Game Plan Going Forward

Thu Jun 7, 2012 1:48am

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What a great day for the markets in commemoration of D-Day. D-day was the largest amphibious invasion in world history and it’s nice to have a big positive day for America on a day that saw much blood 68 years ago. With today’s action I like to look at the Person Weekly Pivot to measure risk and how much should I start allocating of my portfolio. I have written about this indicator in a previous post and encourage you to read it for more insight. With days like today it’s hard to not want to get in. Last week Monday reminded me of this action as we saw a nice up day into the Person Weekly Pivot resistance which told me to stand back a bit and wait to see what happens. Luckily I followed that plan and we saw more selling and any new longs would be underwater (for the most part). I wanted to post a chart again with the study and where we are at in the SPX and that included the month of May. Notes are on the chart.

Looking at this chart you can see we are again near the the resistance level of the Person Weekly Pivot. Also I am looking at that 1333-1337 as a tough level to crack. If I were initiate longs under this level they will be small. The last move we had to the downside in mid-May saw nice up days followed by consolidation which then led to last weeks selling. In reading several blog posts it seems that further consolidation would be the healthiest and I agree. I would like to consolidate below those resistance levels noted, let accumulation happen, and then rip to the upside through those resistance levels with volume. What I do find constructive also is that the Person Weekly Pivot High and Low level is starting to make a higher highs together unlike in May where we saw lower lows.

Current positions include long bias options positions in $FB and $VMW expiring in June and short bias position in the SPX expiring Friday. I do not plan on adding here and may miss out on some nice profits but I will be going on vacation to the mountains of NC and I want to enjoy the vacation and not look at my phone on a consistently. Hopefully the consolidation scenario plays out and stocks will be building nice bases while I’m away from the screen because I am sick of this being sitting scenario and want to put some money to work.

Don’t Get Caught Up in the News

Wed Jun 6, 2012 12:04am

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Below is a picture of the weekly and daily charts of the same instrument. Do these look like a good buy or sell at current levels? They are not the VIX or any double, triple, or inverse ETF.

After the market there was a news brought to my attention from @ibc_fn that brings some hope to the bulls. One of the most dovish Fed officials called for more aggressive policy easing. A recent post form @chessNwine titled “The Attack of the Short-Killer Hot Tips” also mentioned this but also gives information to keep in mind.

For me this is all a reminder to keep your time frame in mind. I personally have been daytrading positions in this recent market as the volatility is perfect. But with the daytrading, it is a reminder for me to stay out of swing positions as the day-to-day volatility would more than likely whip me around and the news is too much right now. Any amount of good news could cause a violent reaction to the upside or we get the continued selling looking for the forced liquidation of funds.

The above charts are inverse charts of the SPX. I state the reasons why I like the charts here. With many traders being long bias, it is a good way to look at the chart from another perspective with your bullish chart pattern mindset.

Personally I am still looking for things to settle down some and waiting for this news to dissipate. The correlations are getting to be too much between stocks and the news. Also, what always seems as positive news could also lead to more selling after the news as @chessNwine states in his post:

“It does not matter what you or I think of the possibility that more QE will be wildly bullish for the market. All that matters is what the market actually does.”

Charts serve as great reminders to forget the news event but trade the chart and what you are seeing. Who cares WHAT the news was, how did the market react. News and anything else are events and knowing the event and trading the event are two seperate things.

An Indicator I Use to Analyze the Risk I Should Take

Tue May 29, 2012 9:40pm

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When a trader puts on a trade there is a known and an unknown. The known is the risk that they are willing to accept. The unknown is the future price direction. Everyone is a genius when they look at the left hand of the chart but its what is on the right side that determines the profit and loss when the trader puts on the trade and if price action follows their strategy.

Today we had a great gap and go with some late morning/pre-afternoon fright, only to see us close near the highs. Overall a mental capital drain for those that are heavy in the market. With the gap and go I wanted to show an indicator that I like to use when I decide how much risk I should put on. Of course it is not perfect, but it lets me know the risk I should allocate. The indicator is the Person Pivot with a Weekly setting. I use the thinkorswim platform, which it is provided for free, but I am not sure about other platforms.

All charts are on the RUT (Russell 2000 Index). I use this on a 30 minute chart but below are pictures of a 60 minute chart so that I could get more data with less clutter on the charts, but either way the Person Pivot numbers are the same. The data goes back to October options expiration and is broken down into 3 different hourly charts:

1) October 2011 options expiration to January 2012 options expiration

2) January 2012 options expiration to March 2012 options expiration

3) March 2012 to current price as of 5/29/2012

What I like about the Person Pivot Weekly levels is that it contains the price within the high and the low pivot…. for the most part. Again no indicator is perfect. I like to use this for a risk management standpoint and below the charts show the levels for the week on a 60 minute chart. What I found interesting and why I thought about writing this today is that the price is mostly contained within the upside Pivot, noted with the red line. As you will see from the charts below is that when there is a breach to the upside, that high breach point is contained the next week.

The first chart from October 2011 options expiration to January 2012 options expiration. You can see that there were two big moves of +35 and +43.5pt rips to the upside but the following weeks the price action was contained and adding to longs after a breach would be risky after that week.

The second chart shows from January 2012 options expiration to March 2012 options expiration. This one shows a nice rip to the upside for +17pts and the next was +2.5pts. What I find interesting was the following weeks and that those highs were contained quite well and adding to long positions would have been risky.

The third chart shows from March 2012 to current price as of 5/29/2012. These charts show two moves to the upside but the breaches were contained quite well with nice moves to the downside, that would have effected new long positions.

Now these are charts on the RUT which I primarily use for a monthly options strategy I use, but I also use this for my overall portfolio and ask myself “should I add more risk”? From what I have seen, when I see moves that breach the upside, it is best to watch the rest of the week as a move further can happen, but statistics show that these highs of the week of the breach are often stalling points and it is best to add on a retracement. I bring this up because we saw a nice move to the upside that breached the Person Pivot Weekly High and it is tempting to get in, but I like to exercise patience here for the rest of the week and see where we end up. I may miss out on some moves to the upside as this has happened but those highs of the big moves are also stalling points at time. For me, I’m in a “prove it to me” mode and will mostly observe waiting to add on a retracement.

Have You Ever Traded This Way?

Sat May 26, 2012 7:05pm

967 views

I recently read a blog post written by Ricky Roma of the iBC blogger network (@ibc_bn) titled Revenge trading and shorting crazy momo stocks … like mating hedgehogs. Its a very good read that encompasses the psychology of a trader on any given day as I believe many have been there on many occasions. Overall a well written and detailed post.

In the comments section I mentioned how I like to inverse the charts when looking at shorts. For me this helps psychologically as I am constantly looking for bullish setups and the patterns start to get ingrained in one’s head. For me it is at times a challenge to look at the charts in the opposite way. While many others can successfully short, it is one thing that I am cautious of and in times when markets are like they currently are I either short with small capital or step aside.

The time frame for the inverse charts are on daily/weekly charts and not so much for daytrades. Reason for this is time in the trade and execution speed. On the inverse charts I am more looking for patterns, longer term targets, & using indicators while daytrading it is mainly price action and volume.

Below are the inverse charts of the major indices. While not sure of other platforms, I use thinkorswim and just put a minus sign in front of the stock/index symbol. So with the mindset of the chart in the up direction, even though we know it is inverse and would represent a short position, would you buy or sell these charts. Charts listed in following order from $DJI, $SPX, $COMP, $RUT.

The New 3-Bar BOHICA Setup w/Confirmation

Fri May 18, 2012 1:12am

2,222 views

Looking at the recent price action I can only be reminded of August 2011 and when we saw liquidation at its finest. When institutions have to sell, they sell. Looking at the chart you can see that technical support levels, Fibonacci Retracements, moving averages, etc. are ignored. With todays price action and close at lows, I am now looking for what I call the BOHICA setup followed w/confirmation. As @chessNwine states in his blog posts and daily market recaps, these candle patterns need confirmation. So the BOHICA pattern confirms…just to the downside. While there may be another name for this as I did not do much research, I prefer this name because it can be no fun as violent price action is the result.

The Setup:
1) Capitulation looking move with a large range candle opening near the high and closing near the lows
2) A Hammer Candle preferably near a support level, causing the aggressive to front run and load up (Bend Over)
3) Another capitulation looking move w/candle similar to the 1st candle closing below the hammer’s low (Here It Comes Again)

The Results:
Complete violence that tears at the psychology of the aggressive trader that tries to front run any move only to get severely thrashed around with violent up days and violent down days.

Will we ever see this again, I don’t know but when we have action similar to that of recent, always keep in mind that patterns can repeat themselves and the prudent trader will wait for confirmation to increase his exposure.

An Interesting Trade Indicator & Learn To Think For Yourself

Tue May 15, 2012 12:09am

435 views

I have an email account setup with Hotmail that is specifically setup to receive emails from promotions, trade services, etc….pretty much a spam account. I suggest that some new traders setup an account like this when they are asked to register an email account when they receive a solicitation from a third party or when they are asked to enter an email for further information from a company or service.

I have an account setup like this an in late February and early March I received a plethora of emails from services like this stating how they have been killing the returns and market, based mostly in options. While I am mostly an options trader and “respect” the leverage I have also read many articles on how options have wiped traders out, and I really believe it as many newer traders read the books/articles on these percentage gains and begin with the risk management principle. One video I recently watched from a blog post by @chessNwine was titled :

“PHIL IVEY ON BEING FLEXIBLE AND NIMBLE”

http://ibankcoin.com/chessnwine/2012/05/11/phil-ivey-on-being-flexible-and-nimble/

A specific point in the video was at the 1 min 32 sec mark, titled “When to Continue, When to Quit”, I really believe this is important for traders as I know from the past. When you find that groove/zone, there is nothing like it, everything is firing on all cylinders and the money is flowing. But when you are out of that groove (and I know) I went for the revenge trade or just to trade and my poor performance reflected.

So what am I getting at? I have been trading since mid-2006 & have subscribed to many services and setup that spam account. From experience I have realized when that Inbox becomes flooded, it’s time to reduce some risk (not be completely out) but realize some returns are getting to be good and to step aside and exercise patience.

Below is a picture of the SPX showing the run and when my Inbox became flooded as well as my personal thoughts about services.