel monthly highs too 431 lows, that is nowhere nigh the weakness final week, when nosotros registered 35 highs too 3553 monthly lows on the large spike down. My game excogitation is to purchase weakness that holds inward a higher house yesterday's lows too peculiarly that successfully tests yesterday's lows.
* VIX is over xxx too my pure volatility mensurate is significantly elevated. I await vol to hold inward the nigh term, which has large implications for sizing of positions too calculations of stops too targets on trades. The inability to accommodate to changes inward volatility--especially when nosotros receive got high vol of vol--is a major beginning of problems for traders inward the electrical flow market.
Tuesday, September 1st
* Selling bounces has worked good too we've come upwards off difficult afterward hours, resuming the reject inward the human face upwards of Asia weakness. Volume flows were bearish all twenty-four lx minutes menses on Tuesday, helping laid upwards the weakness. (Volume flow is a volume-weighted mensurate of upticks vs. downticks for all exchange-listed shares). The pure volatility mensurate remains elevated, too I hold to anticipate highly volatile trading. It is non clear to me that nosotros only caput lower inward a similar a shot line; intermediate-term measures are quite oversold. I receive got been treating each fourth dimension zone every bit a carve upwards day--Asia, Europe, U.S.--and that has been helpful inward framing short-term trades. There are considerable discontinuities of flows from 1 fourth dimension zone to the next; greater continuity inside each fourth dimension zone.
* Below is a nautical chart of a elementary five-period charge per unit of measurement of change, where each bar inward the ES futures represents 500 cost changes. It is 1 tool alongside many that I utilization to frame whether the marketplace is short-term overbought or oversold. One of my execution rules is to hold back for short-term overbought weather condition to sell too short-term oversold ones to buy. In volatile markets, that tin relieve a lot of messiness. Many a proficient sentiment is undermined past times misfortunate entry too instruct out execution. I'll endure discussing my utilization of such tools inward the Las Vegas conference for Trader4ACause.
* I hold to scout commodity markets, every bit good every bit Asian stocks, for indications of the economical weakness that is impacting stocks. This is or too then other expanse inward which monitoring activeness past times fourth dimension zone has been helpful. I hold to lean toward selling bounces, but am mindful that we're short-term oversold here, too then am content to hold back for shorts to endure squeezed earlier taking whatever swing positions.
Monday, August 31st
* We focus on setting goals too tracking our progress toward those goals, but a wealth of show suggests that a procedure focus is much to a greater extent than probable to Pb to positive outcomes. When nosotros emphasize doing the correct things, nosotros are most apt to create things right. This is a rattling of import topic, every bit much of the flight-and-fight disruption of information processing too decision-making occurs when we're P/L focused too non genuinely trading focused.
* My pure volatility mensurate has been percolating higher, too then I'm prepared for a proficient amount of motility inward stocks. H5N1 slap-up routine is to compare intraday book of SPY with the book at the same fourth dimension of twenty-four lx minutes menses for the past times several sessions. Because book too volatility correlate highly, the real-time tracking of relative book helps us intelligently justice the probable make for the day.
* We've come upwards off Friday's highs inward overnight trading, with weakness inward Asia too Europe. My game excogitation is to sell ES on bounces that neglect to receive got out overnight highs. I'm non at all certain we're done hearing most EM too mainland People's Republic of China weakness too associated commodity weakness; the sentiment of an effective quantitative tightening raised past times Deutsche Bank final week is 1 worth pondering for implications.
Sunday, September 1, 2019
Info!! Bonus Post: Calculating Toll Targets
As I mentioned before today, inwards appreciation of the generous readership, I thought I would part to a greater extent than or less of my ideas as well as methods for calculating cost targets. If you're novel to this topic, it would hold upwards helpful to review my prior posts on hidden volatility assumptions as well as defining effective cost targets amongst the previous day's data.
What nosotros saw inwards that latter postal service was that using the previous day's high, low, as well as average prices provides us amongst relatively high probability targets for the electrical current trading day.
In my ain work, I create non purpose the average cost equally defined inwards the postal service (H+L/2). Rather, I purpose (H+L+2C/4). This is the "pivot" degree that I postal service each forenoon for SPY via Twitter. This overweights the closing cost relative to the prior day's high as well as low, therefore that--on average--the pin cost volition hold upwards closer to the electrical current day's open. Going dorsum to belatedly 2002 (N=1894 trading days), my Excel calculations demonstrate that nosotros cause got touched the previous day's pin on 70% of all trading days.
For this reason, the previous day's high, low, as well as pin prices are fundamental near-term cost targets for my trading. As I mentioned previously, fifty-fifty closer cost targets are the overnight high as well as depression prices from the ES futures.
If I anticipate a deadening trading twenty-four hr catamenia amongst a narrow cost hit as well as nosotros opened upwards inwards the nub of the overnight as well as prior day's ranges, I volition hold off for trades to cause got out the overnight high or depression cost as well as and therefore the previous day's high or low. If I anticipate a deadening trading twenty-four hr catamenia as well as nosotros opened upwards nicely inwards a higher house or below the overnight as well as prior day's pin levels (for overnight "pivot" I purpose the day's VWAP), I hold off for a deed dorsum to VWAP as well as and therefore the previous day's pin if buying or selling can't hold upwards sustained.
If I anticipate an average or busier trading day, I hold off toward to a greater extent than distant earnings targets. Below is i manner of calculating those that builds on the previous post.
FORMULAS FOR CALCULATING PRICE TARGETS
* Let us telephone weep upwards the departure betwixt yesterday's high as well as depression prices R, for range. That agency that the departure betwixt yesterday's average cost as well as yesterday's high is 1/2 R as well as the departure betwixt yesterday's average cost as well as yesterday's depression is 1/2 R. (We're using average price, non the pin level, for this calculation. More on pivot-based calculations inwards the adjacent postal service inwards the series).
* If nosotros calculate (yesterday's average cost + 3/4 R), nosotros volition larn a cost degree inwards a higher house yesterday's high that we'll telephone weep upwards R1. If nosotros calculate (yesterday's average cost - 3/4 R), nosotros volition larn a cost degree below yesterday's depression that we'll telephone weep upwards S1.
* Going dorsum to belatedly 2002, the odds of hitting R1 or S1 during today's merchandise are 67%. Two-thirds of the time, we'll hitting R1 or S1. It's a high probability target if book is average or better.
* If nosotros calculate (yesterday's average cost + R), nosotros volition larn a cost degree inwards a higher house R1 that we'll telephone weep upwards R2. If nosotros calculate (yesterday's average cost - R), nosotros volition larn a cost degree below S1 that we'll telephone weep upwards S2.
* Going dorsum to belatedly 2002, the odds of hitting R2 or S2 during today's merchandise are 41%. We desire to meet inwards a higher house average relative book (and today's book > yesterday's volume) to assume that we'll behavior upon R2 or S2.
* If nosotros calculate (yesterday's average cost + 5/4R), nosotros volition larn a cost degree inwards a higher house R2 that we'll telephone weep upwards R3. If nosotros calculate (yesterday's average cost - 5/4R), nosotros volition larn a cost degree below S2 that we'll telephone weep upwards S3.
* Going dorsum to belatedly 2002, the odds of hitting R3 or S3 during today's merchandise are 26%. We would need to meet significantly inwards a higher house average relative book (and today's book significantly > yesterday's volume) to assume that we'll behavior upon R3 or S3.
VARIATIONS OF THE ABOVE WORTH RESEARCHING:
* Instead of using yesterday's average cost equally a base of operations for calculation, y'all tin hand the sack purpose the traditional pin formula of (H+L+C)/3.
* Instead of using yesterday's average cost equally a base of operations for calculation, y'all tin hand the sack purpose today's open. That is peculiarly helpful when the overnight session leads to an opening cost far from yesterday's average price.
* Instead of using R values based on yesterday's trading range, purpose the average trading hit from the prior northward days. My inquiry shows to a greater extent than or less create goodness to going out several days, but returns are diminishing out to a five-day lookback.
Regardless of your calculation method, y'all volition abide by that R increases equally the market's volatility increases as well as decreases equally the market's volatility wanes. This automatically adjusts your cost targets for the market's nigh recent volatility.
Going dorsum to belatedly 2002, yesterday's volatility correlates amongst today's volatility past times a whopping .75. That agency that nosotros tin hand the sack predict to a greater extent than than one-half of the variance inwards today's volatility only past times knowing the prior day's trading range. If nosotros croak out to a five-day period, the correlation betwixt the prior five-day's average hit as well as today's hit has been .80.
Once y'all larn adept at tracking today's book relative to yesterday's (or the prior 5 days'), y'all tin hand the sack brand rattling reasoned estimates equally to which levels we're probable to hitting during the day. That considerably strengthens our exits as well as helps us maximize our risk/reward.
This postal service as well as the adjacent i (tomorrow) volition rest on the weblog for a express time. If the inquiry is of interest, y'all powerfulness desire to impress out the postal service or re-create the relevant data.
Thanks i time to a greater extent than for all the involvement as well as support--
Brett
.
What nosotros saw inwards that latter postal service was that using the previous day's high, low, as well as average prices provides us amongst relatively high probability targets for the electrical current trading day.
In my ain work, I create non purpose the average cost equally defined inwards the postal service (H+L/2). Rather, I purpose (H+L+2C/4). This is the "pivot" degree that I postal service each forenoon for SPY via Twitter. This overweights the closing cost relative to the prior day's high as well as low, therefore that--on average--the pin cost volition hold upwards closer to the electrical current day's open. Going dorsum to belatedly 2002 (N=1894 trading days), my Excel calculations demonstrate that nosotros cause got touched the previous day's pin on 70% of all trading days.
For this reason, the previous day's high, low, as well as pin prices are fundamental near-term cost targets for my trading. As I mentioned previously, fifty-fifty closer cost targets are the overnight high as well as depression prices from the ES futures.
If I anticipate a deadening trading twenty-four hr catamenia amongst a narrow cost hit as well as nosotros opened upwards inwards the nub of the overnight as well as prior day's ranges, I volition hold off for trades to cause got out the overnight high or depression cost as well as and therefore the previous day's high or low. If I anticipate a deadening trading twenty-four hr catamenia as well as nosotros opened upwards nicely inwards a higher house or below the overnight as well as prior day's pin levels (for overnight "pivot" I purpose the day's VWAP), I hold off for a deed dorsum to VWAP as well as and therefore the previous day's pin if buying or selling can't hold upwards sustained.
If I anticipate an average or busier trading day, I hold off toward to a greater extent than distant earnings targets. Below is i manner of calculating those that builds on the previous post.
FORMULAS FOR CALCULATING PRICE TARGETS
* Let us telephone weep upwards the departure betwixt yesterday's high as well as depression prices R, for range. That agency that the departure betwixt yesterday's average cost as well as yesterday's high is 1/2 R as well as the departure betwixt yesterday's average cost as well as yesterday's depression is 1/2 R. (We're using average price, non the pin level, for this calculation. More on pivot-based calculations inwards the adjacent postal service inwards the series).
* If nosotros calculate (yesterday's average cost + 3/4 R), nosotros volition larn a cost degree inwards a higher house yesterday's high that we'll telephone weep upwards R1. If nosotros calculate (yesterday's average cost - 3/4 R), nosotros volition larn a cost degree below yesterday's depression that we'll telephone weep upwards S1.
* Going dorsum to belatedly 2002, the odds of hitting R1 or S1 during today's merchandise are 67%. Two-thirds of the time, we'll hitting R1 or S1. It's a high probability target if book is average or better.
* If nosotros calculate (yesterday's average cost + R), nosotros volition larn a cost degree inwards a higher house R1 that we'll telephone weep upwards R2. If nosotros calculate (yesterday's average cost - R), nosotros volition larn a cost degree below S1 that we'll telephone weep upwards S2.
* Going dorsum to belatedly 2002, the odds of hitting R2 or S2 during today's merchandise are 41%. We desire to meet inwards a higher house average relative book (and today's book > yesterday's volume) to assume that we'll behavior upon R2 or S2.
* If nosotros calculate (yesterday's average cost + 5/4R), nosotros volition larn a cost degree inwards a higher house R2 that we'll telephone weep upwards R3. If nosotros calculate (yesterday's average cost - 5/4R), nosotros volition larn a cost degree below S2 that we'll telephone weep upwards S3.
* Going dorsum to belatedly 2002, the odds of hitting R3 or S3 during today's merchandise are 26%. We would need to meet significantly inwards a higher house average relative book (and today's book significantly > yesterday's volume) to assume that we'll behavior upon R3 or S3.
VARIATIONS OF THE ABOVE WORTH RESEARCHING:
* Instead of using yesterday's average cost equally a base of operations for calculation, y'all tin hand the sack purpose the traditional pin formula of (H+L+C)/3.
* Instead of using yesterday's average cost equally a base of operations for calculation, y'all tin hand the sack purpose today's open. That is peculiarly helpful when the overnight session leads to an opening cost far from yesterday's average price.
* Instead of using R values based on yesterday's trading range, purpose the average trading hit from the prior northward days. My inquiry shows to a greater extent than or less create goodness to going out several days, but returns are diminishing out to a five-day lookback.
Regardless of your calculation method, y'all volition abide by that R increases equally the market's volatility increases as well as decreases equally the market's volatility wanes. This automatically adjusts your cost targets for the market's nigh recent volatility.
Going dorsum to belatedly 2002, yesterday's volatility correlates amongst today's volatility past times a whopping .75. That agency that nosotros tin hand the sack predict to a greater extent than than one-half of the variance inwards today's volatility only past times knowing the prior day's trading range. If nosotros croak out to a five-day period, the correlation betwixt the prior five-day's average hit as well as today's hit has been .80.
Once y'all larn adept at tracking today's book relative to yesterday's (or the prior 5 days'), y'all tin hand the sack brand rattling reasoned estimates equally to which levels we're probable to hitting during the day. That considerably strengthens our exits as well as helps us maximize our risk/reward.
This postal service as well as the adjacent i (tomorrow) volition rest on the weblog for a express time. If the inquiry is of interest, y'all powerfulness desire to impress out the postal service or re-create the relevant data.
Thanks i time to a greater extent than for all the involvement as well as support--
Brett
.
Friday, February 1, 2019
Info!! Relative Book Update: How Much Book As Well As Drive Tin Nosotros Await During The Day?
How much volume--and how much movement--can nosotros hold off inwards the S&P 500 Index during each segment of the marketplace day? Relative volume tells us how the electrical current book compares alongside recent norms. Below nosotros meet each one-half hr inwards the ES futures, the median publish of contracts transacted during that half-hour catamenia over the prior xxx trading sessions, in addition to the median high/low cost arrive at for that period.
Note how book in addition to volatility correlate highly. Over the concluding xxx sessions, the correlation betwixt one-half hr book in addition to one-half hr high/low ranges has been a meaning .81.
Seeing whether nosotros are doing closed to concern compared alongside normal tin state us how much campaign to expect: really helpful inwards gauging cost targets in addition to destination loss levels. See the links below for to a greater extent than detail.
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Note how book in addition to volatility correlate highly. Over the concluding xxx sessions, the correlation betwixt one-half hr book in addition to one-half hr high/low ranges has been a meaning .81.
Seeing whether nosotros are doing closed to concern compared alongside normal tin state us how much campaign to expect: really helpful inwards gauging cost targets in addition to destination loss levels. See the links below for to a greater extent than detail.
| Time (CT) | Volume | Range (%) |
| 8:30 | 244,194 | 0.64 |
| 9:00 | 200,849 | 0.48 |
| 9:30 | 148,298 | 0.45 |
| 10:00 | 125,114 | 0.34 |
| 10:30 | 88,967 | 0.27 |
| 11:00 | 71,072 | 0.29 |
| 11:30 | 69,160 | 0.29 |
| 12:00 | 63,483 | 0.24 |
| 12:30 | 63,198 | 0.28 |
| 13:00 | 73,900 | 0.28 |
| 13:30 | 83,595 | 0.3 |
| 14:00 | 91,348 | 0.29 |
| 14:30 | 203,454 | 0.37 |
| 15:00 | 90,451 | 0.17 |
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Saturday, January 12, 2019
Info!! Why Book Is Too Thence Incredibly Of Import Inwards Trading
One of the most of import things to read inwards whatever marketplace is volume. Per the recent of import post, book tin tell us who is inwards the market; the combination of book together with cost tin tell us what they are doing together with where they're doing it. Markets are auction processes together with to sympathise markets nosotros demand to run into how much inventory is clearing together with where the clearing is occurring. It's non almost shapes on charts or indicator readings or the adjacent economical written report or basis event. It's almost who is participating inwards the auction together with what they're doing.
This is why book is together with hence important. H5N1 depression book market, such every bit we're currently seeing inwards USA stocks, is i inwards which marketplace makers are dominant together with longer time-frame participants are largely absent. Why are they absent? It's non exactly because it's August; bring a await at how busy August, 2011 was. It's because those longer timeframe participants practise non perceive distinctive value correct here, correct now. Sellers don't retrieve prices are together with hence high that they desire to business office amongst their inventory, together with buyers don't retrieve prices are together with hence attractive that they desire to scoop upward inventory. As a result, piffling book occurs, together with that agency that nosotros sense piffling cost movement.
Since 2014, the correlation betwixt the day's truthful cost attain inwards SPY together with SPY book for that twenty-four hr menstruum is +.87. The nifty bulk of volatility tin live on known only yesteryear knowing volume. That makes sense. It's the larger, longer-timeframe, institutional participants who merchandise together with invest directionally. When they are inwards the market, nosotros run into to a greater extent than motion at every fourth dimension frame. Slow book markets are tranquillity motion markets. No i is at that topographic point to force cost meaningfully higher or lower. That creates a rattling changed chance railroad train for directional traders.
It likewise changes the nature of the opportunities. Let's state I create a trading arrangement that draws bands around electrical current prices (as inwards Bollinger Bands) together with enters long when nosotros displace inwards a higher house the upper band together with enters brusk when nosotros displace below the lower band. The target/exit is a defined distance inwards a higher house or below those bands. In my inquiry (and trading), that arrangement makes coin when volatility is inwards a higher house a threshold grade together with loses coin when nosotros autumn below that level. Same system, same signals, dissimilar results.
Why is this the case? In higher book together with volatility markets, moves are to a greater extent than probable to extend. In lower book together with volatility markets, moves are to a greater extent than probable to reverse. What makes you lot coin inwards i regime, loses it for you lot inwards another. If you're non next the marketplace auction procedure together with identifying the government we're in, you lot are less probable to adapt. You're to a greater extent than probable to live on dancing your same trip the low-cal fantastic toe when the music has changed.
In depression volume, depression volatility markets, you lot receive got i of 3 skilful choices: You tin pick out to non play; you lot tin pick out to play yesteryear a railroad train of rules that plant inwards boring auctions, or you lot tin displace to other instruments together with markets that laissez passer on you lot the volatility your trading needs to succeed. The pitiable pick is doing the same f*cking thing that worked for you lot a few weeks agone inwards the advert of "discipline" together with "sticking to your process."
Every fourth dimension you lot laid out trading, you're sitting downwards at a poker table. How many people are around the tabular array together with who they are volition affair greatly, helping to variety your betting strategy. If you're at a machine auction together with desire to sell your vehicle, how many people are bidding together with how many of them are at that topographic point to purchase together with sell volition assist variety whether together with how you lot participate.
And, oh yes, the correlation betwixt book today together with volatility tomorrow is almost +.57. In the absence of a catalyst, when buyers together with sellers receive got value inside a narrow range, that narrowness tends to persist. Your disposition may Pb you lot to await for breakouts, but a statistically important set out of times inwards boring markets, those breakouts are probable to live on simulated outs.
Further Reading: Using Relative Volume inwards Your Trading
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Monday, January 14, 2019
Info!! Trading Notes: Calendar Week Of November 16Th
Friday, Nov 20th
* We moved higher during the morning time merchandise on Thursday, staying to a higher house the overnight lows, but thus something interesting happened. Volume fizzled together with nosotros injure upward with a deadening make day. This highlights the importance of tracking book inwards existent time. My favorite way of doing that is with "relative volume": a mensurate of electrical current book versus the normal book for that item fourth dimension of day. Below is a nautical chart for yesterday's relative volume. Values below 1.0 stand upward for subnormal volume. You tin encounter how book became subnormal every bit the twenty-four hours progressed. That agency directional participants are taking the sidelines. And that leads, to a greater extent than oft than not, to make days.
* The possible skilful tidings is that we're getting depression volume, flattish corrections next moves higher off the recent oversold levels. That is consistent with the scenario of testing the recent highs together with has me continuing to purchase weakness that stays to a higher house prior twenty-four hours together with overnight lows. I'm currently working on a suite of innovative bike indicators; every bit y'all tin encounter below, we're coming off an intermediate-term bike depression together with are nowhere well-nigh levels associated with bike peaks.
Thursday, Nov 19th
* The strategy of buying weakness that stayed to a higher house the overnight lows--and thus buying weakness that stayed to a higher house morning time lows--worked good on Wednesday, every bit stocks rallied strongly with the unloose of Fed minutes. We've bounced off oversold levels (see nautical chart below of short-term breadth inwards SPX shares) together with instantly are initiative off to encounter short-term overbought levels. I move yesteryear away along to aspect a seek of recent highs together with aspect to implement yesteryear buying weakness that stays to a higher house cardinal levels.
* The unloose of the Fed minutes led to fresh book entering the market, with well-above levels of book for that fourth dimension of day. Such expansion of book indicates that novel participants ask hold entered the marketplace together with it's cardinal to encounter which way they're leaning, every bit these are to a greater extent than oft than non directional traders running large size. By tracking NYSE TICK, nosotros tin encounter the grade to which the novel book is leaning to the purchase or sell side. When at that spot is a distinct buying or selling bias with these participants, it tin plough what started every bit a fairly normal twenty-four hours into a robust tendency day.
Wednesday, Nov 18th
* We held overnight lows inwards early on merchandise together with moved nicely higher, taking out Monday's highs, but thus cruel dorsum into the make together with ask hold stayed at that spot inwards overnight trading thus far today. The inability to sustain the forcefulness has me treating this every bit a potential bottoming process, which is clearest when y'all aspect at the Russell 2000 Index together with retail stocks (XRT). We are oversold on an intermediate-term basis; I'm looking to purchase weakness that stays to a higher house the overnight lows.
* The aligning of shorter together with longer-term perspectives that I similar is using overnight together with previous day's highs together with lows every bit reference points together with buying weakness that stays to a higher house overnight together with prior day's highs together with lows together with selling forcefulness that stays below highs for the overnight together with prior day's sessions. When keying off levels inwards this way, it's relatively slow to position halt levels. Those levels too assist me differentiate cost activity based on U.S. flows from cost activity based on flows from Asia together with Europe.
* I'm too keeping a unopen optic on commodities. Hard to believe nosotros tin sustain a wide rally if at that spot continues to endure deflationary dynamics inwards markets.
Tuesday, Nov 17th
* Once 1 time to a greater extent than nosotros saw a skilful illustration of how flows inwards stocks are alone dissimilar during side yesteryear side fourth dimension zones. Weakness inwards the index futures when they opened for the weekend was followed yesteryear buying involvement inwards Asian together with European hours together with thus an explosion of buying at the NY open. The buying occurred on strong NYSE TICK, volume, together with volatility, confirming a rejection of the opening lows together with setting upward an upside tendency day. Here are four things I aspect for inwards an upside tendency day.
* What has worked good for me is viewing each of the major fourth dimension periods (Asian trade, European trade, U.S. trade) every bit split days together with non necessarily expecting continuity from 1 fourth dimension menstruum to another. In a sense, each twenty-four hours offers 3 daytrading periods, with the lion's part of motility inwards U.S. indices occurring during London together with NY hours.
* Buying involvement has followed through inwards the overnight market; my leaning is to purchase weakness that holds to a higher house the overnight lows. As mentioned yesterday, my intermediate term measures had non yet reached typical oversold levels; still, given the thrust of the recent displace higher, my leaning is to purpose whatever farther weakness every bit an chance to buy.
Monday, Nov 16th
* This is 1 of the to a greater extent than of import posts I've written of late together with helps explicate why trying to eliminate our trading mistakes together with bad trading practices is oft the incorrect way to educate ourselves every bit traders. It too helps explicate why the harder nosotros travail to larn disciplined, the less disciplined nosotros tin become.
* Stocks cruel inwards tardily merchandise together with overnight inwards answer to the Paris attacks, but ask hold bounced good off lows every bit I write. As long every bit nosotros pose inwards lower cost highs, I retrieve it's premature to assume we'll rally only because we've been oversold. As the posts terminal calendar week indicated, nosotros ask hold non yet been at oversold levels that ask hold of late corresponded with intermediate-term marketplace position lows, per the nautical chart below that tracks novel highs versus novel lows with the SPX shares.
* My mensurate of pure volatility shows relatively petty spike during this decline compared with the elevated volatility per unit of measurement of book nosotros saw during the August together with September drops. This would endure consistent with a marketplace position making an intermediate term correction rather than an actual fresh comport leg down. My base of operations instance continues to endure a seek of the recent marketplace position highs, but it would non surprise me to encounter quite a few divergences on whatever such test.
* We moved higher during the morning time merchandise on Thursday, staying to a higher house the overnight lows, but thus something interesting happened. Volume fizzled together with nosotros injure upward with a deadening make day. This highlights the importance of tracking book inwards existent time. My favorite way of doing that is with "relative volume": a mensurate of electrical current book versus the normal book for that item fourth dimension of day. Below is a nautical chart for yesterday's relative volume. Values below 1.0 stand upward for subnormal volume. You tin encounter how book became subnormal every bit the twenty-four hours progressed. That agency directional participants are taking the sidelines. And that leads, to a greater extent than oft than not, to make days.
Thursday, Nov 19th
* The strategy of buying weakness that stayed to a higher house the overnight lows--and thus buying weakness that stayed to a higher house morning time lows--worked good on Wednesday, every bit stocks rallied strongly with the unloose of Fed minutes. We've bounced off oversold levels (see nautical chart below of short-term breadth inwards SPX shares) together with instantly are initiative off to encounter short-term overbought levels. I move yesteryear away along to aspect a seek of recent highs together with aspect to implement yesteryear buying weakness that stays to a higher house cardinal levels.
* The unloose of the Fed minutes led to fresh book entering the market, with well-above levels of book for that fourth dimension of day. Such expansion of book indicates that novel participants ask hold entered the marketplace together with it's cardinal to encounter which way they're leaning, every bit these are to a greater extent than oft than non directional traders running large size. By tracking NYSE TICK, nosotros tin encounter the grade to which the novel book is leaning to the purchase or sell side. When at that spot is a distinct buying or selling bias with these participants, it tin plough what started every bit a fairly normal twenty-four hours into a robust tendency day.
Wednesday, Nov 18th
* We held overnight lows inwards early on merchandise together with moved nicely higher, taking out Monday's highs, but thus cruel dorsum into the make together with ask hold stayed at that spot inwards overnight trading thus far today. The inability to sustain the forcefulness has me treating this every bit a potential bottoming process, which is clearest when y'all aspect at the Russell 2000 Index together with retail stocks (XRT). We are oversold on an intermediate-term basis; I'm looking to purchase weakness that stays to a higher house the overnight lows.
* The aligning of shorter together with longer-term perspectives that I similar is using overnight together with previous day's highs together with lows every bit reference points together with buying weakness that stays to a higher house overnight together with prior day's highs together with lows together with selling forcefulness that stays below highs for the overnight together with prior day's sessions. When keying off levels inwards this way, it's relatively slow to position halt levels. Those levels too assist me differentiate cost activity based on U.S. flows from cost activity based on flows from Asia together with Europe.
* I'm too keeping a unopen optic on commodities. Hard to believe nosotros tin sustain a wide rally if at that spot continues to endure deflationary dynamics inwards markets.
Tuesday, Nov 17th
* Once 1 time to a greater extent than nosotros saw a skilful illustration of how flows inwards stocks are alone dissimilar during side yesteryear side fourth dimension zones. Weakness inwards the index futures when they opened for the weekend was followed yesteryear buying involvement inwards Asian together with European hours together with thus an explosion of buying at the NY open. The buying occurred on strong NYSE TICK, volume, together with volatility, confirming a rejection of the opening lows together with setting upward an upside tendency day. Here are four things I aspect for inwards an upside tendency day.
* What has worked good for me is viewing each of the major fourth dimension periods (Asian trade, European trade, U.S. trade) every bit split days together with non necessarily expecting continuity from 1 fourth dimension menstruum to another. In a sense, each twenty-four hours offers 3 daytrading periods, with the lion's part of motility inwards U.S. indices occurring during London together with NY hours.
* Buying involvement has followed through inwards the overnight market; my leaning is to purchase weakness that holds to a higher house the overnight lows. As mentioned yesterday, my intermediate term measures had non yet reached typical oversold levels; still, given the thrust of the recent displace higher, my leaning is to purpose whatever farther weakness every bit an chance to buy.
Monday, Nov 16th
* This is 1 of the to a greater extent than of import posts I've written of late together with helps explicate why trying to eliminate our trading mistakes together with bad trading practices is oft the incorrect way to educate ourselves every bit traders. It too helps explicate why the harder nosotros travail to larn disciplined, the less disciplined nosotros tin become.
* Stocks cruel inwards tardily merchandise together with overnight inwards answer to the Paris attacks, but ask hold bounced good off lows every bit I write. As long every bit nosotros pose inwards lower cost highs, I retrieve it's premature to assume we'll rally only because we've been oversold. As the posts terminal calendar week indicated, nosotros ask hold non yet been at oversold levels that ask hold of late corresponded with intermediate-term marketplace position lows, per the nautical chart below that tracks novel highs versus novel lows with the SPX shares.
Sunday, August 11, 2019
Info!! Useful Trading Tools - Business Office Two: Volume
The inward a higher house nautical chart covers today's trading inward the belatedly forenoon inward the S&P 500 e-mini (ES) futures. Notice how nosotros were trading inward a narrow make for much of the fourth dimension alongside book averaging nearly a brace chiliad contracts traded per minute. At 11:49 AM, nosotros got a menstruation to the upside, alongside over 9400 contracts traded that minute. NYSE TICK hitting a high of 587 during that infinitesimal together with nosotros traded correct dorsum into the make subsequently.
What did that nation you?
Buyers came inward together with couldn't elevator the marketplace position higher. There was a relatively large buying flow, but it could non heighten the TICK to statistically important levels. That tells us that the buying was non heavy across the total stock universe. It was aggressive buying (significant volume), but it could non generate important directional movement.
Not a bad slice of marketplace position information.
Sure enough, at 11:58 AM--just nine minutes later--the ES contract prints over 9900 contracts during the infinitesimal together with volatility expands, breaking us out of the range. Moreover, NYSE TICK plunged to -797 together with and then to -997 the next minute. That is significantly wide selling on important marketplace position volume.
In Market Profile terms, nosotros direct keep rejected value inward the prior make together with at i time are trending to institute a fresh, lower value area. The fact that the displace out of the make occurred alongside significant, wide marketplace position participation is an indication that directional participants direct keep taken command of the market. As yous know from the ease of the hateful solar daytime session, they did indeed direct keep command together with nosotros shut nigh the lows of the day.
It is mutual for traders to advert to the minute-by-minute drive of the marketplace position equally "noise". For those who sympathise the dynamics of toll action, however, at that topographic point tin sack hold upwards of import signals amidst the noise. When nosotros direct keep depression to average volume, nosotros know that marketplace position makers are dominant together with directional participants are relatively inactive. When nosotros direct keep significantly expanded volume, nosotros know that directional traders direct keep taken the marketplace position reins together with nosotros tin sack suit expectations accordingly. Influenza A virus subtype H5N1 meaningful shift inward book is ofttimes a overnice nation for meaningful shifts inward trading patterns.
Further Reading: Relative Volume together with Volatility
Tuesday, January 15, 2019
Info!! Trading Notes: Calendar Week Of 8/10/2015
Friday, August 14th
* For me, the standout observation for today's merchandise is that the yuan stabilized at the overnight fix, nosotros got a little popular inwards stocks, in addition to thus at that spot has been no follow through and, equally I write, that little popular has been alone reversed. Meanwhile petroleum in addition to copper buy the farm on to languish close their recent lows. The quest for devaluation inwards Communist People's Republic of China is a answer to economical weakness in addition to perchance the best real-time approximate of that weakness is inwards commodities pricing. I create got problem seeing whatever sustained bull displace inwards stocks until the deflationary pressures reflected past times commodities weakness abate.
*
* The breadth volatility mensurate referenced yesterday is at the lowest levels seen since piece of cake February/early March. Such depression levels create got been associated alongside weak returns over a adjacent five-day basis. Pure volatility has likewise moved below median levels, likewise associated alongside weak forrad returns over a swing basis.
Thursday, August 13th
* Yesterday's banker's complaint nearly caution chasing oversold levels when pure volatility is high turned out to last to a greater extent than right than I expected, equally nosotros reversed the recent weakness in addition to rallied strongly inwards SPX. We dropped all the way below 2050 inwards the ES futures early on inwards the day, a two-week low. Interestingly, nosotros only saw 1058 stocks across all exchanges brand fresh monthly lows vs. 1078 on 8/6 in addition to 1862 on 7/27. Note a set out of sectors that held upwards alongside relative strength, including the yield-sensitive utilities in addition to consumer staples shares. The commodity-related stocks create got likewise held up. This told us that the early on driblet was to a greater extent than nearly sector rotation than full-on risk-off--a valuable tell. Market breadth has non been weakening alongside the recent Communist People's Republic of China related selloff.
* Pure volatility remains unusually elevated fifty-fifty alongside yesterday's rebound; when this occurs, at that spot is unremarkably to a greater extent than upside left inwards the move, equally the combination of volatility in addition to forcefulness leads to near-term momentum.
* The 3-5 hateful solar daytime models are mixed: i is neutral, the other mildly bearish. The adjacent hateful solar daytime model is neutral. These are the kinds of signals yous buy the farm far the middle of trading ranges. I could last persuaded to purchase intraday weakness that holds higher upwards the overnight lows for a short-term merchandise higher based on the potent pure volatility, but otherwise don't perceive a potent edge.
* My breadth volatility mensurate is hitting multi-week lows. That's a mensurate of the volatility of hateful solar daytime to hateful solar daytime breadth in addition to it's been a helpful measure. When breadth volatility has been inwards the lowest one-half of its distribution since 2014, the adjacent 5 days inwards SPY create got averaged a loss of -.01%. When inwards the highest one-half of its distribution, the adjacent 5 days inwards SPY create got averaged a gain of +.34%. If nosotros were to larn other volatility readings dropping, the models would probable plow bearish.
Wednesday, August 12th
* Communist People's Republic of China devaluation continues equally major driver of stocks globally. While developed marketplace seat equities create got traded inwards a arrive at over the past times several months, emerging marketplace seat stocks create got been inwards a consistent downtrend (see EEM nautical chart above). This suggests that a major engine of recent global economical increment is no longer a contributing factor. It is this weakness in addition to non the stimulus value of the weaker Asian currencies that is driving stock in addition to commodity markets lower in addition to stimulating a flying to the security of character yield.
* The 3-5 hateful solar daytime models for SPX are neutral; the adjacent hateful solar daytime model ended Tuesday real modestly bullish. The models cannot component inwards idiosyncratic marketplace seat factors such equally the devaluation, thus I am non relying upon them for signals at this time. Sometimes this fourth dimension actually is different.
* My mensurate of "pure volatility"--the average cost displace per unit of measurement of trading volume--has buy the farm elevated, which way that nosotros could encounter outsized moves (including countertrend ones) equally book picks up. This has of import implications for the setting of stops in addition to targets on trades in addition to makes it peculiarly unsafe to chase overbought or oversold cost levels.
* General game invention is to buy the farm on to sell bounces inwards SPX that terminate at lower highs. If the devaluation genuinely is contributing to an ongoing risk-off trade, nosotros should non merchandise higher upwards the levels seen merely prior to the most recent yuan fix. I buy the farm on to harbor doubts nearly whatever form of sustained Fed hiking inwards the human face upwards of what is increasingly looking similar a currency state of war of competitive devaluations.
Tuesday, August 11th
* Communist People's Republic of China devaluation primal slice of overnight news; USD rises vs. Asia; stocks hand dorsum a chunk of Monday's gains. Communist People's Republic of China devaluation affirms regime describe of piece of job organisation over economical weakness. Difficult to encounter much inwards the way of Fed hiking alongside Asian goods becoming cheaper inwards U.S. in addition to dampening inflation. Also hard to encounter Fed hiking inwards whatever sustained way inwards the human face upwards of what is increasingly looking similar a currency war. All inwards all, this is consistent alongside the macro themes of late outlined in addition to should last supportive of U.S. stocks offering yield. Economic benefits of lower inflation/lower prices are tempered past times headwinds from higher USD.
* My 3-5 hateful solar daytime models for SPX turned modestly bearish at cease of hateful solar daytime on Monday, but reaction to the Communist People's Republic of China intelligence swamps model effects. Next hateful solar daytime model for SPX turned from modestly bullish to neutral.
* General game invention is to sell bounces inwards SPX that neglect to create got out Mon highs. Commodity markets create got been a adept proxy for the Asia weakness theme, in addition to it is hard to encounter stocks sustaining a rally if that subject is dominant.
Sunday, January 13, 2019
Info!! Trading Notes For The Calendar Week Of March 21, 2016
Friday, March 25th
* Perhaps the most mutual psychological challenge I listen from traders is how to maintain a positive mindset during periods of drawdown. It's rattling hard to lose coin for a stretch of fourth dimension when you're pouring your pump together with best efforts into markets. But at that spot is no surer agency of missing opportunities than becoming self-focused together with negatively focused. This recent article focuses on how nosotros tin sustain well-being together with a positive mindset fifty-fifty when everything seems to hold out going wrong.
* Stocks bounced from their short-term oversold province of affairs noted yesterday amongst the swing overbought/oversold measure. I am watching breadth closely here, every bit it would non surprise me to run across a to a greater extent than selective stage of the marketplace wheel going forward. The relative functioning of little caps is of item interest.
* I'm seeing increasing utter of straight monetary stimulus to economies. I suspect this volition hold out actively considered if nosotros larn a renewed deterioration of fiscal weather together with concerns re: deflation. The implications for asset prices (weak currencies, rigid commodities) would hold out significant.
* I've been putting considerable function into a gear upward of swing measures that rail overbought/oversold weather together with volatility. These are based on trial time, where each bar represents an amount of book or toll drive inwards the market, non a unit of measurement of chronological time. The OBOS mensurate captures momentum together with value effects on a swing basis: swing returns inwards ES convey been best when we're significantly overbought (+.54%) together with significantly oversold (+.49%). Returns convey been subnormal betwixt these extremes (-.05%). Although I bespeak to maintain the specifics of the mensurate proprietary together with express to the managers I function with, I'll happily update periodically on this blog. Swing returns from electrical flow levels of OBOS together with vol convey non been significantly positive or negative.
* Here is a swing volatility mensurate that looks at the volatility of the trial bars. Note how we're close levels that convey lately corresponded to marketplace peaks. This is yet roughly other argue I'm watching breadth closely.
Thursday, March 24th
* Thanks to Aaron Fifield for interviewing me for the Chat With Traders podcast. We demeanour on a set out of topics relevant to factors that brand for trading success. He's assembled an first-class lineup of interviews worth checking out.
* We've seen a recent pullback inwards stocks together with oil; yesterday's closed saw an expanded set out of stocks making novel lows amidst relative weakness amid little caps. I volition hold out tracking breadth closely here, every bit nosotros mightiness hold out seeing a to a greater extent than selective stage of the recent marketplace strength. Below is a nautical chart of stocks across all exchanges making fresh 3-month highs vs. lows:
* I've been exploring a swing overbought/oversold mensurate based on trial bars. As you lot tin see, we've lately entered oversold territory. As long every bit these swing lows are occurring at successive toll highs, I'm willing to give the produce goodness of the doubtfulness to the bulls. The nautical chart tracks the mensurate through the recent motion higher.
Wednesday, March 23rd
* We saw an early on selloff due to the Brussels news, precisely this was bought relatively early on inwards the NY session. It's a skillful trial of how, inwards a momentum environment, participants desire to larn long fifty-fifty on relatively little dips. That beingness said, my breadth volatility measures (volatility of daily breadth numbers) has been coming downwardly together with that has led to subnormal returns over the near-term horizon.
* Interestingly, we're hovering close our highs, precisely yesterday saw alone nigh 40% of SPX stocks trading inwards a higher house their 3-day moving averages. During these momentum periods, corrections tend to hold out rotational together with we're seeing roughly of that. Housing, financials, consumer staples, utilities--all convey been off their highs recently. Technology has been stronger.
* My wheel mensurate continues inwards elevated territory, in 1 trial to a greater extent than dissimilar much of what nosotros saw inwards 2015, where push clit led to weakness. That continued elevation on a shorter-term wheel mensurate suggests that a longer-term wheel is at play together with that this has been to a greater extent than than a bounce inwards a demeanour market.
Tuesday, March 22nd
* We're seeing roughly consolidation overnight next a little upward twenty-four hr catamenia yesterday. While SPX closed higher, nosotros returned to underperformance of little caps together with the set out of stocks across all exchanges making novel monthly highs dropped from 1660 to 886. New monthly lows likewise dropped, however, every bit we're soundless non seeing distinctive weakness inwards whatsoever sector. Volume together with volatility dropped; VIX is forthwith below 14. More on volatility below.
* Below is a short-term mensurate of the set out of SPX stocks making fresh 5, 20, together with 100-day highs versus lows. Notice how nosotros convey stayed elevated for a set out of consecutive days together with how this is different from what nosotros saw through much of 2015. Whereas "overbought" readings were opportunities to sell concluding year, then far inwards this rising we're seeing momentum together with push clit leading to farther strength--one of the signature characteristics of a fresh marketplace cycle.
* Despite the market's push clit together with momentum, the rally has non had a lot of fans. I honour on the Stock Twits site, for example, that messages regarding SPY are 40% bullish, 60% bearish. That ratio hasn't changed much during the concluding 2 weeks of gains. I likewise honour that shares outstanding for the SPY ETF convey in 1 trial once to a greater extent than dipped, forthwith dropping below their levels from 5, 10, together with 20 days ago. Very interestingly, the set out of shares outstanding for SPY has dropped over the course of pedagogy of the rally from mid-February. Share redemption has to a greater extent than oftentimes than non been associated amongst superior returns over a multi-week horizon.
* As mentioned above, volatility has dropped over the course of pedagogy of this marketplace rally. Equally notably, my pure volatility mensurate (volatility per unit of measurement of trading book for the ES futures) has dropped significantly (see below) together with is getting to levels that convey been seen at recent marketplace highs. I am rattling opened upward to the possibility that we're going into a different stage of the marketplace wheel where we'll run across lower volume, less drive per unit of measurement of volume, together with to a greater extent than of a grinding trade. For traders accustomed to the drive that nosotros saw for the starting fourth dimension duet of months of this year, that transition to a depression vol authorities tin hold out challenging, requiring a fresh approach to setting targets, stops, together with asset periods.
Monday, March 21st
* So often, inwards our trading goals, it's gear upward together with forget. We gear upward goals, precisely oftentimes neglect to follow through. This article draws upon recent research to position how tin nosotros transcend away to a greater extent than productive--better at pursuing together with reaching the goals that nosotros define.
* Stocks closed higher overall on Friday, together with we're forthwith seeing over 90% of SPX shares trading inwards a higher house their 20- together with 50-day moving averages. That is odd push clit off the Feb lows. My mensurate of upticks versus downticks amid NYSE stocks (NYSE TICK) showed corporation push clit on Fed twenty-four hr catamenia and, every bit the nautical chart below shows, has been inwards an uptrend on a cumulative basis, eclipsing its previous high. I believe we're pricing inwards a to a greater extent than favorable surroundings for equities, given QE overseas together with a moderating Fed.
* Yet roughly other agency of tracking the push clit together with weakness of shares is to await at each stock on the NYSE together with run across if it has closed inwards a higher house or below its Bollinger Bands. (Raw information from Stock Charts). As the nautical chart below shows, nosotros convey reversed the blueprint of internet weakness from 2015 together with early on 2016 together with convey been persistently inwards a higher house the naught line of piece of job inwards recent days. Bottom line, I'm non seeing the sort of deterioration that would ordinarily precede a major marketplace reversal.
* H5N1 spell dorsum I mentioned the shares outstanding inwards the SPY ETF every bit a useful thought approximate together with noted that it had been flashing bearish sentiment, fifty-fifty afterwards the liftoff from the Feb lows. Sure enough, history repeated together with nosotros continued higher. Now we're seeing an expansion inwards shares outstanding (net bullish sentiment). In the by that has led to subnormal returns for SPY.
* Perhaps the most mutual psychological challenge I listen from traders is how to maintain a positive mindset during periods of drawdown. It's rattling hard to lose coin for a stretch of fourth dimension when you're pouring your pump together with best efforts into markets. But at that spot is no surer agency of missing opportunities than becoming self-focused together with negatively focused. This recent article focuses on how nosotros tin sustain well-being together with a positive mindset fifty-fifty when everything seems to hold out going wrong.
* Stocks bounced from their short-term oversold province of affairs noted yesterday amongst the swing overbought/oversold measure. I am watching breadth closely here, every bit it would non surprise me to run across a to a greater extent than selective stage of the marketplace wheel going forward. The relative functioning of little caps is of item interest.
* I'm seeing increasing utter of straight monetary stimulus to economies. I suspect this volition hold out actively considered if nosotros larn a renewed deterioration of fiscal weather together with concerns re: deflation. The implications for asset prices (weak currencies, rigid commodities) would hold out significant.
* I've been putting considerable function into a gear upward of swing measures that rail overbought/oversold weather together with volatility. These are based on trial time, where each bar represents an amount of book or toll drive inwards the market, non a unit of measurement of chronological time. The OBOS mensurate captures momentum together with value effects on a swing basis: swing returns inwards ES convey been best when we're significantly overbought (+.54%) together with significantly oversold (+.49%). Returns convey been subnormal betwixt these extremes (-.05%). Although I bespeak to maintain the specifics of the mensurate proprietary together with express to the managers I function with, I'll happily update periodically on this blog. Swing returns from electrical flow levels of OBOS together with vol convey non been significantly positive or negative.
* Here is a swing volatility mensurate that looks at the volatility of the trial bars. Note how we're close levels that convey lately corresponded to marketplace peaks. This is yet roughly other argue I'm watching breadth closely.
Thursday, March 24th
* Thanks to Aaron Fifield for interviewing me for the Chat With Traders podcast. We demeanour on a set out of topics relevant to factors that brand for trading success. He's assembled an first-class lineup of interviews worth checking out.
* We've seen a recent pullback inwards stocks together with oil; yesterday's closed saw an expanded set out of stocks making novel lows amidst relative weakness amid little caps. I volition hold out tracking breadth closely here, every bit nosotros mightiness hold out seeing a to a greater extent than selective stage of the recent marketplace strength. Below is a nautical chart of stocks across all exchanges making fresh 3-month highs vs. lows:
* I've been exploring a swing overbought/oversold mensurate based on trial bars. As you lot tin see, we've lately entered oversold territory. As long every bit these swing lows are occurring at successive toll highs, I'm willing to give the produce goodness of the doubtfulness to the bulls. The nautical chart tracks the mensurate through the recent motion higher.
Wednesday, March 23rd
* We saw an early on selloff due to the Brussels news, precisely this was bought relatively early on inwards the NY session. It's a skillful trial of how, inwards a momentum environment, participants desire to larn long fifty-fifty on relatively little dips. That beingness said, my breadth volatility measures (volatility of daily breadth numbers) has been coming downwardly together with that has led to subnormal returns over the near-term horizon.
* Interestingly, we're hovering close our highs, precisely yesterday saw alone nigh 40% of SPX stocks trading inwards a higher house their 3-day moving averages. During these momentum periods, corrections tend to hold out rotational together with we're seeing roughly of that. Housing, financials, consumer staples, utilities--all convey been off their highs recently. Technology has been stronger.
* My wheel mensurate continues inwards elevated territory, in 1 trial to a greater extent than dissimilar much of what nosotros saw inwards 2015, where push clit led to weakness. That continued elevation on a shorter-term wheel mensurate suggests that a longer-term wheel is at play together with that this has been to a greater extent than than a bounce inwards a demeanour market.
Tuesday, March 22nd
* We're seeing roughly consolidation overnight next a little upward twenty-four hr catamenia yesterday. While SPX closed higher, nosotros returned to underperformance of little caps together with the set out of stocks across all exchanges making novel monthly highs dropped from 1660 to 886. New monthly lows likewise dropped, however, every bit we're soundless non seeing distinctive weakness inwards whatsoever sector. Volume together with volatility dropped; VIX is forthwith below 14. More on volatility below.
* Below is a short-term mensurate of the set out of SPX stocks making fresh 5, 20, together with 100-day highs versus lows. Notice how nosotros convey stayed elevated for a set out of consecutive days together with how this is different from what nosotros saw through much of 2015. Whereas "overbought" readings were opportunities to sell concluding year, then far inwards this rising we're seeing momentum together with push clit leading to farther strength--one of the signature characteristics of a fresh marketplace cycle.
* Despite the market's push clit together with momentum, the rally has non had a lot of fans. I honour on the Stock Twits site, for example, that messages regarding SPY are 40% bullish, 60% bearish. That ratio hasn't changed much during the concluding 2 weeks of gains. I likewise honour that shares outstanding for the SPY ETF convey in 1 trial once to a greater extent than dipped, forthwith dropping below their levels from 5, 10, together with 20 days ago. Very interestingly, the set out of shares outstanding for SPY has dropped over the course of pedagogy of the rally from mid-February. Share redemption has to a greater extent than oftentimes than non been associated amongst superior returns over a multi-week horizon.
* As mentioned above, volatility has dropped over the course of pedagogy of this marketplace rally. Equally notably, my pure volatility mensurate (volatility per unit of measurement of trading book for the ES futures) has dropped significantly (see below) together with is getting to levels that convey been seen at recent marketplace highs. I am rattling opened upward to the possibility that we're going into a different stage of the marketplace wheel where we'll run across lower volume, less drive per unit of measurement of volume, together with to a greater extent than of a grinding trade. For traders accustomed to the drive that nosotros saw for the starting fourth dimension duet of months of this year, that transition to a depression vol authorities tin hold out challenging, requiring a fresh approach to setting targets, stops, together with asset periods.
Monday, March 21st
* So often, inwards our trading goals, it's gear upward together with forget. We gear upward goals, precisely oftentimes neglect to follow through. This article draws upon recent research to position how tin nosotros transcend away to a greater extent than productive--better at pursuing together with reaching the goals that nosotros define.
* Stocks closed higher overall on Friday, together with we're forthwith seeing over 90% of SPX shares trading inwards a higher house their 20- together with 50-day moving averages. That is odd push clit off the Feb lows. My mensurate of upticks versus downticks amid NYSE stocks (NYSE TICK) showed corporation push clit on Fed twenty-four hr catamenia and, every bit the nautical chart below shows, has been inwards an uptrend on a cumulative basis, eclipsing its previous high. I believe we're pricing inwards a to a greater extent than favorable surroundings for equities, given QE overseas together with a moderating Fed.
* Yet roughly other agency of tracking the push clit together with weakness of shares is to await at each stock on the NYSE together with run across if it has closed inwards a higher house or below its Bollinger Bands. (Raw information from Stock Charts). As the nautical chart below shows, nosotros convey reversed the blueprint of internet weakness from 2015 together with early on 2016 together with convey been persistently inwards a higher house the naught line of piece of job inwards recent days. Bottom line, I'm non seeing the sort of deterioration that would ordinarily precede a major marketplace reversal.
* H5N1 spell dorsum I mentioned the shares outstanding inwards the SPY ETF every bit a useful thought approximate together with noted that it had been flashing bearish sentiment, fifty-fifty afterwards the liftoff from the Feb lows. Sure enough, history repeated together with nosotros continued higher. Now we're seeing an expansion inwards shares outstanding (net bullish sentiment). In the by that has led to subnormal returns for SPY.
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