Expectancy Shows The Obstacles

The numbers are the truth and the numbers can be your friend if you are on the proper side of the expectancy equation.  After reviewing all trades taken over the last two months, my best strategy per the numbers has been buying out of the money call options.  The ‘when’ question has been a prickly one, because my worst strategy has been the always sexy YOLO.  Coming in second place has been good old stock trading, which is toeing the zero line of expectancy.

My current win rate on normal options trades is 34.5% and 18.9% on YOLOs.  My stock trading win rate is at a frumpy 50% aka coin flip.  Yes, think about that next time you blindly follow me into a trade.

My average win on a stock trade is just a bit greater than the average loss.  This is a very thin edge at the moment, almost not worth the intense time commitment and effort.  My average win with options is about 3.5x the size of the average loss.  Notable big winners contributing to the large average win size were X, C, CELG, TWTR, and MBLY.  My average win trading YOLOs is only 2x my average loss.  This could be because a solid win has not occurred to skew the data set.

There are a few areas for improvement.  First is becoming more selective with stock trades.  These type of positions need considerable amount of thought and planning and might be better as longer-term trades.  Next is throttling back to YOLOs.  The best strategy for me appears to be sticking with a YOLO for about 3 weeks, willingly purchasing another week of time as best is possible, and cutting bait if the trade never pans out.  Two YOLO positions at a maximum with no more than 1.5% of risk committed.

Overall I have been using about 10% of my risk capital in normal option plays.  After reviewing the statistics it seems reasonable to increase this overall exposure to 15 percent, slowly of course, with a penchant for only the best chart setups.  Remember, this is the tendency with expectancy, to increase activity where expectations are highest.  This in turn can lead to lower quality entries, very much something to watch out for.

The rest of my risk capital must either sit in cash or longer term investments.  Current investments are TWTR, LO, GPRO, TLSA, and XON.

Thus my risk book looks something like this at the present:

Cash – 35%

Investments – 42%

Stock Trades – 14%

Option Trades – 9%

As you can see, I am in the uncomfortable position of having a heavy cash position into the start of a new month.  I will be seeking to correct this as trade ensues next week.

Not Trying To Be Rude But

If you are confined to a desk as others decidedly “slack off” into the holiday weekend, then why not turn on your radio?  Why not beat those assholes by picking the fastest horse for next Tuesday’s event?  Build, build build, an event might rear its head!  Or nothing happens.

Well, something happens.  There will be winners in this pragmatic contest of wit—stocks who prevail amidst a downturn.  It is your job to find them and wrap a proper risk profile upon them.

I have made my bed with a slew of candidates (extra R. Kelly).  I bought the KNDI liquidation or dilution, depending on your perception and added to P.  Other top picks into the holiday include ONVO, GLUU, and the WB.

Of course I am long all of these, and more.  Godspeed

RKelly

Up Gap To Wrap The Week Up

Nasdaq futures pushed higher overnight and achieved a news swing high in the globex hours.  The thrust occurred right around 3:30am and does not align with any economic release, thus it is the result of either a news development or simply more buyers than sellers.  As we approach US cash open, prices are off the highs of the session.

Personal Consumption statistics came out at 8:30am in line with forecasts which initially has brought little activity into the market where we are holding onto the overnight gains.  We have Chicago Purchasing Manager at 9:45am and U of Michigan Confidence numbers at 9:55am.

Yesterday’s auction was effective and methodical.  You will often see the Nasdaq futures operating in this manner.  It will go about the day resolving unsettled items one after another.  The gap higher on Monday did not quite resolve on Monday when prices stopped a tick above the full gap fill.  Yesterday we filled the gap before finding a responsive buyer who returned us back into the upper balance formed this week.  They closed the weekly gap, then they closed the range gap between Wed/Thurs, then they targeted a full overnight gap fill, stopping just one tick shy of this achievement.  It was a very methodical process.

I have highlighted the key LVNs as well as a measured move target which is a point shy of where we printed our overnight high:

08292014_IntTerm_NQ

I have also noted the short term levels I will be observing on the following market profile:

marketprofile_08292014

Time Is On Your Side

If your positions are swelling in value, appreciating amidst this rally to all time highs, you are in a unique position ahead of the final month of the third quarter.  You are leading the pack, out front of the wave of money swelling beneath you, and your job is to catch that wave and ride it.

This market is demonstrating more of a ‘when’ than ‘if’ uncertainty if you are in the right charts.  The key is purchasing enough time if you choose to use options or sticking patiently with the common if this is your choice.  Do not tighten your stops unless you know exactly where you are in the market ebb, otherwise you are likely to be taken out by noise flow.

Deciding when to enter a position is in your control.  Determining how much risk you are willing to commit to an idea is in your control.  How you manage your position is in your control.  Once the position is on, your fate is out of your control.  Being right or wrong is now a matter of the direction of price and to commit much energy to this activity, an external event, is a waste.  There is no point.  Instead exercise willing acceptance, of all eternal events, right now at this very moment.  That is all you need.

Focus on your process, your plan, your method of entry, your risk exposure, your profit targets, and then review your actions and reassess your plan.  Do this over and over again to cultivate an continued learning experience.  This will save you from damning the ‘they’ and any other force which moves the market.

If you are just barely ahead of the game, use your patience, take pride in your plan, and let time work for you.

I did not buy anything today, but I really like the look of a few of my current positions, notably P.  I also love the negative sentiment surrounding my ONVO, what a dump of a stock :)

Milking Winners

This final week of summertime has been fruitful thus far, and I am harvesting more of the work from last week.  I am happy to report my wins are outstretching my losses nearly 3-to-1 meaning every one win cancels out three losers.  With a bit more patience that number could stretch to 4 or even 6-to-1.  This is a trading style that works well for me.

Also from the fronts, my shares of TWTR, a position dipped and ripped and then submerged under water for months is nearly back to par.  I have said before, when returning to par on my largest position, that I intend to continue holding this position well into fresh all-time highs.  I know a good thing when I see it.  Like Go Pro, another long term investment.

Shots are popping off across the momentum complex.  Today is our first Nasdaq gap down in ELEVEN sessions and it has been the most fruitful day of the entire rally.  So nasty, these conditions are, when you fight the tape.

What RSH is doing to shorts this week is brutal.  That dog of a stock is feeling its oats.  We have one more trading day, a summer Friday, then a holiday Monday, then mutual fund Tuesday.  It is about to get interesting in here.  I already have a roster of stocks I am salivating over.  But instead of buying today I am enjoying the scenery.  Patience, it may leave be in a cloud of dust, but it’s a virtue for a reason.

By the way, I love talking market profile hypothesis with you guys.  Even if you have any general questions or feel intimidated by the material, just ask.  There is no shame in being curious.

Back in The Thick of The Auction

There is only so much analysis one can do when the price of an instrument is climbing to fresh highs.  Mostly I rely on measured move targets to the upside and highlighting support levels.  This is important, but I much prefer the confines of territory we have already auctioned.

I have these expectations sometimes, based upon analysis, where I expect something like lower prices.  Yesterday I was expecting some follow through on the morning weakness in the Nasdaq.  The challenge with expectations, especially those built upon market profile logic, is the timing.  The old axiom says the market can stay irrational longer than you can stay solvent.  The duration of “longer than you can stay solvent” is drastically shortened when you add a big leverage element to your trading.

GPD numbers came in better than expected and jobless claims worse than expected.  The initial reaction to this cocktail of economic numbers is buying across the equity index complex.  Overall however, it appears we will be gapping lower on the open, an event we have not seen in the Nasdaq since 08/12.

I have highlighted the key composite price levels on the following chart.  I will be watching how we behave at these low volume nodes for clues about the ledge of overhead supply and looking for signs of dip buyers creating demand below:

08282014_IntTerm_NQ

I have noted the short term price levels I will be keying off of on the following market profile chart:

marketprofile_08282014

Balance Is Everywhere

During these slow mid-week days there can be a tendency to become impatient.  At least, such is the case when I trade.  The Nasdaq is coming into balance and higher prices did not entice buyers into the market.  Instead, it was quiet at the highs, a mini failed auction, and then a late afternoon swoosh lower.

I bought some PCLN yolo earlier today, likely not purchasing enough time, however I did little else until just recently when I bought some FNMA.

Once the opening swing was determined and the initial balance expanded upon by bulls, I turned my attention to correcting body symmetry.  Did you know most injuries can be prevented by properly diagnosing and correcting muscular imbalances inside your core?  These are things I have to consider as I ripen yet continue to play spots.  I keep one eye on the market, but these slow summer days are perfect to nourish yourself with other activities you enjoy.

My book oscillated quite a bit today, and but overall remains constructive as we head into the tail end of the week.  My focus remains on proper management of longs and extreme selectivity on new risk.  That PCLN yolo was a bit edgy, and when it turned on me I took the slight hint to back away from the computer.

Gap Fill Complete

If you have been following along, then you have been aware of this big picture technical piece dating back to the year 2000.  “The 14 year gap” has been a feature of the premarket analysis since it came into range.  I am both satisfied and a bit sentimental that the gap has been filled and is now gone.  See below:

08272014_Weekly_NQ

Such is life and markets, change is inevitable and we must now be aware that the resistance free environment is complete.  How we handle this gap range will still be of interest going forward—whether buyers can sustain trade above the midpoint, whether we use the strong thrust to overshoot, or whether sellers reject us back below.  The simple trade was to press longs through the gap which saw little if any media coverage.  Simple, but not easy.

Nasdaq futures are down just a bit overnight and we have no major economic data out for the week.  There are Gasoline and Crude Oil numbers coming out at 10:30am to be aware of and also 2Q GDP tomorrow before market open.

Intermediate term continues to demonstrate buyer control and I have updated the LVNs to observe below:

08272014_IntTerm_NQ

Short term, taking our eyes inside the daily bars and observing the market profile, we can see value overlapping the prior day.  This is an early indication that prices are coming into balance.  The key question in whether we are pausing or if the market is done finding sellers.  Monday was a neutral day and yesterday we traded inside the range and value tightened.  This compression may preclude a swing high, however I will be observing the following levels and withholding any judgment until more information is made available:

marketprofile_08272014

That Is Correct

CF

Remember these days, oh market speculator, for they are the most loaded with milk for you to drink.  The first few innings of a swing are great, a sense of relief if you will, that your read on the overall market was verified.  You make some wins, they are hard earned.

Then the rally ages, and as it ages, the hits start coming left and right and the biggest problem you have is knowing when to take profits.  It truly is an incredible position to be in—taking profits and looking for the next chart set up behind.

I cannot say I have played it flawless thus far, my goodness no there are always improvements to make, but the wins are outstripping the losses at a rapid rate.  The second problem, a very real problem, is rushing to increase your position size and forcing into many more positions.  You have done well, you were here early, and you have earned the right to become exceedingly selective.  Use it today.

On the day I bought GOOGL YOLOs, they’re not participating.  I bought another week of SCTY calls in case this chart doesn’t break, but bakes me nonetheless.  Aside from that I took some profits across the board.  I cashed in most of my MBLY, leaving a runner in case it wants to sock bears in the belly:

mowgli_1

That’s Mowgli (MBLY) punching Baloo in case, nevermind…

I brought C down to a runner and closed out YGE, FTW, ahead of earnings.  I do not feel the need to participate in such specter as Chinese earnings, especially after that World Cup ad campaign which could not have been cheap.

Maybe Google will decide to join the rally this week.  Maybe it won’t—it’s a yolo move, to hell with it.

Stay tight and objective out there.

Neutral Footprint

Nasdaq futures are up a touch premarket in a quiet session of trade.  Durable Goods fell off a bit according to this morning’s release where numbers came in a bit softer than expected.  The initial reaction is a bit of sell flow.  We have consumer confidence information coming out shortly after the open at 10:00am.

After gapping higher to start the week, we printed a tight open auction, explored higher out of the tight initial balance and then went neutral on the session.  Price stopped just one tick shy of a full gap fill before turning higher and rejecting out of Friday’s range.  The afternoon snap back was not strong enough to press prices back to the VPOC in the upper distribution.  Instead we saw a VPOC shift lower to end the session.

Taking a zoomed out look at the intermediate term time frame we can see just how ruthless the upside progress has been.  Prices have been gapping and legging higher since taking out prior swing highs.  The resulting volume composite resembles a series of peaks and valleys as the market explores higher to discover a fair value.  I have noted the key low volume nodes on the following chart as well:

08262014_IntTerm_NQ

I have noted the key price levels I will be observing in this morning’s trade below:
marketprofile_08262014

Expectancy Shows The Obstacles

The numbers are the truth and the numbers can be your friend if you are on the proper side of the expectancy equation.  After reviewing all trades taken over the last two months, my best strategy per the numbers has been buying out of the money call options.  The ‘when’ question has been a prickly one, because my worst strategy has been the always sexy YOLO.  Coming in second place has been good old stock trading, which is toeing the zero line of expectancy.

My current win rate on normal options trades is 34.5% and 18.9% on YOLOs.  My stock trading win rate is at a frumpy 50% aka coin flip.  Yes, think about that next time you blindly follow me into a trade.

My average win on a stock trade is just a bit greater than the average loss.  This is a very thin edge at the moment, almost not worth the intense time commitment and effort.  My average win with options is about 3.5x the size of the average loss.  Notable big winners contributing to the large average win size were X, C, CELG, TWTR, and MBLY.  My average win trading YOLOs is only 2x my average loss.  This could be because a solid win has not occurred to skew the data set.

There are a few areas for improvement.  First is becoming more selective with stock trades.  These type of positions need considerable amount of thought and planning and might be better as longer-term trades.  Next is throttling back to YOLOs.  The best strategy for me appears to be sticking with a YOLO for about 3 weeks, willingly purchasing another week of time as best is possible, and cutting bait if the trade never pans out.  Two YOLO positions at a maximum with no more than 1.5% of risk committed.

Overall I have been using about 10% of my risk capital in normal option plays.  After reviewing the statistics it seems reasonable to increase this overall exposure to 15 percent, slowly of course, with a penchant for only the best chart setups.  Remember, this is the tendency with expectancy, to increase activity where expectations are highest.  This in turn can lead to lower quality entries, very much something to watch out for.

The rest of my risk capital must either sit in cash or longer term investments.  Current investments are TWTR, LO, GPRO, TLSA, and XON.

Thus my risk book looks something like this at the present:

Cash – 35%

Investments – 42%

Stock Trades – 14%

Option Trades – 9%

As you can see, I am in the uncomfortable position of having a heavy cash position into the start of a new month.  I will be seeking to correct this as trade ensues next week.

Not Trying To Be Rude But

If you are confined to a desk as others decidedly “slack off” into the holiday weekend, then why not turn on your radio?  Why not beat those assholes by picking the fastest horse for next Tuesday’s event?  Build, build build, an event might rear its head!  Or nothing happens.

Well, something happens.  There will be winners in this pragmatic contest of wit—stocks who prevail amidst a downturn.  It is your job to find them and wrap a proper risk profile upon them.

I have made my bed with a slew of candidates (extra R. Kelly).  I bought the KNDI liquidation or dilution, depending on your perception and added to P.  Other top picks into the holiday include ONVO, GLUU, and the WB.

Of course I am long all of these, and more.  Godspeed

RKelly

Up Gap To Wrap The Week Up

Nasdaq futures pushed higher overnight and achieved a news swing high in the globex hours.  The thrust occurred right around 3:30am and does not align with any economic release, thus it is the result of either a news development or simply more buyers than sellers.  As we approach US cash open, prices are off the highs of the session.

Personal Consumption statistics came out at 8:30am in line with forecasts which initially has brought little activity into the market where we are holding onto the overnight gains.  We have Chicago Purchasing Manager at 9:45am and U of Michigan Confidence numbers at 9:55am.

Yesterday’s auction was effective and methodical.  You will often see the Nasdaq futures operating in this manner.  It will go about the day resolving unsettled items one after another.  The gap higher on Monday did not quite resolve on Monday when prices stopped a tick above the full gap fill.  Yesterday we filled the gap before finding a responsive buyer who returned us back into the upper balance formed this week.  They closed the weekly gap, then they closed the range gap between Wed/Thurs, then they targeted a full overnight gap fill, stopping just one tick shy of this achievement.  It was a very methodical process.

I have highlighted the key LVNs as well as a measured move target which is a point shy of where we printed our overnight high:

08292014_IntTerm_NQ

I have also noted the short term levels I will be observing on the following market profile:

marketprofile_08292014

Time Is On Your Side

If your positions are swelling in value, appreciating amidst this rally to all time highs, you are in a unique position ahead of the final month of the third quarter.  You are leading the pack, out front of the wave of money swelling beneath you, and your job is to catch that wave and ride it.

This market is demonstrating more of a ‘when’ than ‘if’ uncertainty if you are in the right charts.  The key is purchasing enough time if you choose to use options or sticking patiently with the common if this is your choice.  Do not tighten your stops unless you know exactly where you are in the market ebb, otherwise you are likely to be taken out by noise flow.

Deciding when to enter a position is in your control.  Determining how much risk you are willing to commit to an idea is in your control.  How you manage your position is in your control.  Once the position is on, your fate is out of your control.  Being right or wrong is now a matter of the direction of price and to commit much energy to this activity, an external event, is a waste.  There is no point.  Instead exercise willing acceptance, of all eternal events, right now at this very moment.  That is all you need.

Focus on your process, your plan, your method of entry, your risk exposure, your profit targets, and then review your actions and reassess your plan.  Do this over and over again to cultivate an continued learning experience.  This will save you from damning the ‘they’ and any other force which moves the market.

If you are just barely ahead of the game, use your patience, take pride in your plan, and let time work for you.

I did not buy anything today, but I really like the look of a few of my current positions, notably P.  I also love the negative sentiment surrounding my ONVO, what a dump of a stock :)

Milking Winners

This final week of summertime has been fruitful thus far, and I am harvesting more of the work from last week.  I am happy to report my wins are outstretching my losses nearly 3-to-1 meaning every one win cancels out three losers.  With a bit more patience that number could stretch to 4 or even 6-to-1.  This is a trading style that works well for me.

Also from the fronts, my shares of TWTR, a position dipped and ripped and then submerged under water for months is nearly back to par.  I have said before, when returning to par on my largest position, that I intend to continue holding this position well into fresh all-time highs.  I know a good thing when I see it.  Like Go Pro, another long term investment.

Shots are popping off across the momentum complex.  Today is our first Nasdaq gap down in ELEVEN sessions and it has been the most fruitful day of the entire rally.  So nasty, these conditions are, when you fight the tape.

What RSH is doing to shorts this week is brutal.  That dog of a stock is feeling its oats.  We have one more trading day, a summer Friday, then a holiday Monday, then mutual fund Tuesday.  It is about to get interesting in here.  I already have a roster of stocks I am salivating over.  But instead of buying today I am enjoying the scenery.  Patience, it may leave be in a cloud of dust, but it’s a virtue for a reason.

By the way, I love talking market profile hypothesis with you guys.  Even if you have any general questions or feel intimidated by the material, just ask.  There is no shame in being curious.

Back in The Thick of The Auction

There is only so much analysis one can do when the price of an instrument is climbing to fresh highs.  Mostly I rely on measured move targets to the upside and highlighting support levels.  This is important, but I much prefer the confines of territory we have already auctioned.

I have these expectations sometimes, based upon analysis, where I expect something like lower prices.  Yesterday I was expecting some follow through on the morning weakness in the Nasdaq.  The challenge with expectations, especially those built upon market profile logic, is the timing.  The old axiom says the market can stay irrational longer than you can stay solvent.  The duration of “longer than you can stay solvent” is drastically shortened when you add a big leverage element to your trading.

GPD numbers came in better than expected and jobless claims worse than expected.  The initial reaction to this cocktail of economic numbers is buying across the equity index complex.  Overall however, it appears we will be gapping lower on the open, an event we have not seen in the Nasdaq since 08/12.

I have highlighted the key composite price levels on the following chart.  I will be watching how we behave at these low volume nodes for clues about the ledge of overhead supply and looking for signs of dip buyers creating demand below:

08282014_IntTerm_NQ

I have noted the short term price levels I will be keying off of on the following market profile chart:

marketprofile_08282014

Balance Is Everywhere

During these slow mid-week days there can be a tendency to become impatient.  At least, such is the case when I trade.  The Nasdaq is coming into balance and higher prices did not entice buyers into the market.  Instead, it was quiet at the highs, a mini failed auction, and then a late afternoon swoosh lower.

I bought some PCLN yolo earlier today, likely not purchasing enough time, however I did little else until just recently when I bought some FNMA.

Once the opening swing was determined and the initial balance expanded upon by bulls, I turned my attention to correcting body symmetry.  Did you know most injuries can be prevented by properly diagnosing and correcting muscular imbalances inside your core?  These are things I have to consider as I ripen yet continue to play spots.  I keep one eye on the market, but these slow summer days are perfect to nourish yourself with other activities you enjoy.

My book oscillated quite a bit today, and but overall remains constructive as we head into the tail end of the week.  My focus remains on proper management of longs and extreme selectivity on new risk.  That PCLN yolo was a bit edgy, and when it turned on me I took the slight hint to back away from the computer.

Gap Fill Complete

If you have been following along, then you have been aware of this big picture technical piece dating back to the year 2000.  “The 14 year gap” has been a feature of the premarket analysis since it came into range.  I am both satisfied and a bit sentimental that the gap has been filled and is now gone.  See below:

08272014_Weekly_NQ

Such is life and markets, change is inevitable and we must now be aware that the resistance free environment is complete.  How we handle this gap range will still be of interest going forward—whether buyers can sustain trade above the midpoint, whether we use the strong thrust to overshoot, or whether sellers reject us back below.  The simple trade was to press longs through the gap which saw little if any media coverage.  Simple, but not easy.

Nasdaq futures are down just a bit overnight and we have no major economic data out for the week.  There are Gasoline and Crude Oil numbers coming out at 10:30am to be aware of and also 2Q GDP tomorrow before market open.

Intermediate term continues to demonstrate buyer control and I have updated the LVNs to observe below:

08272014_IntTerm_NQ

Short term, taking our eyes inside the daily bars and observing the market profile, we can see value overlapping the prior day.  This is an early indication that prices are coming into balance.  The key question in whether we are pausing or if the market is done finding sellers.  Monday was a neutral day and yesterday we traded inside the range and value tightened.  This compression may preclude a swing high, however I will be observing the following levels and withholding any judgment until more information is made available:

marketprofile_08272014

That Is Correct

CF

Remember these days, oh market speculator, for they are the most loaded with milk for you to drink.  The first few innings of a swing are great, a sense of relief if you will, that your read on the overall market was verified.  You make some wins, they are hard earned.

Then the rally ages, and as it ages, the hits start coming left and right and the biggest problem you have is knowing when to take profits.  It truly is an incredible position to be in—taking profits and looking for the next chart set up behind.

I cannot say I have played it flawless thus far, my goodness no there are always improvements to make, but the wins are outstripping the losses at a rapid rate.  The second problem, a very real problem, is rushing to increase your position size and forcing into many more positions.  You have done well, you were here early, and you have earned the right to become exceedingly selective.  Use it today.

On the day I bought GOOGL YOLOs, they’re not participating.  I bought another week of SCTY calls in case this chart doesn’t break, but bakes me nonetheless.  Aside from that I took some profits across the board.  I cashed in most of my MBLY, leaving a runner in case it wants to sock bears in the belly:

mowgli_1

That’s Mowgli (MBLY) punching Baloo in case, nevermind…

I brought C down to a runner and closed out YGE, FTW, ahead of earnings.  I do not feel the need to participate in such specter as Chinese earnings, especially after that World Cup ad campaign which could not have been cheap.

Maybe Google will decide to join the rally this week.  Maybe it won’t—it’s a yolo move, to hell with it.

Stay tight and objective out there.

Neutral Footprint

Nasdaq futures are up a touch premarket in a quiet session of trade.  Durable Goods fell off a bit according to this morning’s release where numbers came in a bit softer than expected.  The initial reaction is a bit of sell flow.  We have consumer confidence information coming out shortly after the open at 10:00am.

After gapping higher to start the week, we printed a tight open auction, explored higher out of the tight initial balance and then went neutral on the session.  Price stopped just one tick shy of a full gap fill before turning higher and rejecting out of Friday’s range.  The afternoon snap back was not strong enough to press prices back to the VPOC in the upper distribution.  Instead we saw a VPOC shift lower to end the session.

Taking a zoomed out look at the intermediate term time frame we can see just how ruthless the upside progress has been.  Prices have been gapping and legging higher since taking out prior swing highs.  The resulting volume composite resembles a series of peaks and valleys as the market explores higher to discover a fair value.  I have noted the key low volume nodes on the following chart as well:

08262014_IntTerm_NQ

I have noted the key price levels I will be observing in this morning’s trade below:
marketprofile_08262014

Previous Posts by Raul3