No ATR Confirmation For A GDX Sell-off - March 29, 2012

[Billy]

In the markets, and especially with GDX, when a prolonged sell-off starts to build momentum, volatility as measured by ATR% normally increases spectacularly. Well, GDX ATR did exactly the opposite and in fact dropped significantly yesterday so as to be now at a 1/10th decimal distance from the ATR limit rule that forbids our GDX models to short. Officially, a sell signal today would trigger a short signal, but both Pascal and I would advise to stay in cash – unless volatility explodes up intraday – because we are within one hair of a rounding up measurement error once again. For those who shorted successfully with the RT model, we encourage to take profits discretionarily if they feel so inclined.

The PM Money Flow touched its average at lunchtime but never came close to the porosity limit of -0.85% below the average. The low of the day was on Weekly S1 (84.61) which was conveniently waiting at last week’s lows. This floor price level remains the most important one to hold above this week. Clusters are neutral and Money Flow should be our only decisional guide. The failure to trade above the 5-day VWAP is a disappointment and the bulls have to start again from scratch a trend reversal pattern. Maybe a longer consolidation around a mid-point 5-day VWAP is necessary first.

Buying the secondary entry limit of 48.15 today might be a good reward-risk if you use a very tight stop. But don’t enter that position if the RT MF trades below its protection level (average – porosity), buy only if it stays above protection or reverses back up above average + porosity from the current protection level.
Billy

13642
13643

[JoeLo]

That was impressive. Thank you. Joe

[davidallison@gmail.com]

Billy (Pascal)

What looked like the perfect EOD setup, hasn’t worked as planned. It amazes me how the market always surprises. I wonder about not entering EOD trades unless the RT robot agrees, as a general rule? The stop of 48.93 was amazing as we came within 12 cents! If we use the logic of not entering the trade due EOD and RT conflict, max leverage could happen as we approach a stop. For a small loss the rewards are dramatic. Billy’s comment on the secondary entry along with the EOD stop would yield potential rewards of over 5%, if we return to the EOD entry. One would be in a very comfortable position now, just waiting for a confirmation of a RT long. With the EOD model so successful why wouldn’t it be safe to assume the RT system, with the same algorithm will outperform? I’m of the opinion we don’t need ATR confirmation to enter short positions as ATR has to confirm with yesterday what might be important today. I’m not saying ATR isn’t a good method, I’m saying it’s just a day late. Also this is just an idea, but if there is agreement between EOD and RT, then RT disagrees, I think we should enter all RT trades. How often does the market surprise? Just look at this trade. On this last trade, we would have entered a long position very briefly, then gone short and covered at some point (maybe using a trailing stop) (maybe using the secondary entry) then gone all in long at the secondary entry, with a 12 cent stop. It would have been an amazing trade with a potential of not far off 10%, assuming we get back to the EOD long entry.

One of my problems trading (I have many) is sticking with the discipline and waiting for the trade to come to me. In the interest of promoting a discussion I hope others will add some input here. In the mean time here are some rules I was thinking about.

For initail primary trades, do not enter a trade unless the RT signal agrees with the EOD signal.
- If in an existing trade and the RT signal changes, follow the RT signal and:
- cover or sell at a RT signal change and re enter EOD trade if still active
- cover or sell at a EOD secondary entry point and re enter EOD trade. Use the EOD stop.

Dave

[Billy]

Billy (Pascal)

What looked like the perfect EOD setup, hasn’t worked as planned. It amazes me how the market always surprises. I wonder about not entering EOD trades unless the RT robot agrees, as a general rule? The stop of 48.93 was amazing as we came within 12 cents! If we use the logic of not entering the trade due EOD and RT conflict, max leverage could happen as we approach a stop. For a small loss the rewards are dramatic. Billy’s comment on the secondary entry along with the EOD stop would yield potential rewards of over 5%, if we return to the EOD entry. One would be in a very comfortable position now, just waiting for a confirmation of a RT long. With the EOD model so successful why wouldn’t it be safe to assume the RT system, with the same algorithm will outperform? I’m of the opinion we don’t need ATR confirmation to enter short positions as ATR has to confirm with yesterday what might be important today. I’m not saying ATR isn’t a good method, I’m saying it’s just a day late. Also this is just an idea, but if there is agreement between EOD and RT, then RT disagrees, I think we should enter all RT trades. How often does the market surprise? Just look at this trade. On this last trade, we would have entered a long position very briefly, then gone short and covered at some point (maybe using a trailing stop) (maybe using the secondary entry) then gone all in long at the secondary entry, with a 12 cent stop. It would have been an amazing trade with a potential of not far off 10%, assuming we get back to the EOD long entry.

One of my problems trading (I have many) is sticking with the discipline and waiting for the trade to come to me. In the interest of promoting a discussion I hope others will add some input here. In the mean time here are some rules I was thinking about.

For initail primary trades, do not enter a trade unless the RT signal agrees with the EOD signal.
- If in an existing trade and the RT signal changes, follow the RT signal and:
- cover or sell at a RT signal change and re enter EOD trade if still active
- cover or sell at a EOD secondary entry point and re enter EOD trade. Use the EOD stop.

Dave

Dave,
Your observations and recommendations are in line with our discussion in yesterday’s “gdx “ thread. We explained why the EOD model has priority until enough data is available from the RT MF database. Also, we stressed that the RT model was increasingly becoming an excellent position-sizing tool and that our research will head in that direction. If the RT model proves to be a far superior model in the long run, we’ll obviously adapt our strategies, rules and recommendations accordingly.

Everyone is free to use the MF and EV tools with discretionary rules and we appreciate when they are shared with the group. However, it is only after a statistically reliable sample of past data will be available that such discretionary rules might be validated or denied with confidence.

About ATR, it is the most important leading and winning indicator for shorting in our models, so if you doubt the need for ATR confirmation before shorting, you haven’t caught yet the essence of the system. In all past occurences, ATR was also “a day late” and it didn’t prevent us from increasing our edges dramatically.
Billy