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View Full Version : Neutral As It Ever Was – July 7, 2011



Billy
07-07-2011, 06:52 AM
9196

I would like to share some extracts from an email I’ve sent this morning to a robot subscriber who discretionarily exited the robot trade prematurely early last week, could never come back into the trade and asked for some words of wisdom. FWIW, here it is:

“The market is a master at teaching us humility. As soon as a trader or guru thinks he has become a big shot, he is lost. The big shots in trend-following are humbled under choppy and mean-reverting conditions while the big shots in mean-reversion are humbled under trend-following conditions.
Trend-following and mean-reversion require completely opposite mindsets and psychology. Hence, once you’ll become comfortable with one approach, you’ll take hard blows when time has come for the other approach. As soon as you’ll adapt to the fresh approach, bang!, you’ll need to revert back to the other side.
Exiting your trade early was the reflex of a “mean-reversion” mindset. But the environment was strongly trending.
I am lucky to be well versed in doing relatively well both in trend-following and mean-reversion environments, but I’ve come to realize that I am kind of an UFO as most other traders excel only in one of the environments and systematically are losers in the other.

Even so, my last year’s drawdown taught me humility again in my capacity of recognizing discretionarily in which environment I was operating. This, after 30 years of 14 hours a day daily experience!

That’s why I think the robot is so helpful: no mindset, no psychology, no reaction-time before becoming comfortable in a new trade. Like any top trader, it has rules and a clear, simple trading plan. All is optimized for the best probabilities and the best risk management. My word of wisdom is just this: Follow the robot rules and plan exactly! Your ego will probably not be flattered as when winning a chess game against other humans. But just as in chess, we are now fighting with other robots in the market. There is no chance to beat them other than by letting your own robots do the battle. At least, you have a high probability of doing better than the average human market participant.”

Both robots are in increasingly neutral buy signals and volatility is dropping. Consequently, members who are in both trades from the start can quietly raise their robot “worst-case” trailing stops until a sell signal is issued.

IWM still has a lot of wiggling room available above and below yesterday’s close before meeting any serious resistance or support. All moves between YR1 (85.68) and WPP (82.59) are only meeting daily floor levels that are good only for day-traders. A new buy entry at 83.06 remains the best reward-risk opportunity above a strong support cluster, while selling or shorting discretionarily near YR1 may trap you if the market strength continues.

9198

GDX is receiving increasing support day after day and has a realistic chance of breaking soon above the confluence of SPP and QPP (both at 56.61). For this to happen easily and sooner than later, the 50-day moving average (55.63) must hold on a daily close basis.
Billy

9197

sesorensen
07-07-2011, 10:15 AM
Billy

Thanks for the "word of wisdom".

Particularly you stress that we must follow the robot rules and plan exactly! Agree, that's why we subscribe to the robots. At the same time you mention, for today, that "members who are in both trades from the start can quietly raise their robot “worst-case” trailing stops until a sell signal is issued"... Is the worst-case simply referring to the "current stop level" under the current position, and if that is the case what is then a non-worst-case trailing stop...? thx.

Sorensen

Riskslayer
07-07-2011, 10:53 AM
Hi Billy,

I guess if we hold above YR1=85.68, we have a very strong bias is to the upside towards the next major cluster. We are past daily R3=85.62, so the daily levels for confirmation don't seem to apply.

Do you agree with the saying "From failed moves comes fast moves?" I heard this from Brian Shannon, not sure if he is credited with the term?

I guess the real Q here is.. if we fail here intraday, do you see a bias to reverse all the way back down to the major support levels around 82.19-82.28?

I am very, very long the market right now.. both robots and individual stocks..

Thanks,

Shawn

Pierre Brodeur
07-07-2011, 12:02 PM
Is the worst-case simply referring to the "current stop level" under the current position, and if that is the case what is then a non-worst-case trailing stop...?


I have the same question Billy

Billy
07-07-2011, 12:10 PM
Hi Billy,

I guess if we hold above YR1=85.68, we have a very strong bias is to the upside towards the next major cluster. We are past daily R3=85.62, so the daily levels for confirmation don't seem to apply.

Do you agree with the saying "From failed moves comes fast moves?" I heard this from Brian Shannon, not sure if he is credited with the term?

I guess the real Q here is.. if we fail here intraday, do you see a bias to reverse all the way back down to the major support levels around 82.19-82.28?

I am very, very long the market right now.. both robots and individual stocks..

Thanks,

Shawn

Shawn,

It will all depend on money flow. Large players have been selling from the open as indicated by intraday 20 DMF. But only very lightly.
In my own non-robotic view we have all the ingredients for the start of a pullback from here.
The robot tells me that, in the (likely) absence of a sell signal EOD, it will keep the same buy entry limit for tomorrow (83.06) with any close below YR1 (85.68). Any close at or above YR1 would give a buy entry limit tomorrow of 86.12.
But the LT/ST probabilities of such a long signal will be very weak.
The robot is nearing a sell signal and the best is to wait to see if it triggers within the next few days. Price might be higher than today when it does.
Billy

Billy
07-07-2011, 12:19 PM
Billy

Thanks for the "word of wisdom".

Particularly you stress that we must follow the robot rules and plan exactly! Agree, that's why we subscribe to the robots. At the same time you mention, for today, that "members who are in both trades from the start can quietly raise their robot “worst-case” trailing stops until a sell signal is issued"... Is the worst-case simply referring to the "current stop level" under the current position, and if that is the case what is then a non-worst-case trailing stop...? thx.

Sorensen

The robot has programmed only two types of trade exits:
1. An exit when the trailing stop is hit : that's the worst case scenario.
2. An exit when there is a trend change : that's the best case scenario.
There is no in-between case scenario.
Billy