“Love the discipline you know, and let it support you.  Entrust everything willingly to the gods, and then make your way though life–no one’s master and no one’s slave” – Marcus Aurelius

It has been almost 3 years since I escaped the oppressive bonds of corporate mediocrity, but I remember how we would all clamor around our cubicle quarters about this time of year.  We were all giddy to hold our soup bowl up and accept a second cup of broth from management.  Then we would go into the HR system and adjust our federal withholding exemption so Uncle Sam wouldn’t take half of it from our W-2 paycheck.  Gone are the days of waiting in line at the soup bowl whilst The Company was enriched by the billions.  Now I am liberated, and ironically enough, it requires rules and discipline to live free.

I have to trade a rule-based mechanism, and I need to execute it consistently.  That means no more whimsical frills; this is a no BS game and BS bitches come and fade every.single.month.  I would rather lay sewer pipes then be re-caged into a cube.  But I am smart–you’re smart too–so I find ways to get my cheese and bread, no one’s master, no one’s slave.

Trading consistently means having an objective method of entering a trade.  Imagine if you could score over 4000 stocks, another 1000 ETFs, interest rates, commodity prices, and currency behavior instantly.  Then imagine concentrating all of that information and building a trade idea from it.  That is the high-level means by which we generate the Exodus Hybrid score.  It’s comprehensive and simple at the same time.  I love a simple discipline because when everything is moving fast you know how to execute.  Here is a hypothetical study, had you taken every signal the software generated this year:

I just closed out my triple leverage Russell 2000 long, aka Tina, aka TNA, for the win (aka FTW).  The trade was good for about 10% and of the ‘position’ variety.  Not quite a swing trade, not quite a day trade.  The gain serves as a nice year-end bonus for yours truly–a bonus I earned whilst barreling down the steepest and deepest mountains of central California.  Not, mind you, whist hunching over a computer terminal in a 10-story corporate complex.  My fate is entrusted to no one but the gods.  This is how I make my way through life.

GOD WILLING, I will have another three years of the good life.  If not, that’s fine too.  All I need to do is plan and execute, over and over, diligently confronting the facts, and piling on one good decision after another.  It takes discipline and rules to live free, but you get to write the rule book.  That’s big.

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Here we are, another Weekly Strategy Session complete, another short call from the model. Therefore, and this is a unique occurrence, I am going into a 3^rd consecutive week with a short bias.

The model scored its second highest reading ever, a 3.49. The last two times the spread was this high were February 22^nd, 2014 and May 17^th, 2015. In both instances of extremely high model scores was saw compressed ranges and a slight upward drift.

There is some supporting evidence to the short bias, including last week’s sector rotations and USD/JPY probing the low-end of its intermediate term range.

But, overall, I am wondering if this sustained overbought status speaks to a major shift occurring in the market. Perhaps a transition away from volatility and a return to docile indices and explosive momentum stocks?

There are a few contextual pieces I will be monitoring this week, but overall I will be playing conservative. Any short duration risk is subject to liquidation and I may add a hedge—most likely a reentry into the biotech short, hopefully at higher prices.

What am I supposed to do? Ignore my own research? Then why do it? For you? It is to strengthen the republic. If I add value and benefit alongside, then I have done my job.

Summary: market model has short bias, but an extremely high reading. The prior two instances of extreme numbers lead to range compression and upward drift. My plan is to raise stops on any short duration risk that starts to work and consider reentering the biotech short.

Want to read the report?  There’s one day left to go inside Exodus and have a free trial.  Email [email protected] for access.  Then find the ‘Strategy Session’ link on the navigation pane.

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Ahoy mates, I saved you the rigmarole of running standard deviation studies on the NASDAQ 100 TICK. Using high quality IQ Feed data, I ran a study on 1-minute bars to determine 1^st-3^rd standard deviation for the indicator.

I set audio alerts for the 2^nd and 3^rd thresholds using Multicharts. We’ll see if those last or end up in the junkyard with the other algo scraps.

Here’s how the data looks on my side:

Positive TICK 1^st, 2^nd, 3^rd sigma: 36, 54, 70

Negative TICK 1^st, 2^nd, 3^rd sigma: -37, -52, -68

Why does any of this matter? Have you ever looked at something and thought, “hmm, that’s different”? Would you want to know if something you’re seeing is in fact abnormal? I do. When I am in a trade I accept that my limbic system will be active and a big part of my job is being aware of the waves of emotion that sometimes get in the way of trading. One of my boulders to channeling that creative energy into objective trading is basing my observations and decisions on cold-dead numbers, logic.

Are they Holy Grail trading signals? No, but they do offer a peek inside the engine of our good friend /NQ_F.

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It is quite difficult to call out futures day trades in real time in a product like the Nasdaq.  Even on slow days the product is fast.  It trades thin and slips around like it is running on marbles.  These characteristics lend themselves well to order flow scalping, especially if you are not attempting to work too much size.

The trades are 80% preparation and 20% execution/management.  All of the statistical studies allow probabilities to emerge intraday.  The risk management rules allows trading to occur without the distraction of focusing on your money.  The morning context reports define areas of opportunity and expectation.  The opening swing gives us a sense of the dominant timeframe and how they are likely to behave.

You cannot simply step in front of the market and place a limit entry at a price level from your homework.  At least, I have found it unsuccessful.  Instead I wait for a bit of information.  Information is expensive in this business, but let me show you my favorite way to trigger on a level.  This was the morning’s primary expectation/hypothesis:

“With the market set to open inside of Friday’s range my primary expectation is for buyer to attempt to test higher and close the overnight gap up to 4156.75 before finding responsive sellers who defend the LVN zone from 4161.25 – 4160.75.”

We never traded up to 4160.75 but there was still a simple way to manage an entry into the trade.  In fact, it was the only futures trade I took today as I have been a bit hands off this week.  I call it the mid trade.  I do not need to call tops or bottoms to the tick to make a career in trading.  The money is in the middle.

The market has a certain harmony to its movements.  For instance, the most common rotation in Nasdaq futures is 4.25 points.  Anything larger than 4.25 points draws my attention because it suggests actual activity, not just noise.  It can be difficult to see rotation size on a time-based chart which is why my trigger chart prints renko bars.

Below is a picture one of my most common trade-types.  It is a no frills way of assessing and trading the secondary wave after a rotation greater than 4.25 points.  See below:

This post is not intended to make trading appear easy.  I insist it is not, however it needs to be simple.  The midpoint is simple to calculate, simple to run studies upon, and simple to identify and execute upon real time.  I use it across many timeframes and asset classes.  You should too.

Homework level, context, abnormal rotation supporting homework level, trade management.  Eventually a third unit will be added to this trade and could have been a rider to take out the “weak low” I have been highlighting these last two mornings aka a hot little context piece.

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