Info!! The Trading Process: Stance Generation Together With The Scientific Mindset

PREVIOUS POSTS IN THIS SERIES ON TRADING METHODS:

1) Identifying Market Context

2) Identifying Key Price Levels as well as Targets

3) Identifying Day Structure

How does a trader brand the transition from agreement a electrical flow marketplace (the 3 elements enumerated above) to genuinely formulating a trading idea? That is the topic of this post.

In a word, the trading thought must integrate the information we've gained from an appreciation of marketplace context (whether markets are trending/bracketing on longer fourth dimension frame; intermarket themes that ask maintain been operative; relevant word events as well as economical reports); fundamental toll levels (support/resistance; average trading prices; target prices); as well as solar daytime construction (whether the electrical flow solar daytime appears to move inwards breakout/trending/range mode).

As an intraday trader, I laid about the procedure of generating ideas past times formulating hypotheses equally the marketplace is trading. Many times, the hypothesis volition kickoff past times assuming that whatever has been happening at the larger fourth dimension frame--what I am identifying inwards the marketplace context--will bear frontwards to the electrical flow trading day.

Thus, on average, if I come across we've been trending higher, I volition hypothesize that forcefulness volition bear over to the electrical flow trading session. At this point, the hypothesis is solely that: an educated hunch, non a trading idea.

As the marketplace is trading, that hypothesis may gain or lose support. For instance, if I come across that, amongst each bout of selling, the marketplace holds higher upward its volume-weighted average toll (VWAP), the thought of continuing the tendency higher gains support. Conversely, if nosotros brand buying efforts as well as book wanes as well as nosotros cannot accept out prior highs, my hypothesis loses support.

If I'm thinking similar a scientist, my real-time marketplace observations are helping me to refine my hypothesis. Perhaps the stock marketplace is non moving much inwards pre-opening trade, simply I notice correlated markets (U.S. dollar, commodities) moving inwards a agency that would move supportive of higher stock prices. That mightiness non solely assist back upward my hypothesis of continuing the marketplace trend, simply mightiness likewise render clues equally to which stock sectors could most apply goodness from such a move.

Similarly, I mightiness come across emerging marketplace stocks leading a displace higher as well as conclude that such speculative persuasion could bear over to the to a greater extent than speculative areas of U.S. stock performance. Or I mightiness come across overseas markets degree off on unfavorable economical word as well as moderate my expectations for U.S. stocks on the open.

The indicate is that hypotheses are ever-evolving. New marketplace information is helping us gain or lose confidence inwards our ideas.

Once I ask maintain high confidence inwards direction (i.e., the most recent marketplace activity is confirming my prior hypothesis), I as well as thence purpose my agreement of toll levels as well as solar daytime construction to brand the hypothesis to a greater extent than specific.

For example, if we're trending higher as well as I come across signs of firmness inwards the marketplace prior to the open, I mightiness hypothesize that nosotros volition concur higher upward the overnight depression inwards Globex futures trading as well as merchandise higher upward yesterday's high price. Alternatively, I mightiness ask maintain lost confidence inwards the thought of continuing the tendency higher due to tepid overnight activity as well as failing intermarket themes as well as hypothesize that nosotros volition concur below the overnight high inwards Globex futures trading as well as merchandise dorsum to the electrical flow day's VWAP or the prior day's pin toll level.

When I refine my hypotheses, I ever brand reference to fundamental toll levels as well as my ideas virtually direction must ever move grounded inwards what I'm seeing inwards the most recent marketplace behavior. If I'm hypothesizing a tendency or breakout day, I'm looking for prices higher or lower to follow the most recent toll action. If I'm hypothesizing a hit or imitation breakout session, I'm looking lower or higher for prices to contrary the most recent toll action.

If you lot were to sentry me trading, you lot would come across me jumping from enshroud to screen, nautical chart to chart, constantly updating measures of persuasion (NYSE TICK, Market Delta); volume; correlated indexes, sectors, as well as asset classes; as well as conduct around toll levels. Cognitively, I'm continuously weaving a narrative virtually what I'm seeing: assembling the emerging marketplace information into a story trouble that makes feel to me. The hypotheses flow from this story line.

Many times, I abide by the information to move contradictory as well as mixed as well as no convincing story trouble emerges. At such times, I apply non act. Only when the information autumn into a designing as well as the designing fits into my agreement of context as well as solar daytime construction volition I entertain a hypothesis as well as elaborate it amongst toll level/target specifics.

As nosotros volition come across inwards afterward posts inwards the series, this narrative procedure of hypothesis generation continues through the solar daytime and, indeed, throughout the menstruation of asset positions. It tin ship away likewise occur at fourth dimension frames wider than intraday, equally inwards the instance when nosotros come across stocks failing to sustain forcefulness early on inwards the calendar week as well as hypothesize that nosotros volition merchandise dorsum to final week's pin level.

Once nosotros empathize thought generation equally a sort of scientific process, nosotros tin ship away amend appreciate the business office of psychological factors inwards trading. Influenza A virus subtype H5N1 proficient mindset volition non pose valuable hypotheses inwards the caput of a scientist, simply the incorrect mindset tin ship away interfere amongst generating as well as refining worthwhile hypotheses. Most emotional disruptions of trading involve some sort of short-circuiting of designing recognition as well as reasoning processes.

More:

The Scientific Mindset inwards Trading

Framing Trades Scientifically

The Scientific Mistakes of Traders

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Info!! Reasoning, Preparation, Together With Trading Success

A recent post described a framework for trading inward which evolving marketplace activity (the demeanor of price, volume, together with volatility only about cardinal toll levels) is used to shape ongoing estimates of the odds of touching predefined profits targets. By observing how book together with volatility conduct on upward together with downward movements—and past times gauging the bird of participation inward those movements—we tin obtain a experience for whether merchandise is directional or non-directional together with anticipate continuation together with reversal moves accordingly.

Underlying this framework for trading is a reasoning procedure that synthesizes ongoing information inside together with across markets together with fourth dimension frames. Much of what is learned during the procedure of obtaining marketplace expertise is a refinement of this reasoning process. Psychology becomes of import to trading outcomes insofar every bit it promotes or interferes alongside the reasoning needed to adjust to the flows of market-generated information.

The reasoning process, however, begins earlier markets opened upward every bit constituent of the trader’s daily preparation. By observing how markets merchandise overnight, evaluating the demeanor of correlated property classes prior to the open, together with past times assimilating economical data, news, together with earnings releases (and marketplace responses to these), the trader gains a experience for the marketplace 24-hour interval earlier the opening bell rings.

Key to the trader’s reasoning is an elaboration of “what-if”scenarios that review hypotheses regarding probable marketplace action. What if nosotros opened upward alongside depression volume, nearly the previous day’s pin bird on a 24-hour interval alongside no scheduled economical releases? What if nosotros opened upward weak inward the S&P 500 Index, but meet firmness amid the small-scale cap stocks together with a mixed opened upward amid the major stock sectors? What if the marketplace breaks higher upward a cardinal toll level, alongside bullish demeanor inward bonds, the dollar, commodities, together with the to a greater extent than speculative stock sectors? What if the marketplace breaks below support, but breadth remains mixed?

Each of these scenarios calls for a specific trader response. Each offers potential trading opportunity. By mentally reviewing the scenarios inward advance, the trader becomes to a greater extent than prepared to deed upon them. The trader besides becomes to a greater extent than sensitive to their unfolding, thence that trading opportunities tin move properly anticipated together with mapped out.

Two sources of hypotheses for the 24-hour interval ahead tin move peculiarly useful to preparation. First, past times tracking indicators such every bit stocks making novel highs together with lows; momentum measures such every bit Demand/Supply; together with the percent of stocks trading higher upward their moving averages, nosotros tin gauge whether a marketplace is gaining or losing momentum to the upside or downside (or whether it is trading inward a hit alongside niggling momentum). Drawing on the regulation that strong momentum moves inward ane stream volition tend to send over into subsequent intervals (and weak momentum moves volition tend to reverse), nosotros tin formulate ideas every bit to whether markets are probable to hitting item targets today every bit a constituent of yesterday’s trade.

Second, historical marketplace patterns—queries every bit to how markets convey traded inward the past times nether the acquaint laid of conditions—can aid us formulate hypotheses for the coming day. For example, nosotros powerfulness detect that a depression momentum upward 24-hour interval yesterday which is besides a five-day closing high has a relatively misfortunate conduct a chance of closing higher today. That provides us alongside a hypothesis that enables us to anticipate weakness should nosotros move unable to concur a item upside toll level.

From this perspective, the successful trader is ane who formulates meaningful hypotheses prior to trading together with and thence processes unfolding activity apace together with accurately to create upward one's take away heed whether or non those hypotheses are finding support. Not all traders merchandise this way; nor should they. What I am describing is a framework that I convey cultivated over years of trading together with working alongside traders that makes move of my cognitive strengths inward synthesizing information into meaningful patterns together with themes.

Your challenge is to larn what you lot tin from my means of viewing markets, but non to mimic what I do. Good things come about when discovery where your cognitive strengths prevarication together with adjust the styles of others to create your ain niche.

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Info!! The Trading Process: Solar Daytime Structure

In the get-go post service from this series that describes how I trade, I emphasized the importance of agreement the market's context: whether electrical current activity is situated inside strengthening, weakening, or stable conditions. The minute post stressed the importance of identifying toll levels every bit potential toll targets for merchandise ideas.

The concept that unites these 2 ideas for me every bit a short-term trader is hateful solar daytime structure. Each hateful solar daytime has a item construction to its toll activity too strength/weakness. Identifying the probable construction for the hateful solar daytime every bit early on every bit possible is perchance the most of import science demanded of the intraday trader. I say this because yous tin endure skilled at recognizing nautical chart patterns or reading immediate render or need inwards the fellowship book, only if yous boot the bucket hateful solar daytime construction wrong, yous tin easily respect yourself selling inwards a marketplace that is ready to breakout to the upside or buying at the incorrect fourth dimension inwards a falling market.

Day structure, for me every bit an intraday trader, trumps longer timeframe tendency considerations, though the latter are hardly irrelevant. If yous await at my recent post service where I reviewed i of my trades, you'll come across that early on inwards the morning time I was selling the S&P 500 Index fifty-fifty though all of my contextual indicators said that nosotros were inwards a rising market. The argue for this was that, at the hateful solar daytime fourth dimension frame, I was making the telephone weep upwardly that nosotros were non seeing plenty buying involvement to sustain a motility to the overnight high too would probable motility dorsum toward the prior day's pin level. In other words, I was identifying a potential arrive at hateful solar daytime early on inwards the session too keying my merchandise off of that information.

In my marketplace preparation, I intend nigh 7 hateful solar daytime construction possibilities:

1) Range Day - The marketplace volition oscillate unopen to an average toll value amongst relatively depression volatility through the day, probable ending the hateful solar daytime non far from its opening toll grade and/or its volume-weighted average toll (VWAP);

2) Upside Trend Day - The marketplace volition opened upwardly close its depression toll for the hateful solar daytime session too construct its agency higher through the day, closing close its high price. The marketplace volition tend to remain higher upwardly its VWAP for most of the day;

3) Downside Trend Day - The marketplace volition opened upwardly close its high toll for the hateful solar daytime session too travel its agency lower through the day, closing close its depression price. The marketplace volition tend to remain below its VWAP for most of the day;

4) Upside Breakout Day - The marketplace volition opened upwardly inside a range, only volition construct majority too attract participation at the upper halt of that range, leading to a toll interruption higher upwardly the range, too farther credence of toll higher upwardly the arrive at amongst enterprise volume. An upside breakout represents a transition from arrive at to upside trending conditions.

5) Downside Breakout Day - The marketplace volition opened upwardly inside a range, only volition construct majority too attract participation at the lower halt of that range, leading to a toll interruption below the range, too farther credence of toll below the arrive at amongst enterprise volume. H5N1 downside breakout represents a transition from arrive at to downside trending conditions.

6) False Upside Breakout Day - The marketplace opens inside a arrive at too moves higher upwardly the range, normally amongst express participation too majority that wanes amongst higher prices, alone to autumn dorsum into the arrive at too render toward VWAP. H5N1 simulated upside breakout represents an extension of arrive at trading conditions.

7) False Downside Breakout Day - The marketplace opens inside a arrive at too moves below the range, normally amongst express participation too majority that wanes amongst lower prices, alone to bounce dorsum into the arrive at too render toward VWAP. H5N1 simulated downside breakout represents an extension of arrive at trading conditions.

Why are these of import structures?

In arrive at markets too on simulated breakouts, you'll endure trading for moves *toward* VWAP too oftentimes the prior day's pin level. In trending too breakout markets, you'll endure trading for moves *away* from VWAP too toward the R1/R2/R3 or S1/S2/S3 toll levels. In other words, you'll endure fading toll describe too weakness inwards arrive at too simulated breakout markets too trading amongst describe too weakness during trending too breakout conditions.

Without a proper agreement of marketplace context too fundamental toll levels, it is real hard to boot the bucket a receive got on hateful solar daytime construction early on inwards the session. You'll respect yourself looking at real short-term "setups", alone to fille the to a greater extent than basic enquiry of whether toll volition motility toward or away from its most recent estimates of value (VWAP, value areas). That's non to say that trading real short-term setups cannot endure successful. Rather, yous desire to situate those setups inside a broader framework too consideration of hateful solar daytime structure, hence that larger fourth dimension frame marketplace administration industrial plant for you, rather than against you.

Key to a trader's trading is recognizing these diverse types of days. The links below should aid boot the bucket yous started; farther posts that construct on these ideas volition follow.

More:

Three Basic Trade Setups

Historical Observations on Day Structure

VWAP too Day Strucutre

Links to Posts That Illustrate Different Structures

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Info!! Trading Notes For The Calendar Week Of April 25, 2016

Friday, Apr 29th

*  I'll hold upwards talking amongst the Benzinga pre-market prep show at 8:35 AM today.  We'll create got a seem at the psychology of the electrical current market.

*  I beloved this postal service regarding innovating too finding novel merchandise setups from Ivanhoff.

*  Stocks bounced nicely from overnight weakness yesterday but too then stalled at prior peak levels too sold off sharply into the close.  Breadth was non peculiarly poor; fresh monthly novel highs dropped to 915 too novel lows rose a fighting to 235.  Technology/NASDAQ shares broke below their before Apr lows; housing stocks (XHB) also took a hit.  That's non the form of activity you'd await if the marketplace position was pricing inwards economical strength.  Fewer than 50% of SPX shares are trading inwards a higher house their 3, 5, too 10-day moving averages.  Let's encounter if that tin send away convey inwards buyers, equally prior short-term corrections create got been able to do.

*  H5N1 few things dissimilar most this most recent marketplace position drop:  1) higher volatility on the decline, amongst extreme selling on the NYSE TICK measure; 2) the market's inability to rally during USD weakness too commodity firmness; too 3) continued breakdown of correlations amid marketplace position sectors.  It's when nosotros encounter shifts inwards volatility too correlation that nosotros desire to entertain notions of authorities change.

*  My intermediate-term measures are silent nowhere close oversold levels.  I'm quite opened upwards to toppy marketplace position activity hither too an intermediate-term correction inside the bull cycle.  I'm non expecting a precipitous reversal to send marketplace position mode.  Note the precipitous rising inwards VIX.  My Pure VIX model has turned neutral; non yet inwards "fearful" territory.

Thursday, Apr 28th

*  A seem at the recent displace to higher involvement rates, which has affected the trading of higher yielding stocks too stock sectors.

*  Stocks create got fallen dorsum afterward the Bank of Nippon disappointment final night.  We're right away close the lower terminate of the recent trading range.  I haven't noticed item breadth weakness.  Indeed, smaller cap indexes moved to novel highs yesterday, equally did a lay out of large cap sectors.  Much of the index weakness has come upwards from technology scientific discipline shares too the higher yielding sectors.  New monthly highs rose to 1112; novel lows rose a fighting to 209.  My intermediate-term wheel measures are stretched to the upside, however, so I would non hold upwards surprised to encounter farther consolidation.

*  Most of the corrective activity we've seen inwards stocks since the Feb depression has consisted of sector rotation; therefore no meaningful deterioration inwards the breadth numbers.  Below nosotros tin send away encounter a nautical chart of stocks across all the States exchanges making fresh 3-month highs versus 3-month lows.  It has stayed good for yous throughout the recent move.  One of the things I'm tracking going forrad is the grade to which nosotros encounter across the board weakness on pullbacks versus rotational movement. 

Wednesday, Apr 27th

*  Here's a valuable perspective on challenging hedge fund performance from the Mathematical Investor site.

*  My mensurate of breadth volatility has reached depression levels final reached inwards belatedly November, 2015 before the marketplace position drop.  Volume inwards stocks has also been lagging, which has been associated amongst subnormal forrad returns.  That beingness said, breadth improved yesterday, amongst 876 fresh monthly novel highs too 189 novel lows.

*  Note the divergent sector surgery inwards the past times week, amongst higher yielding shares underperforming too commodity-related shares outperforming.  (Graphic from FinViz).  Rates create got been rising ahead of the Fed; I'm keeping a unopen optic on this.  Note also how technology scientific discipline has been lagging.  Rising rates?  Higher commodities?  Low growth?  Can't imagine a stagflation scenario would hold upwards a non bad one...

Tuesday, Apr 26th

*  Excellent interrogation links from Abnormal Returns.  H5N1 non bad aggregation of quant interrogation comes from Quantocracy.  Lots of novel ideas inwards these sources too lots of practiced blogs to follow.

*  So far my trading experiment has been interesting.  I've been placing far fewer trades, solely trading when the marketplace position lines upwards on 3 fourth dimension frames too a short-term signal is triggered.  The signal comes from volatility bands drawn around lawsuit bars, so the bands reverberate what I've been calling pure volatility (volatility per unit of measurement of marketplace position volume).  The target is also based upon a motility inwards pure volatility units.  The really structured nature of the opportunity taking has led to zilch overtrading too a higher hitting charge per unit of measurement on trades.  I'm placing solely a 10th of the trades I was placing before, overall profitability inwards dollar price has non been hurt, too of course of educational activity risk-adjusted profitability has increased greatly.  It is non clear to me that much of the trading nosotros produce adds value.  By structuring rules around our best trades, nosotros tin send away create important gratis fourth dimension for interrogation too life exterior of markets.

*  We saw increased selling push clit per unit of measurement area inwards yesterday's trade, but cost held relatively good too has bounced a fighting inwards overnight trade.  New monthly highs dropped to 586 too monthly lows also dipped to 208.  I'm silent non seeing important weakness across sectors; the key banking company focus the balance of the calendar week volition dominate trade.  

*  We tin send away encounter the market's forcefulness inwards the wheel mensurate below.  My long-term wheel interrogation suggests that nosotros made an of import wheel depression inwards Feb (the prior wheel depression was October, 2014) too create got been inwards a momentum stage of the novel cycle.  I ultimately await the electrical current wheel to create got us to novel highs, driven equally much past times dovish key banks too the postulate for yield equally growth per se.

Monday, Apr 25th

*  There is a psychological procedure that underlies self-confidence--and to a greater extent than specifically a cognitive process.  Key is the recognition is that confidence is an seem of optimism--and optimism comes from finding structural similarities betwixt introduce challenges too past times ones that create got been mastered.  This is really relevant to the capacity to stick amongst one's ideas too atmospheric condition drawdowns.

*  I'm currently working on a projection that tracks long-term cycles inwards the stock market.  These cycles extend for months, non minutes or days.  It is at this horizon that momentum effects most clearly emerge.  For example, if nosotros larn dorsum to 2006 too rails the per centum of SPX shares that unopen inwards a higher house their 100-day moving averages, nosotros notice that the move past times one-half of readings (those inwards which in that location has been strongest breadth) final result inwards an average side past times side 50-day gain of +2.15%.  The bottom one-half of readings average a side past times side 50-day gain of solely +.33%.  The lion's part of the surgery differential occurs afterward a 20-day belongings period.  Think most what that agency for traders who prepare longer-term ideas but create got to merchandise them on curt fourth dimension frames too what that agency for short-term traders.  Also recollect most the implications for the electrical current market.

*  Stocks create got pulled dorsum inwards overnight trading, continuing to consolidate recent gains.  None of my breadth measures propose that we're yet at an oversold level, equally tin send away hold upwards seen below.  This mensurate tracks SPX shares trading inwards a higher house their 3, 5, 10, too 20-day moving averages.  (Raw information from Index Indicators).

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

Friday, Oct 16th

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

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

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

Thursday, Oct 15th

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

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

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

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

Wednesday, Oct 14th

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

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

Tuesday, Oct 13th

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

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

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

 

Monday, Oct 12th

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

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

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

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