Robots Outlook for June 17, 2011

[Billy]

Forum Clusters 110617.xlsx

Today's clusters are mildly bullish for IWM with a 14:11 support/resistance ratio.
The clusters are very bullish for GDX with a 10:4 ratio.

The most interesting fact is that QQQ tested and bounced from MS3 (53.90) yesterday. The S3 level on any timeframe has over 95% probability to be the low for the timeframe. So the low for June may be in for the Nasdaq.
About the political risk over the weekend, there is as much to be lost as to be gained by exiting prematurely.
A big gap up on Monday is as possible as a big gap down. The big gap down could not even hit our stop and reverse, while a big gap up would reward our patience at last!

[brrim]

Billy; You mention the 95% probability associated with the S3 level. Do you have any probabilities associated with
other support levels.
Thank you in advance.
Best regards,
Robert

[Billy]

Billy; You mention the 95% probability associated with the S3 level. Do you have any probabilities associated with
other support levels.
Thank you in advance.
Best regards,
Robert

This is an excellent question, Robert, and is one of the main source of edges when trading with pivots.
All I have as an objective resource is an old confidential study that was performed by a statistician at my request 15 years ago for the investment bank I was working for.
In his conclusions, the statistician stressed that the levels were much distributed along a normal distribution curve on each timeframe, similar to a standard deviation structure.
50% of the time, the maximum moves are within R1 and S1.
66% of the time, the maximum moves are within R2 and S2,
95% of the time, the maximum moves are within R3 and S3.
I am confident that an update wouldn't change much the observations.
You can easily check - as I mentioned from time to time - that QQQ experienced its weekly lows at WS3 on the strongest down weeks this year. It marked a reversal for at least a few days each time.
MS3 could provide a reversal area for 2 or more weeks. (You need to adjust QQQ for yesterday's dividend).
Billy

[Billj]

Billy; How do you decide what levels will be included in the different clusters?

Thank you for your time and patience,
Bill

[Billy]

Billy; How do you decide what levels will be included in the different clusters?

Thank you for your time and patience,
Bill

Sorry Bill, but this is part of the proprietary elements of the methodology, so I won't give much details.
The starting point is to define the first clusters as a normal range that could be made on the next day. The second clusters are the ranges that could be made on a strong trend day. The cluster strength will give you the expected ease of movement in each direction.
The proprietary details are mostly in what optimal ATR and multiple of ATR to choose and it is different with each instrument. But I hope you get the concept and idea.
Billy

[Billj]

Billy; When we add to a position or get in late on a Strong Buy signal, like IWM has now, is there a formula or methodology you can provide us to manage the trailing stop after the first day or should we just move the stop to the "Management of an existing position" stop level?
Thanks for all your hard work. It REALLY is appreciated,
Bill

[Billy]

Billy; When we add to a position or get in late on a Strong Buy signal, like IWM has now, is there a formula or methodology you can provide us to manage the trailing stop after the first day or should we just move the stop to the "Management of an existing position" stop level?
Thanks for all your hard work. It REALLY is appreciated,
Bill

Bill,

Ideally you should enter at the limit price i.e. 77.77 on Monday and start with the new position's initial stop (75.99) or 2.29% away.
Trailing the stop thereafter is depending on your own trailing techniques. Since the stop is a function of ATR, a good guideline and suggestion would be to keep the same % difference of 2.29% from any close above your entry, never lowering the stop. If you can enter at 77.77 on Monday and the close is 78.25, you raise your stop to 76.45 and so on on the following days.
Your trailing stop will progressively catch up with or even overshoot the robot's existing position's trailing stop, at which point you may start trailing with the exact same stop as the robot.
Billy