Missing Catalyst - December 14, 2011

[Billy]

11889

Sorry for the shorter and delayed posting, but I unexpectedly had to help a cousin in emergency situation this morning and couldn’t complete my normal routine.

I wouldn’t dare to say that Santa Ben is actually Satan Ben, but it is clear that the FOMC announcement missed delivering the catalyst that could have morphed an improving market structure and consolidation into a new rally.
IWM is now on the brink of a steep decline if the last lines of support confluences break. These lines are Monthly pivot (72.00), Yearly pivot (71.84), 50 dma (71.66) and Quarterly pivot (71.25). If such an important cluster doesn’t attract fresh large buyers our initial robot trade is probably toasted and the trailing stop is conveniently positioned at 71.02.

An encouraging signal comes from today’s robot settings and edges which are giving the green light for a secondary long entry at a limit price of 71.96.

11887

Talking about the brink of a precipice, it is what describes best the precarious fate of GDX if it falls down to the next support clusters. A short position was entered by the GDX robot at 55.96 and the trailing stop is at 58.77. No secondary entry for Wednesday is advised. GDX is used to overshoot the Weekly S3 (54.20) but it is indicative of a much oversold level for this week.
Billy

11888

[ilonaross]

http://www.nytimes.com/2011/12/14/business/economy/fed-says-economy-is-expanding-moderately.html?ref=business

Read starting paragraph 9 focusing on rotating membership that may provide the missing catalyst.

[Timothy Clontz]

Hope your cousin is okay.

[Billy]

Hope your cousin is okay.

Thank you Tim, he's okay now.
Billy

[nickola.pazderic]

Hi Billy,

Hope all is well.

Can you provide some clues how one might trade the current double open Robot situation?

It is not easy. One is close to a stop out. And the other is only beginning. In fact, we are yet below the opening price if I recall correctly.

Thanks always,

[grems8544]

Can you provide some clues how one might trade the current double open Robot situation?

It is not easy. One is close to a stop out. And the other is only beginning. In fact, we are yet below the opening price if I recall correctly.

I know you intended this for Billy but let me add my two cents.

Treat each trade as a separate trade, unless you get exactly the same entries. Hence, if we hit the stop, you're out on that trade, but if we hit the entry of another signal, you're in. I set One-Triggers-Other orders so that the limit buy and the stop loss levels are automatically set when the level is attained.

Regards,

pgd

[nickola.pazderic]

Happy b-day for your son. I know it is important to you, too!

I didn't let myself get stopped out of TNA. I decided to be a tough guy (ha) and wait for a 15 minute bar to close at or below our stop. So I'm still in.

I want to short TZA very badly here. But TOS has no shares to share.

[manucastle]

Happy b-day for your son. I know it is important to you, too!

I didn't let myself get stopped out of TNA. I decided to be a tough guy (ha) and wait for a 15 minute bar to close at or below our stop. So I'm still in.

I want to short TZA very badly here. But TOS has no shares to share.

Hi nickola,

Try shorting TNA

Trev

[nickola.pazderic]

The point is: now would be the time to enter at a great entry point according to the robot signal of today. Conversely, one could also get stopped out. Turn around and hit the market with the same bid for the same number of shares just sold to the machines. This is confusing. In either case, we must retrace the loss to recapture the equity lost.

[nickola.pazderic]

Yes. Paul's answer was very good.

But, I'm tired of paying TOS to lose money.

[adam ali]

$SPX 10-day historical volatility set to fall under 20 for 1st time since August 3rd.

VIX under 25 (yesterday) normally a bullish sign??

Normally bullish signs?? What the heck is going on here?

[Billy]

Nickola,
You are asking for guidance about two different TNA positions running simultaneously.
There is no double TNA open robot position possible. The robot is always 100% invested in a non-leveraged IWM position until a signal change or stopped out.
Secondary and leveraged entries are never taken by the robot and are provided as indicative edges for discretionary trades. It is your responsibility to manage your risk with secondary positions and with leveraged ETF’s.
The aim of the robot is to avoid such complex decisions. There are infinite ways to manage secondary and leveraged trades and it is impossible to provide guidance for everyone.
Novice traders should trade exactly like the robot at first and progressively develop their own discretionary style for secondary and leveraged trades with a very small portion of their capital. Experienced traders can apply more aggressively their own trading style.
As an example in choppy environments, you remember that I exited 2/3 of my initial TNA position for a small profit and would re-enter the proceeds only at a secondary active entry. I would have had to wait for today, but I would use the same stop as the one from the original robot position. All in all, it would have made it a flat positive trade instead of a losing one. But I didn’t do it because I mistakenly concluded too early that the choppiness was about to end and I went back in way too aggressively with a TNA average price of 44.73 that was stopped out today at 39.64 for a loss of -11.37%. The position was still a winner just yesterday morning. This tells you how delicate and dangerous it would be for me to provide individual guidance or coaching to all subscribers. I’d look like a genius of risk management if I had stayed in my choppiness assumptions and I actually look like a clown now with my aggressive trend-following choice.
Billy

[nickola.pazderic]

In fact, your answer provides excellent counsel.

[TraderD]

I’d look like a genius of risk management if I had stayed in my choppiness assumptions and I actually look like a clown now with my aggressive trend-following choice.
Billy

Having the robot detect choppiness (and take profits accordingly) rather than manage the position with a trend-following setup would be a useful enhancement imo.

Trader D

[nickola.pazderic]

So, with the move of IWM below the Robot stop today, the robot is entirely out of the market?

And the secondary entry is inconsequential to it?

Thanks,

[Billy]

So, with the move of IWM below the Robot stop today, the robot is entirely out of the market?

And the secondary entry is inconsequential to it?

Thanks,

Yes you are right. The robot is 100% back in cash. It would only re-enter a position tomorrow if there is an edge to do so.
Billy

[Billy]

Having the robot detect choppiness (and take profits accordingly) rather than manage the position with a trend-following setup would be a useful enhancement imo.

Trader D

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

[vfc10us]

$SPX 10-day historical volatility set to fall under 20 for 1st time since August 3rd.

VIX under 25 (yesterday) normally a bullish sign??

Normally bullish signs?? What the heck is going on here?

VIX seems to be above support at 25. Frankly, I'm not sure it matters. In my humble opinion, there's nothing more powerful than a declining or a rising 200ma. It takes a lot of courage to go long against a declining 200 day moving average without seeing some clear divergences on longer term (weekly) charts.

[nickola.pazderic]

I never felt more like a clown than when I tried to teach undergraduates in a low level required (meaning big money for the university) course. But even with the best graduate students in the country, it is hard to not feel a clown as a teacher. There is a nice name in the title and certain afforded pleasures, but the indignities are many. I can only thank you as a form of encouragement for the work you've taken to instruct us all.

[roberto.giusto]

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

Billy,

I was thinking to the very interesting example you showed us a few days ago, using 3 different (with 2 tighter) trailing stops for your triple leveraged position.

That could be a way to limit the loss, or even to have a little profit even if the official robot trade incurs into a loss.

The reverse of the coin is that long term cumulative performance still risks being deteriorated if compared to a "full" position.

[Billy]

Billy,

I was thinking to the very interesting example you showed us a few days ago, using 3 different (with 2 tighter) trailing stops for your triple leveraged position.

That could be a way to limit the loss, or even to have a little profit even if the official robot trade incurs into a loss.

The reverse of the coin is that long term cumulative performance still risks being deteriorated if compared to a "full" position.

Roberto,
That’s exactly what I described in my post below as a discretionary “choppiness” risk management strategy. My mistake was to switch to an aggressive discretionary “trend-following” strategy mostly based on too small a statistical sample from stage analysis. But I clearly mentioned to all at the time that it was not robot-related.
Billy

[TraderD]

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

This question breaks down for me to asking whether choppiness can be identified at trade pre-entry or at position post-entry. I believe that the decision to not enter on weak signals represents the first case and the accompanied belief that the expected reward isn't worth the risk (in relative terms, when compared with entering on strong signals). So now what about the second case where you already have a position and an apriori-known trade mgmt plan (which takes the form of EOD-based position exit rules, recalculated stops, etc.)

While the position is held, the market keeps on injecting new information that can be analyzed, not merely particular to the trade itself. The question I'd ask is, what would warrant altering the original trade plan and playing defense (profit taking) instead of offense (riding a trend). Is it the signal becoming neutral? Is it the position failing to "move" after X days? There's clearly a myriad of possibilities. I gather that you have tested some of them, but maybe a more dynamic market evaluation method could find that golden path of switching between offense and defense while the position is on.

$.02,

Trader D

[Billy]

This question breaks down for me to asking whether choppiness can be identified at trade pre-entry or at position post-entry. I believe that the decision to not enter on weak signals represents the first case and the accompanied belief that the expected reward isn't worth the risk (in relative terms, when compared with entering on strong signals). So now what about the second case where you already have a position and an apriori-known trade mgmt plan (which takes the form of EOD-based position exit rules, recalculated stops, etc.)

While the position is held, the market keeps on injecting new information that can be analyzed, not merely particular to the trade itself. The question I'd ask is, what would warrant altering the original trade plan and playing defense (profit taking) instead of offense (riding a trend). Is it the signal becoming neutral? Is it the position failing to "move" after X days? There's clearly a myriad of possibilities. I gather that you have tested some of them, but maybe a more dynamic market evaluation method could find that golden path of switching between offense and defense while the position is on.

$.02,

Trader D

Most interesting clues, and we will seriously try to backtest and improve if possible.
The main problem with choppiness is that it is very similar to randomness. No matter how much you backtest it, it hardly can provide meaningful edges for the future.
Billy