IWM Robot Trading for May 23, 2011

[Billy]

The current IWM Robot short position is developping nicely since the entry at 84.81 on May12.
Judging by the pre-market activity, IWM is now trading between Quarterly Pivot (81.80) and Weekly S1 (81.52), not very far above the probable 3-day target of 81.16. This target is still within an acceptable range of porosity allowance below the QPP and WS1 cluster, so this area remains a potential bounce attempt zone. But trade optimization rules tell us not to cover our short before a homonymous signal from the 20 DMF with long probabilities edges!
A neat bounce starting near WS1 would potentially create a bullish bias for the rest of the week, as WS1 + porosity typically marks weekly reversal lows. However, a failed bounce is almost certain to create a selloff to Weekly S2 (80.17) which would confirm an intensification of heavy selling bias. From there, Quarterly S1 (79.32) is likely to be hit fast because IWM has shown a strong pattern of leaping by Quarterly levels recently and I would not be surprised if Monthly S2 (79.52) just above QS1 was programmed as an end-of-month target in major algo and HFT strategies.
Billy

[Charl]

The current IWM Robot short position is developping nicely since the entry at 84.81 on May12.
Judging by the pre-market activity, IWM is now trading between Quarterly Pivot (81.80) and Weekly S1 (81.52), not very far above the probable 3-day target of 81.16. This target is still within an acceptable range of porosity allowance below the QPP and WS1 cluster, so this area remains a potential bounce attempt zone. But trade optimization rules tell us not to cover our short before a homonymous signal from the 20 DMF with long probabilities edges!
A neat bounce starting near WS1 would potentially create a bullish bias for the rest of the week, as WS1 + porosity typically marks weekly reversal lows. However, a failed bounce is almost certain to create a selloff to Weekly S2 (80.17) which would confirm an intensification of heavy selling bias. From there, Quarterly S1 (79.32) is likely to be hit fast because IWM has shown a strong pattern of leaping by Quarterly levels recently and I would not be surprised if Monthly S2 (79.52) just above QS1 was programmed as an end-of-month target in major algo and HF
Billy


Hi Billy,
Thank you for perspective in terms of the Multi timeframe Pivots. Helps me in planning RM for the up-coming week.

Regards
Charl

[johnboy70]

Hi Billy,
Thank you for perspective in terms of the Multi timeframe Pivots. Helps me in planning RM for the up-coming week.

Regards
Charl

Charl,

Did you mean RWM (not RM)?

John

[grems8544]

Billy,

Can you discuss how you determine a 3-day target of 81.16?

Regards,

pgd

[Billy]

Billy,

Can you discuss how you determine a 3-day target of 81.16?

Regards,

pgd

Paul,

The "most probable" 3-day target is simply Today's optimal entry minus (the 3-day expected gain times the probabiliy of achieving this gain) 82.74- 82.74*(3.10% * 61.67%).
All these numbers are given daily on the IWM Robot page. The "most probable" target is not part of the robot system, but allows for monitoring that everything is evolving as or even better than expected.
Billy

[Charl]

Charl,

Did you mean RWM (not RM)?

John

Hi John,
I actually meant Risk Management. Sorry about the confusion.

Charl

[johnboy70]

Billy,

Okay, you've got me with the use of this word! It's been bothering me all day! I "googled" it and what I found was:

homonymous:

1.having the same name as another
2.of or pertaining to a homonym

Would you please interpret for me so that I might better understand what you meant.

Thanks,

John

[Billy]

Billy,

Okay, you've got me with the use of this word! It's been bothering me all day! I "googled" it and what I found was:

homonymous:

1.having the same name as another
2.of or pertaining to a homonym

Would you please interpret for me so that I might better understand what you meant.

Thanks,

John

John, I simply meant a "cover your short" signal from 20 DMF. English is not my mother tongue so I guess I often make language errors, but I think I was correct in this case. Billy

[johnboy70]

Billy,

I should say that you had me fooled, that is, in terms of English not being your native tongue! The funny part is that I'm almost beginning to understand you in terms of pivot language. However, I must confess that I don't understand the logic of why certain algorithms are preprogrammed for certain levels which is why I really need your class whenever you begin that.

John

[happy]

Paul,

The "most probable" 3-day target is simply Today's optimal entry minus (the 3-day expected gain times the probabiliy of achieving this gain) 82.74- 82.74*(3.10% * 61.67%). Billy

Billy ... just to confirm the math, in your scenario above, the 'most probable' exit would have been $81.158 giving a 1.91% gain.

$82.72 * (0.031 * 0.6167) = $1.581
$82.72 - $1.581 = $81.1582

Can you please confirm that I am doing the math correctly?

[Billy]

Billy ... just to confirm the math, in your scenario above, the 'most probable' exit would have been $81.158 giving a 1.91% gain.

$82.72 * (0.031 * 0.6167) = $1.581
$82.72 - $1.581 = $81.1582

Can you please confirm that I am doing the math correctly?

Yes Sir, the math is correct.
Billy

[happy]

The "most probable" 3-day target is simply Today's optimal entry minus (the 3-day expected gain times the probabiliy of achieving this gain) 82.74- 82.74*(3.10% * 61.67%). Billy

Billy, would it be possible to confirm what above math ... I just want to make certain I understand the probability you are discussing.

$82.74 * (0.0310 * .6167) = $1.5818. So, I assume $1.58 would be the 'most probably' expected gain or 1.91%. Therefore setting a sell order at $81.15 would acheive that target ($82.74 - $1.58 = $81.16).

Just want to make certain I understand your post. Thank you as always!!

[brrim]

Billy; what do you mean by porosity?
Thanks in advance.
Best regards,
Robert

[Billy]

Billy; what do you mean by porosity?
Thanks in advance.
Best regards,
Robert

Robert,
We use the word "porosity" to express the property of any potential support or resistance to be penetrated and surpassed by a certain percentage before being declared broken. We will then talk of "failed" resistance or support area.
In multi-pivot trading, it is important to measure porosity allowances. It is obviously a function of volatility, but as a rule of thumb, the penetration of any longer timeframe support or resistance may extent up to the closest daily level.
Let's look at yesterday's IWM action as a good example.
The 10:00-10:30 AM attempt to break above QPP(81.80) and daily R1(81.81) never reached daily R2 (82.24) which was the porosity allowance threshold as next daily level.
The 10:35 AM fall below the lower porosity allowance level of daily pivot (81.52) and WS1 (81.52 too) proved that QPP and daily R1 were successfull resistances. But WS1 (81.52) was now tested as potential longer term support with a rather large allowance to the nearest daily level of daily S1 (81.09) which was hit around noon. The retest of the confluence of daily pivot and WS1 was again a failure because price was pushed back below daily S1 heading into the close. That is why I mentioned in my intraday update that it was important that IWM closed above daily pivot (and WS1) to avoid a bearish bias for the next day.

You can see by my reply that it is all rather simple in practice but very hard to present in a structured tutorial. Market makers learn this through practice and never receive other tutorials than their own experience.
Billy

[Charl]

Robert,
We use the word "porosity" to express the property of any potential support or resistance to be penetrated and surpassed by a certain percentage before being declared broken. We will then talk of "failed" resistance or support area.
In multi-pivot trading, it is important to measure porosity allowances. It is obviously a function of volatility, but as a rule of thumb, the penetration of any longer timeframe support or resistance may extent up to the closest daily level.
Let's look at yesterday's IWM action as a good example.
The 10:00-10:30 AM attempt to break above QPP(81.80) and daily R1(81.81) never reached daily R2 (82.24) which was the porosity allowance threshold as next daily level.
The 10:35 AM fall below the lower porosity allowance level of daily pivot (81.52) and WS1 (81.52 too) proved that QPP and daily R1 were successfull resistances. But WS1 (81.52) was now tested as potential longer term support with a rather large allowance to the nearest daily level of daily S1 (81.09) which was hit around noon. The retest of the confluence of daily pivot and WS1 was again a failure because price was pushed back below daily S1 heading into the close. That is why I mentioned in my intraday update that it was important that IWM closed above daily pivot (and WS1) to avoid a bearish bias for the next day.

You can see by my reply that it is all rather simple in practice but very hard to present in a structured tutorial. Market makers learn this through practice and never receive other tutorials than their own experience.
Billy

Hey Billy,

By targeting the daily pivot point beyond the Multi time-frame cluster as the trigger to exit the position - how can we further measure this "porsosity tolerance" in terms of volume to gauge the level of institutional support (behind this porosity) so that we don't get whipsawed out of a position?

IWM's price action yesterday seems to be a developing case study in our porosity lesson.

Thank you.
Charl.

[Billy]

Hey Billy,

By targeting the daily pivot point beyond the Multi time-frame cluster as the trigger to exit the position - how can we further measure this "porsosity tolerance" in terms of volume to gauge the level of institutional support (behind this porosity) so that we don't get whipsawed out of a position?

IWM's price action yesterday seems to be a developing case study in our porosity lesson.

Thank you.
Charl.

Charl,
The daily levels are already included in the clusters and so, there is no porosity tolerance for them.
Porosity tolerance only makes sense for fixed levels such as QPP or MS1 to declare them broken on an intraday basis. Since clusters are constantly evolving from day to day and are already volatility-adjusted, there is no use for porosity tolerances with them. Either they hold or they are broken.

There is no certain relationship that I know of between volume and porosity with the pivots. The pivots are market makers levels of equilibrium on each timeframe. They will always whipsaw above and below the equilibrium level, playing the bid & ask spreads, while waiting for fresh institutional high volume orders. They will then break the consolidation fast in the direction of the new orders, entering new multi-timeframes positions for their own account, before high volume kicks in. The trick is that HFT programs are more and more often simulating such false moves to shake out weak hands before reversing strong and following-through in the opposite direction.
Billy