Yesterday’s action in the S&P was successful in closing last week’s gap lower, but we’re still trading lower then where we came into the market at the beginning of last week.  As a result we’re coming into some overhead resistance on the profiles where I expect to see active sellers (overhead supply).

Keep in mind however, if we’re seeing buy flow continue to drive the market, expectations may change.

The overnight session shows a near-perfect balance which leaves little in the way of clues to potential scenarios today.  We did take out the RTH high from yesterday overnight, but the action was met with selling.  Mostly the overnight session reflects a healthy overnight digestion of the move higher.

It’s going to be interesting to see if the buyers can hold these levels, particularly 1650, the swing low once the market finally rotated lower late yesterday afternoon. I’ve highlighted some levels I’ll be monitoring for trades on the following market profile charts:

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I have to chuckle at the Bossram Alpha cycle today.  It had me short at the open, and I didn’t like it one bit.  Yet BOSSRAM stayed true to its name, ramming out a 1.5 handle profit on a short.

It was the only /ES trade so far today.

ELROI is clearly smarter than I am because I wanted to put a short on at 1647.50 but since I’ve pigeonholed all discretionary trading to conform to the Bossram Alpha cycle I only looked for Elroi to engage.  It looked like the type of situation Elroi loves to engage, yet Elroi did not, in fact engage.  I have to go over the code and see what threshold kept Elroi out.  In the meantime, I’m proud of my little helper robot for laying off the tape and not taking the fade.

+1.5 on the session. That is all.

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The globex session pieced together a bit of a rally yesterday evening, following through on a wave of upward momentum that rolled into the market late into Tuesday afternoon’s cash session.  The move encompassed 6.25 handles of direction which pressed into the single print selling tail from early yesterday morning.

The selling tail yesterday morning was a result of aggressive selling and the action left behind a low volume pocket from 1643.75 – 1639.50.  After setting an overnight high at 1642.25 the market stalled out and failed to sustain trade within the low volume zone.  However, we’ve balanced out since then and I’ll be on watch for a rotation through the low volume zone early on today.

Less may perhaps be more in the /ES_F today as the market is currently flat lining since the evening rally.  The buyers could have made better use of the momentum they carried into the overnight session, which leads me to question their tenacity.

I’ve laid out three scenarios on the 24 hour profile below, none of which would surprise me.  1629.75 is key support should scenario three take hold.  We’ll want to see bulls defending this level, otherwise prudent measures like raising some cash or taking a hedge should be considered.

1648 is key to the upside if we see the stronger scenario 1.  Momentum and profile/auction theory slightly favor a rotation higher, which is why I’ll be closely monitoring if and how the market conforms to scenario 1 this morning.

I’ve also noted price levels of opportunity on the following RTH profile chart:

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I really like the feel I had trading the /ES_F today.  I’ve currently pigeonholed my discretionary trading to conform to the BOSSRAM ALPHA cycle.  This prevents me rushing.  It allows me to measure where we are in the cycle after some broad redundantly calls my phone so she can hear herself talk and position (or hand sit) accordingly.

You see, plates, I juggle so many.

One of my favorite trades in the market requires full attention because it can fly in your face quickly.  I didn’t want to stop trading the chart picture simply because my day job doesn’t afford me focus so I automated it.  This was the birth of ELROI.

Elroi doesn’t trade the picture as profitably as me.  But what he lacks in profitability Elroi makes up in consistency.  Elroi bagged 3.75 handles in profit today on trades that were too racy for me.  I on the other hand, wielding Bossram, made $25 or 0.50 handles.

But it was fun to watch Elroi go to work while I waited for the market to come into the Bossram wheelhouse.  This week I reset my account to $10k: five for me, five for Elroi, and I pulled the rest out to buy cat food.

You see, trading the /ES since April has been by and large a circle jerk and a dangerous one at that.  It came down to losing focus.  I’ve…courourrrected the problem and put several policies and procedures in place to ensure the new habits stick.  My future’s trading operation is looking more like a Fortune 500 company every week.  Goodness, companies like AMZN, GOOG, and SBUX aren’t on these lists by luck.

Learn from their cultures.

Now it’s exciting and I’m happy to fire up my futures every morning.  It’s me verses Elroi.  So far he’s winning.

ON TO STOCKS:

I sold AMBA entirely today.  I told you very clearly I was taking this cheap trick for 10 percent and then taking my business elsewhere.  AMBA fucked me once, I fucked AMBA once.  Perhaps after earnings we can make love, or something.  I earned about 8 percent on the trade.  It was a 12 percent position.

I took profits in Ford(s) because I was watching the /ES_F weaken.  It’s nothing personal.  I still have a 5% position.

My top performers were END and YGE.

RVLT continues to ‘suck goat’ instead of retrofitting Manhattan with LEDs.  Get to work you zoophiles.

I bumped my cash up above 25 percent and was up 1.75 percent on the day.  I needed it.  One thing is certain.  When RVLT stops going down…I’m forecasting champagne showers.

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The big gap higher over the long weekend is still mostly intact on the S&P 500 as we approach the cash open.  Early this morning a bit of selling entered the market and took us off the overnight highs by a few handles but the market has mostly digested the move, holding above the 08/29 VPOC at 1642.75.

Last Thursday (08/29) featured a poor high which can be seen on the RTH market profile as several TPOs stacked at the top without a single print TPO.  These types of highs are often resolved sooner rather than later and it was an excellent clue we may see some relief strength in the index.

The question today is which of the three scenarios drawn out below come into play today.  The important level to keep in mind for scenario 1 to occur is the aforementioned 1642.75 VPOC.  Should price sustain trade below this level for more than an hour it could signal acceptance of the lower value which often results in rotation back through the value.  That would print either a scenario 2 or 3.

I’ve noted some levels of resistance the market needs to clear in order to print scenario 1.  Most important however is recapturing the zone covering the overnight high at 1649 and 1648.25 which would put the market back into the 08/22 value zone from two weeks back.  The market accepting trade (sustaining trade for more than an hour) within this value area opens the door to a larger upward move, perhaps even triggering a short squeeze to 1674.50.  That would be the bulls crowning achievement if they’re able to accomplish it this week.

I’ve noted these price levels and the three scenarios on the following market profile charts:

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There is something divine about the three day weekend.  The majority of the past 48 hours were spent restoring order to la casa.

I like simplicity.

Bossram alpha is so fantastically simple, yet built upon preconceived and developed complexities, that its robust nature gets me plum excited.  I trade my worst when I feel rushed.  I feel rushed when the market accelerates or an interruption causes confusion.  Bossram is a cycle ready to trade trend pullbacks, backed by hard data, with predefined entries and exits.  A quick stroll through the decision tree tells you exactly how to behave, with 100% mechanical entries, 100% mechanical profit targets, and 90% mechanical stop losses.

In back testing however, the stop losses are entirely mechanical too.

Once the system grows to three contracts, the profit taking process will become 66% mechanical as the third unit will be traded with discretion.  Achieving three contracts is the goal of Bossram.  At that point, I’ll have an opportunity to flex my discretionary muscles and begin my quest to compete with the best traders in the world, fully financed by the Bossram bread-and-butter operation.

Do you see how exciting this all is?

I’ve walked forward over the past two weeks with Bossram, but the cycling nature of Bossram is beyond my coding abilities so the data was compiled old school.  Well not quite old school; old school traders used to print out charts on reams paper and compile the data into stupid paper journals.  Then I suppose they used their abacus to calculate win rates and such.  Silly traders.  I surfed across the charts on my 24-inch Samsung and inputted the trades to excel on my other 24 inch Sammy.

All testing was done on RTH data only of course, as I will only trade discretionary during regular trading hours.  Here are the best data bits:

Total Trades: 34 (3.4 trades per day)

Gross Profit: $2,687.50

Gross Loss: ($1900.00)

Net Profit:  $787.50 (not including commission)

Win rate: 82%

Largest Winning Trade: $150.00

Largest Losing Trade: ($450.00)

Max Drawdown: ($825.00)

Some notes on the performance:

As you can see Bossram went through a bit of a rough patch.  It occurred over the course of Wednesday and Thursday, two days featuring violent, news driven chop.  Believe me, I’ve psycho analyzed the price action from this period to gain insight into Bossram’s weakness.  The kryptonite to this system is visible, at least in hindsight.  But the cycle was still profitable, and I would hate to muck up the concept with discretion, so I’m resisting the temptation to begin filtering out entries.  And the walk forward data looks like an accurate cut out from the multi month back test.

Now begins the very ceremonial process of rolling the concept into a live trading environment.  Before any live trading takes place on a new idea I first take the opportunity to remove any clutter from my life.  I bring the budgets up to date, set logical goals, clean my office like an OCD, and archive paperwork.  Finally a large thicket of sage used to smudge my home and self carrying away any negative energies lingering on the premises.

Now everything is in place to take the idea live.  The live environment is the exact same as the walk forward and strikingly similar to the back test only now I have to overcome any psychological effects associated with making and losing money.

That’s how you take an idea live.  The process is as fun as the outcome.

Finally, the system increases contract size based upon the max drawdown.  I keep this step simple too.  I use a 3x multiple of the max drawdown plus the intraday margin requirement of the instrument (in this case the e-mini S&P future contract) to determine the amount of capital needed per contract to finance the idea.  The following equation renders the amount of capital needed to increase contract size:

($825.00 x 3) + $500 = $2425

For simplicity sake, for every $2500.00 increase in capital earned by the system, contract size will be increased.  Once three contracts is achieved the plan will be reassessed.  According to the data from the back test, Bossram alpha should increase its size to two contracts in 7.25 weeks.

Hello October 21^st.

Fortunately it takes half as long to earn the second $2500.00 lot.  Let’s call it 4 more weeks.  Therefore, Bossram Alpha will achieve the three contract goal near November 21^st.

There you have it.  I’ve conservatively built a way to earn $40,000/year.

Bread and butter.

So it is written, so it shall be.

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This morning I zoomed out to a larger timeframe and took a look at the S&P volume micro composite.  The following volume profile is built on all the trading activity since the 08/15 breakdown.  In essence, this is the long-term auction taking place since the market sold off.

We can draw some interesting observations from this chart.  The first reference point that jumps out to me is 1655.  The volume point of control, the price where more volume was done than anywhere else from 08/15 – present, is much higher than where we’re currently trading.  Even though we haven’t traded at this level since Monday, value has failed to migrate lower.  This is interesting because price and value always converge, either by value migrating with price or price reverting to value.

If you look at some of the other high volume nodes on the chart, you’ll see price retracing several times to the level.  High volume zones tend to slow price as both buyers and sellers perceive the zone as fair, and they auction the level with volume.

Next I see the low volume nodes.  To me, these are the areas of highest opportunity.  This is where price moves the fastest.  I’ve noted three on the chart: 1649.75, 1641.75, and 1635.25.  The not so great news for bulls is we’re trading below all three levels.  1635.25 held up well until we had the war news from John Kerry.  Since then, the price was rejected once.  Therefore, we want to closely observe this level when the markets open back up briefly Sunday then again Monday evening.

The final observation I make is the negative delta we’re seeing down here.  This is shown as the coloration on the volume profile bars.  This tells us more orders are taking place at the bid, sellers initiating the trade, then orders at the offer.  They are net sellers, but there’s significant absorption taking place.  Imagine a sponge sopping up all the orders without much directional movement.

Feel free to share your thoughts on the following volume profile chart in the comments below:

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I cannot say with any certainty if it made sense to eat twenty four dollars’ worth of grilled cheeses, but I can tell you that meal was the only thing that excited me today.  Normally, in this country, I should be excited that a three day weekend approaches.  As a matter of fact, during our last three day weekend, I ran an exciting back test on the /ES that has been profitable.

I expect this weekend’s research to further my quest to dominate the S&P 500.

But I don’t look to the weekend with glee.  Instead I have been plagued by nightmares of global conflict.  As much as I enjoy speculating during the turmoil, my vibe took a negative turn today.  It rolled over, if you will.

Generation X and Y have mostly escaped war.  There have been conflicts. Good people have been sent in to foreign countries to bring the fight to the villains, but no full fledged war has occurred.  And I’m happy to live in boring times.  Perhaps I’m getting older and becoming more aware of global brutality, and perhaps I should just tell my subconscious to eat a donut and STFU.  But I really don’t like this situation…this situation in Syria.

I had a dream a few weeks back that an unknown villain nuked the entire taiga, destroying the atmosphere and ending the world.  That’s the kind of vibe I’m feeling.

I’m also getting bled out every day by RVLT, WTF is going on over there?  This crap still doesn’t look buyable.  It’s almost surreal how poorly this stock is behaving.

The LVN I noted this morning at 1641.75 never came into play today.  Instead it’s been a risk averse tape, but mostly the action has a smack of indecision and chop.

I raised a bit more cash, taking anther scale in AMBA for a win and closing ENPH for a loss.  ENPH is entirely without trend here, IMO.  I was playing for quick strength to trigger a short squeeze.  It never materialized and I was too slow with my exit.  Then I bottom ticked the sale today without even queuing up the chart.  This too was quite perturbing.

My futures workstation completely broke today, froze, and needed a hard restart.  Brutal.  You know…the restart where you hold the power button for like 10 seconds until POOF, and then an eerie silence falls over the room.  Then you count to ten as slowly as possible, giving the machine the official ‘ten seconds to settle’ before turning it back on.  It worked, and my tools are 90 percent operational going into the close.  My volume-at-price delta is still broken.  Either that or every order today has been executed at the bid (I hope not).

My book is a sea of red except for YGE and FB and all I really want is peace.  I don’t foresee much more action on my behalf into the weekend.

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The overnight session printed large chop, nearly nine handles wide.  A wave of buy flow swept though the market around midnight EST pressing the market above yesterday’s high briefly before the move was faded back to the midpoint.  The overall action is indecisive but slightly favoring the bulls.

A key price level to keep in your mind as we approach the weekend is 1641.75.  The level behaved as support several times since 8/21 before giving way and becoming resistance.  On yesterday’s tape the level formed a low volume node which clues us in that the level is perceived in a unique manner by the market.  The sellers consider it a wholesale entry point aka it’s where the pros are at work.  If price can be sustained above this level during today’s session, it may force short covering into the weekend and change the overall perception of value in the marketplace.

At this point we could explore higher, searching for value in the large gap above.

Conversely, if price cannot sustain trade above 1641.75, we may rotate back through the last three day’s of value to make sure the buyers are confident enough to react to the discounted prices.

If not, a retest of the swing low is on the docket.

I’ve highlighted this price level and a few scenarios on the following market profile charts:

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The overnight market in the S&P was unable to breach either the high or low from yesterday’s RTH session which tells me there were no new developments overnight and the market is balancing out.

Part of the balancing process is forming a range or bracketed trade.  It’s important to envision where this bracket may exist so we can fade the extremes back to the mean.  The first level above that I could see behaving as resistance early on is the range from 1640.75 – 1642.  Taking out yesterday’s high could trigger some buy stops on shorts which could lead to a temporary squeeze to these levels.  These levels would then make an excellent short entry.  They also coincide with the value area high of 08/27’s volume distribution.

Bracket lows could be between 1627.75 – 1625.75.  We could take out the overnight lows which could trigger stop orders to temporarily press us lower, allowing for a quality long entry.

That puts our mean, or midpoint, right at about 1634.  Therefore we could target this level during our mean revision trades.

This is only an idea based upon the context of balance.  Should the market receive news that gyrates us out of balance, we could see more directional volatility.  I’ve mapped out a few scenarios on the below 24 hour profile and opportunistic price levels on the following RTH profile:

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