Will We See A Turnaround Tuesday? - January 24, 2012

[Billy]

It is frequent to see some enthusiasm on Mondays after a weekend examination of an obvious strong uptrend. If it is too obvious, beware! Tuesdays often reverse the prevalent trend and Monday’s flat close following a strong start of the session may pave the way for a Turnaround Tuesday.

The 20 DMF finally closed weak in the last minutes of Monday trading with a negative divergence for IWM’s fate.

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At this time of writing, the futures markets are testing yesterday’s low prices around weekly pivot (77.63) where large players did not commit much to the long side yesterday. If we have a large gap down open and the RT 20 DMF doesn’t bounce quickly, we’ll have another clue that professional buy programs are set in a pause mode for the second day in a row.

Volatility has contracted so much, that the new floor support and resistance clusters strength imbalances are now almost neutral. A decisive break under Weekly pivot (77.63) confirmed by a break of Daily S1 (77.52) will likely lead to weekly S1 (76.75) as the next potential scale-in level for market makers. Confluence of Monthly R1 (75.90) and 200-day moving average (75.77) would be a more serious bumper in case of a more pronounced selloff.

The day’s advised short entry limit at 79.31 is just above our initial robot position stop at 79.23. As a reminder, the IWM robot never exits and enters positions on the same day and always waits for an overnight confirmation. New secondary positions guidelines are for discretionary traders.

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The GDX MF is 2.3 days away from a short signal and was rather weak yesterday into the close in spite of GDX holding to its gains. The robot is holding its position and no new entries are advised for today.
Billy

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[TraderD]

The day’s advised short entry limit at 79.31 is just above our initial robot position stop at 79.23. As a reminder, the IWM robot never exits and enters positions on the same day and always waits for an overnight confirmation. New secondary positions guidelines are for discretionary traders.


The actual stop is shifted upward (relative to the nominal 79.23 stop) when the initial short entry is done at a better (higher) price than the specified limit (77.52). Consequently, due to the no-re-entry-on-same-day rule, there's now a direct link between what price the initial position was entered, to whether secondary trades are bumped a day forward due to the aforementioned rule. That is, depending on whether the initial stop happens to be above or below 79.31. I find this consequence to be rather arbitrary.

Trader D

[Pascal]

The actual stop is shifted upward (relative to the nominal 79.23 stop) when the initial short entry is done at a better (higher) price than the specified limit (77.52). Consequently, due to the no-re-entry-on-same-day rule, there's now a direct link between what price the initial position was entered, to whether secondary trades are bumped a day forward due to the aforementioned rule. That is, depending on whether the initial stop happens to be above or below 79.31. I find this consequence to be rather arbitrary.

Trader D

They look that way because they are calculated differently: trailing stops on an original position depend on the entry/last day price and the volatility, while the entry price of a secondary position depends on the R/R determined by the pivots.

The Robot itself manages only one position.


Pascal

[TraderD]

They look that way because they are calculated differently: trailing stops on an original position depend on the entry/last day price and the volatility, while the entry price of a secondary position depends on the R/R determined by the pivots. The Robot itself manages only one position.
Pascal

The effect I'm referring to has to do with a stopped exit which depends on the original entry price (assuming the trailing stop isn't lowered before that) which I find to be an arbitrary dependency, as related to influencing which of the following scenarios is going to unfold:

(1) Original stop is 79.23 (corresponding to 77.52 entry limit), position is stopped out, price continues to 79.31 limit entry, robot doesn't re-enter. Discretionary entry is advised to be skipped too?
(2) Original stop is 79.44 (corresponding to short entry at 77.73), position isn't stopped out as price continues to 79.31 where secondary (discretionary) entry takes place. Price possibly continues to stop out original position at 79.44 (but secondary position is already in effect)?

Trader D

[Pascal]

The effect I'm referring to has to do with a stopped exit which depends on the original entry price (assuming the trailing stop isn't lowered before that) which I find to be an arbitrary dependency, as related to influencing which of the following scenarios is going to unfold:

(1) Original stop is 79.23 (corresponding to 77.52 entry limit), position is stopped out, price continues to 79.31 limit entry, robot doesn't re-enter. Discretionary entry is advised to be skipped too?
(2) Original stop is 79.44 (corresponding to short entry at 77.73), position isn't stopped out as price continues to 79.31 where secondary (discretionary) entry takes place. Price possibly continues to stop out original position at 79.44 (but secondary position is already in effect)?

Trader D

We do not advise any discretionary/secondary entry.

Back-tests have shown that because secondary exits are "late" compared to an original entry, on average, they are offer worst returns. If an original entry is exited, we might consider the trade flawed, either because the direction is flawed or the statistics are. Hence, a secondary entry might not be a good idea. So, if a secondary entry is close to the stop of an original entry, the situation is the same: it might be flawed. So better stay out of the secondary entry.


Pascal

[TraderD]

We do not advise any discretionary/secondary entry.
Back-tests have shown that because secondary exits are "late" compared to an original entry, on average, they offer worst returns. If an original entry is exited, we might consider the trade flawed, either because the direction is flawed or the statistics are. Hence, a secondary entry might not be a good idea. So, if a secondary entry is close to the stop of an original entry, the situation is the same: it might be flawed. So better stay out of the secondary entry.
Pascal

Understood. Many thanks for the clarifications.

Trader D

[brrim]

The OB/OS indicator last night was 70.52 lower than Friday's 72.63. If at the close today we are below 70 is that a secondary short indicator reinforcing the Robot's short position?
Thank you in advance.
Robert

[Pascal]

The OB/OS indicator last night was 70.52 lower than Friday's 72.63. If at the close today we are below 70 is that a secondary short indicator reinforcing the Robot's short position?
Thank you in advance.
Robert

The OB/OS indicator is not used for short trades. It is used only for long trades.


Pascal