Post midterm NASDAQ morning trading plan

NASDAQ futures are coming into Wednesday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight, breaking through the Tuesday high around 10pm eastern and chopping up above it until about 3am when another leg higher sent prices to levels unseen since two Wednesday’s back when the market went trend down.  As we approach cash open prices is about 50 points off the globex high and hovering above Tuesday’s high.

On the economic agenda today we have a 30-year bond auction at 1pm followed by consumer credit at 3pm.

Yesterday we printed a normal variation down.  The day began with a small gap down.  Buyers drove higher off the open, printing a dynamic initial balance.  Then we spent much of the morning/early afternoon inside the IB.  It started to look like another normal day until late in the session when sellers managed to briefly push the market range extension down.  This however triggered a failed auction and we ramped higher into the bell—eventually settling above the daily midpoint.

Heading into today my primary expectation is for sellers to work into the overnight inventory and attempt a move back into Tuesday’s high 7034.75.  Buyers reject the attempt sending us up through overnight high 7122.25.  Look for sellers up at 7156 and two way trade to ensue.

Hypo 2 sellers work a full gap fill down to 7016.50 setting up a move down through overnight ow 6971.50.  Look for buyers down at the composite VPOC 6945.50 and two way trade to ensue.

Hypo 3 gap-and-go higher, sustained trade above 7156 sends us up to 7183.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap down after an overnight session featuring extreme range and volume.  Price worked sideways overnight, sustaining trade for most of Globex above the Monday midpoint.  As we approach cash open price is hovering just above the midpoint.

On the economic agenda today we have an 8- and 52-week T-bill auction at 11:30am and a 10-year Note auction at 1pm.  Also, the USA midterm elections are today, the results of these elections are likely to take shape later this evening.

Yesterday we printed a normal day, which is anything but normal.  They only occur about 5% of the time on the NASDAQ.  The day began with a gap down and drive lower, leaving the last Friday gap behind at 6979.  The drive lower poked down into the open air left behind last Wednesday before discovering a responsive bid late in the initial balance. Then we spent the rest of the session chopping along the lower quadrant before ramping higher late in the session.  Overall the action was contained inside of the first hour of trade.

Normal day.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 6947.  From here we continue higher, up through overnight high 6969.50 setting up a move to target the open gap at 6979.  Look for sellers up at 6988.75 and two way trade to ensue.

Hypo 2 sellers step in right at Monday close 6947 and work us lower, down through overnight low 6906.75.  Look for buyers down at the 6900 century mark and two way trade to ensue.

Hypo 3 stronger sellers trade us down through Monday low 6865 setting my a move to target 6832.25 before two way trade ensues.

Levels:

Volume profile, gaps, and measured moves:

NASDAQ futures are coming into Monday gap down after an overnight session featuring extreme volume on elevated range.  Price worked sideways, chopping along the bottom-side of Friday’s midpoint and sticking inside the Friday range for the duration of Globex.  As we approach cash open price is sticking inside Friday’s thick VPOC at about 6965.

On the economic calendar today we have ISM non-manufacturing/services/composite data at 10am, a 3- and 6-month T-bill auction at 11:30am, and a 3-year note auction at 1pm.

Last week began gap up across the board.  Monday morning featured heavy selling that managed to form a sharp excess low late in the session.  During the Monday selloff the Russell 2000 was demonstrating relative strength.  The Russell carried relative strength for the rest of the week and the other major indices started to form a bounce Tuesday.  Then Wednesday we saw a big gap up that had some continued buying through Thursday.  Friday managed to discover some responsive sellers and we ended the week with the NASDAQ and Russell sitting at their respective composite VPOCs while the Dow and S&P both have composite VPOCs much lower.  Dow and S&P did manage to hold their Wednesday gap into the weekend.  The last week performance of each major index is shown below:

On Friday the NASDAQ printed a normal variation down.  The day began with a gap down that buyers quickly resolved with an open spike higher.  Said spike briefly took prices to a new weekly high before responsive sellers stepped in.  The sellers erased the morning spike then became initiative, pressing price down briefly below the Wednesday gap range before we ultimately settled into balance near the end of the day.

Heading into today my primary expectation is for buyers to work into the overnight inventory and close the gap up to 6979.  From here we continue higher, up through overnight high 6998.50.  Look for sellers around 7000 and a tight choppy two-way trade to ensue.

Hypo 2 sellers trade down through overnight low 6944.75.  Look for buyers down at 6900 and two way trade to ensue.

Hypo 3 stronger sellers trade us down to 6873 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

PROGRAMMING NOTE: If you will be in Detroit the week before Thanksgiving, come out to my brief presentation on trading futures Wednesday, November 14th from 6-7:30pm.  Here is a link to RSVP for the free event: https://www.meetup.com/Detroit-Investors-Traders-StockTwits-Meetups/events/255982115/

Greetings lads,

Time changed.  By the decree of man we fell back an hour.  Our leaders can effectively change the time on clocks, but they won’t acknowledge their impact on climate.  Whatever.  Let’s skip right to making money before I lose the attention of my Simple Jack readers.

On Thursday, October 18th 2018 the predictive ‘mother algo’ inside Exodus flagged oversold.  The signal came on the heels of a buy signal that fired on October 4th, so recency bias had the risk of spooking users away from using the information to make money.

First, here is the performance of every major index during the October 4th cycle:

Next, here is the performance of every major index during the October 18th signal:

You may be looking at those two charts and thinking, “RAUL, you dumb sack of shit, not only do you offend my flat-earther sensibilities, you can’t even read a performance chart and see that your precious Exodus buy signals were losers.”

Which is fair.  I did take a proxy position in TQQQ during both cycles, which in both instances generated a 2x loss of the NASDAQ performance shown above.  They were losing trades.  However, the bullish bias worked to my benefit big time over the same period.  Let me explain.

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I trade NASDAQ futures.  I operate on a different time frame than almost everyone reading this blog.  If you wanted to label my trading, I suppose you could call it medium frequency. My average holding period is about six minutes.  Average.  Sometimes I hold positions for several hours.  Especially if I have a directional bias.

Enter the Exodus buy signal.  When trading within the confines of an Exodus hybrid oversold cycle I only take long positions, meaning I buy NASDAQ futures with the expectation that I can sell them later in the day at a higher price.

I have specific rules defining my entries.  These are setups that I have studied and cultivated over years.  They are my craft.  I can execute them quickly and cleanly, like an experienced chef chopping an onion.  But developing entries is not the purpose of this blog post.  This blog post is about EXITS.

So little attention is paid to exiting positions.

When should you exit a position, and why?  The answer is in the numbers.  The most ratio to track when trading is you expectancy.  Here is the expectancy formula, but we won’t deep dive into the math because I don’t want to lose your attention:

Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)

For a trading approach to be profitable, the expectancy needs to be greater than zero.  To cover the overhead of trading as a business, I like to keep expectancy over 0.30.  And overall, when tracking my expectancy, I want to see the arc of my expectancy trending higher.

If you focus on the simple algebra, you can hopefully see (godspeed, Simple Jack) that you have four ways of making your expectancy ratio go up.  Here are the ways of increasing your expectancy, in easy-to-digest list form:

1. Increase Probability of Win 
2. Increase Average Win
3. Decrease Probability of Loss
4. Decrease Average Loss

Returning to exits.  I need logical reasons to exit a trade—statistics.  The first hour of trade after the cash open is called the Initial Balance (IB).  Did you know that 94.75% of the time, price breaks beyond the IB range?  How do I know?  Statistics, damn statistics, and my only true lover—Microsoft Excel, look:

So we know either the high or low of the first hour’s range will break about 95% of the time.  But we don’t know whether it will break the IB high or the IB low.

ENTER Exodus, BWAHAHAhAHAHAHAHAH

I need to update the study so I can show definitively that Exodus has sharpened my IB trading approach.  But let’s go back to the October 4th trading cycle (10/5 – 10/18) and the October 18th cycle (10/19- 11/01).

How many times did we break IB high before IB low during the October 4th trading cycle?

3 out of 10.  It was a rough cycle.  I was bloodied up pretty badly.

How many times did we break IB high before IB low during the October 18th trading cycle?

6 out of 10.  Back in action.

Here they are, in chart form:

When you have the parameters of the initial balance to work with, the closer you are to IB low during an Exodus oversold cycle, the less risk you have to give your trade, and the more REWARD the trades have.  The initial balances during October have been BIG.  There has ben lots of range to work with.

There is a similar set of statistics that power my overnight high/low approach.

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Hopefully this short blog post gives you a bit more insight into how I use Exodus/Excel/expectancy to empower my futures trading approach.  Ever since I started using IndexModel and Exodus hybrid overbought/oversold signals to force me to only trade one side of the tape, I have seen a dramatic improvement in my expectancy.

It’s funny, I fought like hell to escape the corporate world and all its structure, yet it is structure and discipline that affords me the freedom I desire.

And that is why I produce a Strategy Session inside Exodus even though I do not receive pay for the newsletter.  I appreciate the structure The Fly created for me, the accountability to my research that came from other people depending on it.  Because it caused me to sharpen my trading edge.  For that I am infinitely grateful and will happily give back to our community of iBankCoiners.  I don’t care if you hate my geopolitical/environmental views, I know we are all here with the explicit intent of extracting fiat dollars from the global financial complex.  These are my ravenous people.

Working through these cycles, one after another, is how I make my way through the world, no one’s master, no one’s slave.  Right now I have no cycle to work with.  That means I will only be scalping the price levels revealed during the morning trading reports and only when I feel like it.  Tight risk, quick 8-9 point scalps.

Neutral until otherwise noted.

Exodus members, the 207th edition of Strategy Session is live, go check it out!  Be sure to take a look at Section IV, I like the story semiconductors are telling.

NASDAQ futures are coming into Thursday with a slight gap up after an overnight session featuring extreme range and volume.  Price worked sideways overnight, balancing out above the daily midpoint while trading inside the Wednesday range.  As we approach cash open, prices are hovering right along the Wednesday midpoint.  At 8:30am initial/continuing jobless claims data came out mixed.

Also on the economic agenda today we have both construction spending and ISM employment/manufacturing data at 10am.

Yesterday we printed a normal variation up.  The day began with a pro-gap up, which erased what was left of Monday’s trend down.  Buyers rejected us up-and-out of the Monday range early on and defended an early attempt to push neutral after going range extension up shortly after 10:30am.  Then another buyer rotation worked through, pushing to a new high-of-session before we succumbed to selling late in the session.  The daily VPOC never managed to shift lower despite the afternoon selling.

Heading into today my primary expectation is for sellers to work into the overnight inventory and close the gap down to 6957.  Buyers do not allow the overnight low 6951 to be taken out.  Instead we work up through overnight high 7015.75 setting up a move to target 7050 before two way trade ensues ahead of Apple earnings.

Hypo 2 tighter chop.  We close the overnight gap 6957 then go down through overnight low 6951.  We then chop along the composite VPOC at 6945.50 as we await Apple earnings.

Hypo 3 strong buyers thrust higher on the open, sustaining trade above Wednesday high 7039.25 early on, setting up a move to target 7087.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Wednesday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight, wrestling with Tuesday’s high for several hours before breaking loose around 3am and setting out to discover higher prices.  After the bell Tuesday afternoon Facebook earnings were better than expected despite missing top-line revenue expectations. The news wires had a hard time making sense of the earnings/conference call, but as we approach cash open FB shares are priced to gap up by about 7%.  At 8:15am ADP employment data came out stronger than expected.

Also on the economic agenda today we have crude oil inventories at 10:30am.  Also be aware that the largest NASDAQ component, Apple, is set to report earnings Thursday, after market close.  As their earnings draw near, it is possible that we may enter a holding pattern as investors wait to see the information.

Yesterday we printed a normal variation up.  The day began with a slight gap down.  During the open we traded down to 6666 before discovering a responsive bid.  The market went range extension up just before lunchtime.  The rest of the session was choppy but eventually closed near high of day.  It was an inside day, inside Monday’s trend down.

Heading into today my primary expectation is for buyers to gap-and-go higher, up to the composite VPOC at 6945.50.  From here we continue higher, up to 6976.50 before two way trade ensues.

Hypo 2 stronger buyers drive up to 7000.  Look for sellers up at 7023.25 and two way trade to ensue.

Hypo 3 sellers work into the overnight inventory and close the gap down to 6814. Look for buyers down at 6800 and two way trade to ensue.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Tuesday gap down after an overnight session featuring extreme range and volume.  Price chopped sideways overnight, along the bottom-side of the Monday midpoint.  As we approach cash open sellers are pressing us lower, into the bottom quadrant of the Monday range.

On the economic calendar today we have consumer confidence at 10am followed by 4- and 8-week T-bill auctions at 11:30am.

Yesterday we printed a trend down.  The day began gap up and the morning auction showed early signs of holding the gap before buyers were unable to test above the Friday high before sellers stepped in and closed the gap.  Selling then continued lower, pausing during the lunch hour just above the Friday low before driving lower in the afternoon.  There was a brief attempt by buyers to defend 6666 before we continue lower, trading down to about 6600 before a strong rally near the end of the day took us more than 100 points higher, to close above 6700.

Heading into today my primary expectation is for sellers to work down to 6666 before two way trade ensues.

Hypo 2 stronger sellers trade down through Monday low 6580.50 and continue lower to target the open gap at 6554.75 before two way trade ensues.

Hypo 3 buyers work into the overnight inventory and close the gap up to 6733.25 before two way trade ensues.

Levels:

Volume profiles, gaps, and measured moves:

NASDAQ futures are coming into Monday gap up after an overnight session featuring extreme range and volume.  Price worked higher overnight, first spiking upward shortly after Globex trade began 6pm Sunday, then making a secondary rotation higher around 5am.  The second rotation saw price briefly probe above the Friday high.  As we approach cash open, prices are hovering right around last Friday’ high.  At 8:30am personal income/spending data came out in-line with expectations.

Also on the economic calendar today we have a 3- and 6-month T-bill auction at 11:30am.

Last week began with a slight gap up and choppy Monday.  Tuesday saw a big gap down, away from value which drove lower early on before finding a responsive bid.  The rest of Tuesday was spent rallying but Wednesday erased those gains during a trend down.  Wednesday was spent reversing much of Tuesday’s losses but then Amazon and Google earnings after the bell spiked price lower.  Friday was choppy.  In sum, chopping week, lots of big moves in both directions.

On Friday the NASDAQ printed a neutral day.  The day began with a gap down-to-near the weekly low.  Buyers drove higher off the open but were quickly overrun, pushing the market range extension down.  Selling dried up shortly after the first hour and we reversed, pressing back up through the daily range to go neutral then tagging the Thursday naked VPOC.  Sellers stepped back in and we chopped into the bell, eventually closing slightly above the daily midpoint.

Neutral day.

Heading into today my primary expectation is for sellers to work into the overnight inventory and work a half gap down to 6930.50.  Buyers step in here and work up through overnight high 6991.50 to tag 7000.  Look for sellers up at 7023.25 and two way trade to ensue.

Hypo 2 sellers work a full gap fill down to 6893.50 then continue down through overnight low 6882.75.  Look for buyers down at 6800 and two way trade to ensue.

Hypo 3 buyers gap-and-go higher, up through 7023.25 and sustain trade above it setting up a move to target 7088.

Levels:

Volume profiles, gaps, and measured moves:

Greetings, hello, happy Halloween.  My interpretation of the Exodus software, which I read in as simple a way as possible, remains bullish.  Last week was rough and so was the week before.  But anyone who has been around for a decade has traded through more volatile markets than this and survived.  The fast action feels good.  It can be exhausting, but so are most other fast activities.  It helps to limit screen time.  Also having wider ranges for entries and exists, and being extremely selective with trades.  I would much rather be on the sidelines unless all my tools align for the proverbial ‘fat pitch’.  Every trade in these conditions carries more risk, both the kind of risk that can be controlled and also risk of unexpected error.  So strict rules apply to trade selection.

Being bullish is not a blind buy-the-f******-dip approach for me.  My bias is formed every Sunday.  While the price of most stocks is lower from last Sunday, intra-day traders know that having a bullish bias last week was not that bad if you were trading nq_f.  Monday, Tuesday, and Thursday went range extension up.  Friday and Wednesday did not.  I threw in the towel early Friday before sellers could take me out, because I decided last minute to visit Philadelphia for the weekend.

Philly is rough.  The town wore me out quick.  There is garbage everywhere.  When you see someone litter say, once a week, you think, “wow, what a piece of shit human,” and you pick up after them.  In one Philadelphia day, I personally witnessed four acts of littering in one day.  What am I supposed to do?  Go around picking up after careless slobs all day?  At some point it wears on you. Then there was the rain, the nonstop rain.

Lots of garbage and drug addicts in Philly, even from a Detroiter’s perspective.  A few weeks back I was out in Santa Barbara, so I have a fresh memory of what a pleasant and clean town looks like.  I don’t like pleasant and clean either.  I suppose I desire a Goldilocks scenario where anarchy rules but people don’t litter or addict themselves to drugs.

In any case, it is nearly winter and the only logical place to be is the Pacific Northwest, where the air is misty and fresh, the mountains are high, the water is crisp, and the population is sparse.

As for the markets, I remain bullish and expect Tim Cook and his team working inside the Pentagon of Silicon Valley and the Foxconn factories of China to once again save us from ourselves.

Thank you Tim Cook.  Thank you Elon.  Thank you Jeff Bezoz.

ciao, bullish

Exodus members, the 206th edition of Strategy Session is live, go check it out!

NASDAQ futures are coming into Friday gap down after an overnight session featuring extreme range and volume.  Price worked lower overnight via three sequential rotations down.  The first came right around settlement when Amazon and Google parent Alphabet reported solid earnings but guided lower.  The second rotation lower came just before midnight, then a third hard move took hold around 4am.  All together the action took prices to levels unseen since May 4th, a conviction trend day up.  As we approach cash open, price is hovering right along the weekly low (set late Wednesday around 6800).  At 8:30am GDP data came out stronger than expected.

Also on the economic agenda today we have University of Michigan’s final reading of October sentiment at 10am.

Yesterday we printed a normal variation up.  The day began with a gap up, inside range of the prior day trend down.  Buyers rejected an attempt lower during the opening auction and we instead drifted just up beyond the Wenesday VPOC and chopped and balanced along it. Then, late in the session we ramped higher before seeing a sharp spike lower during settlement to press prices back near where they opened in the morning.  Overall it was an inside day and a normal variation up.

Heading into today my primary expectation is for buyers to reclaim the weekly low and sustain trade above 6800 setting up a move to target 6881.  We chop here for a bit before continuing higher to take out overnight high 6934.25.  Look for sellers up at 6948.50 and two way trade to ensue.

Hypo 2 sellers reject us down and away from 6800 setting up a move through overnight low 6734.25.  Look for buyers down at 6700 and two way trade to ensue.

Hypo 3 stronger sellers trade us down to 6678 before two way trade ensues.

Levels:

Volume profiles, gap, and measured moves: