Info!! Reading The Footprints Of Large Marketplace Set Participants

In the end post, nosotros took a await at a mensurate of upticking together with downticking across all USA stocks every bit a agency of gathering insight every bit to whether buyers or sellers were dominating marketplace activity.  By tracking the flows of buying together with selling activity inwards existent time, nosotros tin position the dynamics driving the auction activity of the marketplace together with earnings from shifts inwards render together with demand every bit they are occurring.  The mightiness to perceive together with human activeness upon flows inwards existent fourth dimension is essential to the microanalysis that is an essential purpose of success for active traders.
Notice that the USA TICK mensurate is constructed past times tracking upticks together with downticks across a wide universe of stocks.  How tin nosotros rail buying together with selling flows for private instruments, whether they are futures contracts or private stocks?

The seemingly obvious reply would travel to investigate every transaction inwards the musical instrument together with position whether it's occurring on an uptick or downtick together with and thence aggregate the information.  There are several problems alongside that approach, however.  First, when nosotros receive got a composite record for a stock traded on multiple exchanges, it is non exactly clear when a impress occurring at the same infinitesimal together with 2nd genuinely preceded a impress occurring at the exact same time.  Second, how produce nosotros bargain alongside transactions that travel on at the same price?  Do they count neither every bit upticks nor downticks, or produce nosotros categorize them based upon the virtually recent toll change?  Third, how produce nosotros distinguish betwixt situations inwards which smart execution algo passively sit down on bids together with offers to purchase together with sell at best prices?  In such a situation, toll may non move, but the intentions of the marketplace participants tin travel really different.  To the aeroplane that smart algos dominate execution together with mask the intentions of participants, unproblematic uptick/downtick rules tin travel misleading.

A valuable agency of tackling this occupation has been offered past times Easley, Lopez de Prado, together with O'Hara inwards their newspaper "Discerning Information From Trade Data".  This mass book classification method takes modest clusters of book or transactions together with categorizes the toll behaviour inside those to ascertain the intentions of marketplace participants.  This provides an efficient method for inferring buying together with selling pressure without relying on the ambiguities of a composite record or remaining blind to intentions when successive transactions travel on at the same price.

Above, nosotros tin encounter a unproblematic implementation of this method for the ES futures (blue line) during the 9/1/2016 trading session.  The Y-axis is constructed inwards criterion divergence units, thence that nosotros tin readily encounter when pregnant buying together with selling activity (red line) is occurring during the day.  Recall the questions that nosotros tin reply alongside the USA TICK data.  Through the book classification method, these questions tin travel addressed without needing to rail transactions across all stocks.  The questions tin also travel answered for private stocks together with futures contracts.  Over time, nosotros tin encounter shifts inwards buying together with selling flows together with participate inwards marketplace activity accordingly.  The border lies inwards the mightiness to read the footprints of large marketplace participants, fifty-fifty when they brand efforts to disguise their intentions.

This operate is a dainty representative of how quantitative approaches to markets tin inform discretionary decision-making.  It is also an of import representative of the value of information that occurs inside whatever one-minute bar.  Many traders neglect to read markets properly because they desire to usage a telescope instead of a microscope.  Understanding the flows occurring hither together with instantly is far to a greater extent than relevant to short-term trading than predicting those flows on the solid put down of remote events.

Further Reading:  Improving Your Trading Toolkit
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Info!! Trading Notes For The Calendar Week Of March 14, 2016

Friday, March 18th

*  Steve Spencer of SMB emphasizes that cost activity next a catalytic lawsuit provides us amongst of import information.  This is especially truthful when nosotros run across a modify inwards the distribution of transactions next a word lawsuit or other catalyst.  Increased book together with a novel skew of book lifting offers versus hitting bids, for example, tells us that fresh buying flows receive got come upwards into the market.  This calls for an updating of our views of the stock or index.

*  This lesson has been especially relevant inwards the wake of the Fed announcement.  My cumulative stair out of upticks vs. downticks has hitting novel highs for this displace together with breadth, which had been waning, vaulted to novel highs.  Below nosotros tin run across the nautical chart of stocks across all changes making fresh 3-month novel highs vs. lows.  The vigor of buying next the Fed annunciation suggests that this, indeed, was a game changer.  Central banks globally are opting for accommodation and, historically, that has been favorable toward stocks.

*  The China/deflation thesis, which dominated give-and-take during recent marketplace weakness, is far less discussed I find, given stone oil clit together with USD weakness.  For stocks, inwards a negative involvement charge per unit of measurement world, anything rubber amongst yield continues to discovery interest.

Thursday, March 17th

*  Interesting commentary on the fright of missing marketplace moves from Victor Niederhoffer.  Many a bad merchandise is made because of the ego, non because of the objective marketplace opportunity.

*  We saw a ascent to novel highs on the heels of the Fed announcement, amongst enterprise buying interest.  Recent posts receive got commented on weak breadth and, for the marketplace overall, the breadth movie did non amend despite the Fed-related strength.  Across all exchanges, nosotros saw 753 novel monthly highs against 254 lows.  The latter is in 1 lawsuit again an uptick inwards novel lows together with the novel highs are one-half of what nosotros saw 2 weeks ago.  Among SPX shares only, stocks making fresh 100-day novel highs versus lows did expand to a marginal novel peak.  Much of the weakness is amid small-scale cap shares, though fiscal together with wellness aid stocks inside SPX are likewise lagging.  With the mixed breadth picture, I'm non surprised to run across some retracement of yesterday's gains inwards premarket merchandise today.

*  Breadth issues notwithstanding, it's clear that this has been a vigorous bull displace from the Feb lows.  Note below how we've stayed "overbought" on my multiperiod clit stair out (daily tracking of SPX stocks making 5, 20, together with 100-day novel highs versus lows) for a number of days.  This exclusively occurs inwards trending markets.  While the breadth issues oft precede correction, my base of operations illustration is to sentiment such a correction equally a buying opportunity.  

 

*  I'm working on creating a cycle-based stair out of short-term momentum together with value effects inwards the ES market.  The thought is to seat when markets are most probable to proceed versus opposite their most recent directional movement.  Interestingly, the market's ascent yesterday occurred on a depression value of the momentum measure.  More to come upwards on this research.

Wednesday, March 16th

*  Jim Dalton, who has pioneered trading via Market Profile, is offering his in conclusion mentorship computer programme earlier his retirement.  I likewise run across Terry Liberman will live doing a webinar amongst Jim afterwards today.  When I taught an internship computer programme inwards Chicago many years ago, Jim's piece of occupation was the exclusively mandated reading.  I proceed to discovery Market Profile helpful equally a conceptual framework for thinking nearly marketplace behavior.

*  After some early on weakness, nosotros saw buying inwards stocks, but small-scale caps proceed to notably underperform large caps.  As a result, nosotros run across continuing deterioration amid the breadth measures.  New monthly lows ticked upwards to 192, the highest degree since Feb 24th together with monthly highs dipped to 451.  Relatively weak sectors lately include unloose energy shares (XLE) together with healthcare (XLV).  Today's trading volition live dominated past times the afternoon's Fed announcement.  

*  We proceed quite stretched on my intermediate clit measure, which looks at the number of SPX shares making fresh 5, 20, together with 100-day highs versus lows.  (Data from Index Indicators).  If the Fed-related merchandise can't interruption us from the breadth deterioration, I await an intermediate-term correction.  That would non necessarily live an terminate to the bull displace from February's lows, but could advise a new, topping stage to the electrical current marketplace cycle.  During a topping stage nosotros tin run across higher overall prices for the index, but amongst deterioration inwards some sectors contributing to lagging breadth.  

   
*  Here is a unique intraday indicator that looks at buying clit per unit of measurement area amid all U.S. listed shares.  It tracks upticks amid all shares (data from e-Signal) together with expresses the final result inwards measure difference units.  This shows us when important buying is coming into the market.  It likewise shows us when at that topographic point is a meaningful absence of buying.  (A corresponding stair out tracks important selling together with absence of selling pressure).  It helps longer-term positions when those are going amongst the flows.  The nautical chart below shows yesterday's market.

Tuesday, March 15th

*  I'll live making an improver to these marketplace notes together with including each 24-hour interval links to readings that I discovery specially informative together with useful.  To boot this off, banking concern check out the Paststat blog for daily trading ideas based upon historical patterns, including this 1 based upon seasonality.  From my perspective, such patterns are the starting signal for analysis, non an terminate point.  Once nosotros run across a pattern, the difficult piece of occupation remains of deciding: 1) is the electrical current marketplace authorities typical of the menstruum covered past times the historical test; 2) is at that topographic point a audio argue for the beingness of the pattern, or mightiness the designing live a random occurrence; together with 3) what is the variability or together with thus the designing (could yous endure the exceptional instances)?  Factoring marketplace history into trading decisions is no guarantee of success--it's slow to aspect inwards together with thus many places that some "significant" designing appears--but ignorance of marketplace history is non just a promising alternative.

*  The relative absence of selling clit per unit of measurement area inwards Monday's session was noteworthy together with helped atomic number 82 to higher prices for much of the session earlier a belatedly selling burst.  Selling has continued overnight amongst no novel shot inwards the arm from the Bank of Japan.  Trading was unusually wearisome on Mon together with nosotros could larn to a greater extent than of the same ahead of tomorrow's Fed announcement.  Note how short-term breadth has been potent for a number of days; the stair out below tracks the percent of SPX stocks closing to a higher house their 3, 5, together with 10-day moving averages.  (Data from Index Indicators).

       
 *  The marketplace looks tired to me--for the origin fourth dimension since the liftoff from the Feb lows.  Specifically, we're getting fewer shares registering novel highs during marketplace rallies.  Much of that relative weakness is coming from small-scale cap shares.  Yesterday nosotros saw 921 stocks across all exchanges brand fresh monthly highs against over 2000 in conclusion week.  (Data from the Barchart site).  No private sector inside the SPX looks distinctively weak together with I'm non at all convinced that we're going into deport mode.  Rather, I await a normal correction inside a bull move.  With the absence of selling having problem bringing us higher, I'm leaning toward selling bounces that cannot maintain us to a higher house the overnight highs.  Of course, the upcoming Fed annunciation volition supply a major catalyst for stocks tomorrow.


Monday, March 14th

*  Those who know me good know that I create non subscribe to the thought that successful trading is by together with large a operate of psychology.  Without an objective trading edge, one's frame of bespeak heed volition but dictate the charge per unit of measurement at which nosotros portion amongst our capital.  Still, psychology is necessary, if non sufficient, for success together with yesterday's post service was mayhap my clearest explanation why.

*  We shut close the highs on Friday, continuing the upswing next the post-ECB selloff.  The ascent left us quite stretched short-term, amongst over 90% of SPX stocks trading to a higher house their 3, 5, 10, together with 20-day moving averages.  This inwards itself is non a mutual occurrence.  Going dorsum to 2006, I could exclusively discovery 12 instances of this happening when VIX has been below 20.  Interestingly, three were up, ix downward the side past times side 24-hour interval for a internet loss, but 10 were up, 2 downward after three days.  We're trading a fighting lower premarket equally I write; the depth of a side past times side pullback volition state us a lot nearly possible upside momentum over the side past times side few days.

*  One line of piece of occupation concern starting to travel inwards my caput is that Friday's highs were the origin inwards which nosotros saw sizable breadth divergences.  If nosotros aspect at all stocks across all exchanges, nosotros tin run across that 1087 made fresh monthly highs on Fri against 2082 the prior Friday.  Much of this is a operate of relative weakness amid small-scale caps.  We exclusively had 92 novel monthly lows on Friday, together with thus naught is standing out equally weak together with I'm non expecting whatsoever grand reversal.  I am concerned, however, that nosotros could run across a decent pullback from these levels equally portion of the start of a topping process.  Bottom line is that I was happy to receive got profits belatedly Fri together with I'm happy to remain on the sidelines together with run across what the bears tin bring.  Ideally, I'd similar to live a buyer of weakness early on inwards the calendar week for at to the lowest degree a retest of highs thereafter.  But I'm non seeing favorably skewed risk/reward right here, right now.

Info!! Around Night Clouds On The Stock Marketplace Horizon

It's been a dandy operate inwards stocks from the mid-October lows, fueled past times significant buying pressure level coming out of those lows.  By mid-November, my measures were showing diminished upside momentum, but not the sort of weakness that would unremarkably atomic number 82 to meaningful intermediate-term corrections.  By the halt of November, pockets of outright weakness became evident inwards the market, amongst smaller cap issues as well as commodities-related stocks showing detail weakness.  This led to a recent province of affairs inwards which stocks making fresh three-month lows genuinely outnumbered those making novel highs, despite SPX hovering nigh its all-time highs.  Not entirely conduct hold nosotros been seeing signs of weakness inside the U.S. stock market; globally stocks conduct hold non kept upward amongst SPX.

Recall that I rails the number of upticks as well as downticks across all stocks inwards the NYSE universe.  That buying as well as selling pressure level stair out has been quite useful inwards tracking trace as well as weakness during the evolution of intermediate-term cycles.  What nosotros run into inwards the overstep nautical chart is that the buying-selling residue has been below cypher for a number of recent sessions, a designing nosotros conduct hold seen during the topping phases of marketplace cycles.  In itself, that exactly indicates a waning of wide buying involvement as well as approximately alternative upward of selling, though non to the storey nosotros saw prior to the early on Oct drop.

Truly outstanding has been the plunge inwards my stair out of correlation amid stocks, which looks across both capitalization levels as well as sectors.  Indeed, this is the lowest correlation storey I conduct hold seen since tracking the stair out since 2004.  Correlation tends to ascent during marketplace declines as well as and hence remains relatively high during bounces from marketplace lows.  As cycles crest, nosotros run into weak sectors pare off piece stronger ones hold to fresh highs.  As those divergences evolve, correlations dip.  Right similar a shot we're seeing massive divergences, cheers to relative weakness amid raw materials shares (XLB), loose energy stocks (XLE), regional banks (KRE), as well as pocket-size (IJR) as well as midcap (MDY) stocks.  Why is this important?  Going dorsum to 2004, a unproblematic median divide of 20-day correlations finds that, later depression correlation periods, the average side past times side 20-day modify inwards SPX has been -.33%.  After high correlation periods, the average side past times side 20-day modify inwards SPX has been +1.43%.  

A real interesting see stair out that I rails is the amount of upper-case missive of the alphabet flowing into as well as out of diverse ETFs.  The number of shares outstanding inwards an actively traded ETF changes daily, reflecting underlying buyer as well as seller interest.  Trim Tabs follows these ETF flows and notes that nosotros are at extremes that were seen prior to the 2008 marketplace meltdown.  My ain figures for SPY uncovering that shares outstanding late conduct hold striking double digit increases over the past times 20-day period.  That reflects bullish see inwards the overstep 90% of all values I conduct hold tracked since 2006.  Going dorsum to 2006, when see has been inwards the overstep bullish quartile, side past times side 20-day returns conduct hold averaged a loss of -.57%.  When see has been inwards the bottom, most bearish quartile, side past times side 20-day returns conduct hold averaged a make of +1.57%.

I lay all that together as well as uncovering it hard to run into practiced upside risk/reward from this point.  When I saw lack of trace plough into outright weakness inwards mid-September, my bullish chips came off the table.  Now I uncovering myself inwards a similar mode.  Could ECB or the Fed come upward to the market's rescue as well as inject fresh catalytic trace into stocks?  Absolutely.  Could investors pour coin into stocks as well as chase piece of cake Dec seasonal strength?  Of course.  I am confident those developments volition present upward apace inwards my buying/selling trace measures as well as I volition study them duly.  Right here, right now, however, I run into global signs of disinflation as well as economical weakness; a Fed that has been talking almost exiting QE; depression equity put/call ratios; as well as persistent relative weakness inwards high yield bonds (HYG).  It volition conduct hold a fresh catalyst--and fresh prove of buying interest--to decease my chips dorsum on the bull's table.
 .

Info!! Tracking The Footprints Of Provide In Addition To Bespeak Inwards The Stock Market

In approximately ideal, dispassionate basis all participants inwards fiscal markets would acquit similar my friend NRK too solely purchase at bid prices too sell at offers.  It's a groovy agency to create good inwards auction markets, too in that location are optimal execution platforms that volition make that for large marketplace participants.  The employment amongst optimal execution is that y'all oft cause got to hold back to buy the farm expert prices, too cost tin buy the farm away from y'all spell you're waiting.  That tin hap if you're looking for a manage inwards a hot existent estate marketplace or if y'all essay entering on boundary orders inwards a fast market.  

The truth of the thing is that the basis is neither ideal nor dispassionate.  People chase cost bubbles too puke out of positions when everyone else is doing the same.  Real basis traders--and fifty-fifty those execution systems--recognize this too allow for execution amongst urgency.  When markets are moving amongst signs of momentum, it's acceptable to elevator offers too hitting bids to participate inwards the movement.  Of course, inwards this less than ideal world, there's also that modest inconvenience called cognitive bias.  We all also oft extrapolate direct lines too remember that every displace higher or lower is a budding trend.  That gets us executing amongst urgency to a greater extent than oft than genuinely objective signs of momentum would dictate.

The long too curt of this foray into the vicissitudes of determination making is that fifty-fifty the largest marketplace participants larn out footprints equally to their intentions.  Yes, they tin chop orders upwards into pieces too execute inwards baskets too merchandise on dissimilar exchanges.  At the halt of the day, however, their transactions occur inside a bid/offer matrix, too they are either executing amongst urgency or they are not:  they are either willing to pay the seller's cost or they're willing to allow markets sell downwards to their desired buying level.

When y'all analyze markets transaction past times transaction, y'all tin really come across the stream of trades too book hitting bids too lifting offers--and y'all tin rail the evolving sentiment/urgency of marketplace participants.  That is highly useful data that is obscured past times looking at traditional intraday or daily charts.  H5N1 daily nautical chart is a telescope, revealing a large picture.  Viewing markets transaction past times transaction to discover the flows of trader behaviour requires a microscope.  H5N1 major fault that traders brand is attempting to engage inwards microscopic analyses past times changing the magnifying ability of their telescopes.

Above is a nautical chart that tracks a mensurate of "volume flow" that I've spent the amend business office of this weekend constructing.  It looks at every merchandise for every stock inwards the NYSE universe too identifies where the transacted cost occurred inside the bid/offer matrix existing at that time.  If the book of that transaction occurred nearer to the bid price, it is considered "selling volume".  If the book occurred nearer to the offering price, it is considered "buying volume".  The book stream mensurate is a running full of buying vs. selling volume.  If y'all remember of it equally a volume-weighted NYSE TICK mensurate or equally a cumulative Market Delta for all stocks, y'all wouldn't last far off the mark.

Much equally I dearest the TICK measure, it is democratic to the indicate of promiscuity.  All upticks too downticks are equal, whether they stalk from the smallest microcaps or the bluest of bluish chips.  That is non hence helpful when trading a capitalization-weighted index.  You tin cause got relative forcefulness or weakness amid modest caps equally business office of a sector rotation that volition skew the TICK measure--sometimes considerably.  H5N1 volume-weighted TICK measure, on the other hand, naturally weights larger, to a greater extent than actively traded issues to a greater extent than highly, providing a potentially amend supply/demand see for the stocks that thing inwards the index beingness traded.

Note to a higher house how selling flows were quite moderate inwards early on merchandise too hence accelerated fifty-fifty equally cost was topping out for SPY.  This is potentially useful data for the intraday trader.  

As I operate amongst the novel measure, I promise to portion farther findings too details.  The of import takeaway is non nigh the specific measure--it may or may non add together value over time.  Rather, what is of import is looking at markets inwards fresh ways too sustaining a procedure that periodically renews too extends your perspectives.  Looking at the same charts too indicators equally everyone else is a groovy agency of replicating the returns of everyone else.  If y'all wishing distinctive returns, y'all demand to see markets through distinctive lenses that break fresh opportunities.  It used to last that dependent meant next a exceptional develop of rules or processes.  In crowded, ever-changing markets, however, creativity is the novel discipline.

Further Reading:  Why to Keep a Journal
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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.

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.

Info!! Trading Notes: Calendar Week Of November 30Th

Friday, Dec 4th

*  Well, ECB did halt upwards giving us a surprise together with it was every bit much inwards the tone of the press conference every bit the content of the decision.  My accept is that the fundamental banking concern sent a message that they volition non hold upwards bullied past times markets together with all the commentary on how the banking concern "needs to deliver."  The message from the press conference was that they are delivering the promised monetary stimulus, that this is enough, together with that nosotros should hold upwards patient together with allow it work.  Markets were positioned for to a greater extent than aggressive activeness together with nosotros had quite the selloff inwards the euro together with inwards stocks together with bonds.  We direct hold the payrolls written report this AM together with and then the Fed enters a placidity menses ahead of its meeting.  All inwards all, amongst a moderate ECB together with a Fed poised to hike, in that location isn't a big fundamental banking concern tailwind for stocks.

*  Yesterday I noted the deterioration inwards breadth together with that clearly extended yesterday.  We had 350 stocks across all exchanges register fresh monthly highs against 699 lows.  That was the highest set out of stocks making monthly lows since Nov 16th.  We're extended to the downside on a short-term terra firma amongst fewer than 20% of stocks trading higher upwards their 3, 5, together with 10-day moving averages (raw information from Index Indicators), so a short-term bounce is quite possible.  As the nautical chart of overbought/oversold SPX stocks indicates below, however, nosotros are non yet at an intermediate-term oversold point.  That has me inwards the manner of selling marketplace bounces.

Thursday, December 3rd

*  So far, no keen surprises from ECB; press conference coming up.  I'm non certain there's anything to alter the broader dynamic of depression rates together with weak currency inwards Europe.  If nosotros consider a dovish charge per unit of measurement hike from Fed, 2016 could convey to a greater extent than QE-style merchandise to stocks together with shares amongst yield could honor some support.  It's a subject I'm mulling over for the novel year.

*  That beingness said, yesterday traded quite weak.  Note on the relative book nautical chart of yesterday's merchandise below how the attempted bounce from the early on selling constitute piffling interest.  We bounced overnight, but we're overbought on an intermediate-term basis.  That has me selling bounces that cannot accept out overnight together with prior day's highs.

*  I was struck yesterday past times the fact that nosotros had 54 stocks brand 52-week highs together with 78 register annual lows.  Not impressive breadth.
Wednesday, Dec 2nd

*  From the start of Tuesday's session nosotros could consider fresh buying flows locomote inwards the market, amongst elevated NYSE TICK readings.  This was a clear interruption from recent activeness together with ultimately led the marketplace to novel cost highs for this move.  The set out of stocks closing higher upwards their upper Bollinger Bands hitting their highest grade since Nov 2d together with breadth was corporation (see nautical chart below).  If this is the start of a genuine leg up, nosotros should rest higher upwards the recent trading make together with add together to yesterday's gains.  The reply to tomorrow's ECB activeness may play a purpose inwards that.  Given mostly overbought levels inwards my cycle measures, I'm non wedded to the upside breakout idea, but volition hold upwards watching breadth closely.

*  I maintain to implement the alter inwards my trading inwards which I view the hours inwards Asia, Europe, together with U.S. every bit distinct trading "days".  All positions are opened together with shut inside their "days", so that in that location is no supposition of continuity across fourth dimension zones.  I honor the flows together with cost patterns to hold upwards quite dissimilar from i fourth dimension menses to the next, but create honor consistency inside each zone.  This has helped risk management together with has too helped me locomote to a greater extent than flexible inwards trading ranges.  The emergence of the buying flows early on inwards yesterday's U.S. session was a adept illustration inwards point.

Tuesday, Dec 1st

*  We saw weakness inwards stocks yesterday, followed past times belatedly twenty-four hours strength, only to autumn dorsum into the make inwards overnight trade.  During this extended range, we're seeing overbought levels inwards my cycle measures together with breadth has been waning (see nautical chart below; raw information from the first-class Index Indicators site).  Trading the make (fading short-term overbought/oversold readings) has been what's been making coin so far together with it's been a brand it/take it market.  With all eyes on ECB on Th together with payrolls on Friday, I suspect we'll direct hold plenty of volatility to interruption the range.  As nosotros larn to the upper halt of the recent range, I'm non enamored amongst the risk/reward.  I'm too non inclined to accept big bets ahead of events afterward this week, which mightiness hold upwards the view of other marketplace participants...and that could maintain us inwards the make close term.

*  Here's a study that I've undertaken that I believe volition hold upwards of value inwards 2016 performance.  I'm looking at the trajectory of my winning together with losing trades.  How speedily create the winners plough into winners?  How speedily create losers locomote losers?  If a merchandise is non profitable after X minutes, what is the likelihood it volition hold upwards profitable at all?  If a merchandise is nether H2O after X minutes, what is the likelihood it volition come upwards back?  What is the trajectory of the marketplace after my exits?  Is my entry together with larn out execution providing value?  My initial findings are that losing trades pretty much start out every bit losing trades.  If I don't larn stopped out after a menses of time, the best class of activeness is to add together to the trade.  Winning trades don't ever start every bit winning trades, but frequently start every bit not-losing trades.  In other words, a marketplace may bounce simply about inwards a make earlier going my way.  That does hand opportunities for adding to positions.  Tracking the added value of those added positions is yet some other study I volition hold upwards undertaking.  More on this shortly to come--


Monday, Nov 30th

*  How far tin nosotros accept functioning if nosotros operate amongst real tuned minds together with bodies?  Most of us assume that nosotros direct hold to operate difficult together with operate long hours together with this agency operate must accept a toll on hear together with body.  But if nosotros prioritize hear together with body, mightiness nosotros operate much amend together with smarter?  Might nosotros alive happier together with to a greater extent than fulfilled lives?  Perhaps we're going close evolution together with functioning inwards alone the incorrect way...

*  Stocks bounced off early on lows inwards Friday's partial session, but remained below recent highs.  I maintain to hold upwards underwhelmed past times marketplace breadth so far.  The maximum set out of novel monthly highs registered terminal calendar week was 589 on Wednesday, good below the 953 achieved inwards the get-go calendar week of the month.  We direct hold ECB on Th together with the terminal jobs numbers on Fri earlier the Fed coming together this month.  I volition hold upwards watching closely for bear witness of the recent marketplace line broadening vs. rolling over.  My mensurate of intermediate-term marketplace line has non yet crested for the electrical flow cycle, per the nautical chart below.

 *  High yield bonds maintain to combat per the nautical chart of JNK below.  At some point, I suspect this volition accept forepart together with oculus stage.  It's non a bull marketplace dynamic.

Info!! Coin Flow: Fewer Sellers, Only Yet No Influx Of Buyers

my in conclusion post, nosotros saw prove of resilience inward the cost direct of smaller cap stocks. I suggested that such resilience tin last component subdivision of a longer-term bottoming process. Another component subdivision of bottoming is seeing an growth inward the funds existence pose to run inward the stock market. That is the component subdivision of the coin period of time indicator, which tracks the dollar book entering or exiting stocks on a daily basis. It does this yesteryear tracking every unmarried marketplace position transaction inward every stock, adding the dollar book (price times volume) to a cumulative amount if the transaction occurs on an uptick as well as subtracting it from the amount if the transaction occurs on a downtick.

Above nosotros come across a four-day moving average of coin flows into the Dow Jones Industrial stocks. Note how selling dried upwards from Jan through March prior to the market's bounce higher as well as how selling besides dried upwards from the latter component subdivision of May through early on July prior to recent marketplace position bounce. I've constitute this to last a mutual pattern: a decrease inward buying or selling prior to an intermediate-term marketplace position reversal.

Still, a waning of selling is dissimilar from an influx of buying. When the marketplace position bounced subsequently the March low--and instantly during the market's recent bounce--we convey non sustained days inward which dollar inflows convey exceeded outflows. The moving average's excursions inward a higher house the bluish cypher trouble (the signal at which inflows equal outflows) convey been brief. This suggests to me that much of the bounce consists of brusk roofing as well as property reallocation, non necessarily fresh funds existence pose to run inward equities. As much equally I've been impressed amongst the resilience of many stock marketplace position sectors as well as styles, I volition require to come across to a greater extent than prove of positive flows earlier final that nosotros are out of bearish woods.
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Info!! Tracking The Psychology Of The Marketplace Amongst Number Flow

When nosotros intend of trading psychology, nosotros typically intend of the psychology of the trader as well as the factors that either contribute to or distract from a peak functioning mindset.  Another facet of trading psychology is reading the intentions of other marketplace players.  This is real similar to psychology inwards poker.  The mindset of the poker instrumentalist is important, as well as it is also of import to read the psychology of the other players at the table.  The skilled poker instrumentalist reads those tells from other players to infer if they are bluffing or if they mightiness survive asset the nuts.  When short-term trading/market making occurred on the trading floor, reading the other participants inwards a marketplace really was to a greater extent than similar reading other poker players.  With nigh marketplace activity existence electronic, nosotros involve other ways of inferring the intentions of marketplace participants.

Above nosotros encounter a nautical chart of what I refer to every bit Event Flow for yesterday's session inwards the ES futures (6/12/17).  I volition survive discussing this mensurate during this afternoon's costless webinar as well as inwards especial item at this summer's workshop inwards Chicago.  (Here are details regarding the webinar as well as workshop).  In a nutshell, what I'm doing alongside consequence period of time is breaking downwardly the day's activity into volume-based events, where each bar represents the cost activity of each grand contracts traded.  What I'm interested inwards is the cost behaviour *within* each bar.  If cost closes to a greater extent than toward the high goal of the bar, I volition categorize that bar every bit a "buying" bar as well as vice versa.  The nautical chart depicts a cumulative running total of buying as well as selling bars, inwards the agency of an advance-decline line.  

Most of the fourth dimension the Event Flow business volition follow cost relatively faithfully.  It is the divergences that are of especial interest.  Notice, for example, how sellers were dominating inwards the afternoon, simply ultimately were unable to force prices below their morn (and below their previous day's) low.  The inability of sellers to movement cost lower (or vice versa) creates a province of affairs where those participants volition survive forced to comprehend when flows as well as prices turn.  Note the dainty rally inwards ES (blue line) later sellers are trapped inwards the afternoon.

Event Flow is a complement to other ways of inferring the psychology of marketplace participants, such every bit upticks/downticks (NYSE TICK) as well as Market Delta.  Event period of time is easily constructed for whatever musical instrument trading centralized volume.  It is also relatively robust alongside regard to the participation of optimal execution algorithms, every bit noted inwards quant query (see here as well as here).  Algos may survive buying bids as well as selling offers inwards an efficient manner.  This would non necessarily exhibit upwards inwards measures of upticks/downticks simply would survive reflected inwards cost behaviour inside sparse book slices.  Event Flow tin survive aggregated over longer fourth dimension frames to supply bigger motion-picture exhibit views of marketplace participant bullish/bearish psychology.

I've mostly constitute traders much to a greater extent than interested inwards focusing on their psychology, rather than the psychology of the markets they're trading.  That's a large mistake.  Typical cost charts are far besides blunt every bit tools for assessing the psychology of the marketplace.  With Event Flow, nosotros don't get got to rails the marketplace transaction past times transaction simply tin withal obtain a relatively finely grained assessment of how those around the marketplace are behaving.

I hold off frontward to sharing to a greater extent than at the webinar this afternoon as well as the workshop inwards July.

Further Reading:  Tracking the Stock Market With Upticks as well as Downticks 

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