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View Full Version : Mean Reversion Expected in a Trend-Following Trade - July 5th 2011



Billy
07-04-2011, 05:50 AM
9157

This is the last « free access for everybody » pre-market clusters report. Starting on Wednesday morning, this forum will only be available to paid members subscribing to both robots. To avoid any interruption and to profit from the “early birds rates”, please make sure to visit http://www.effectivevolume.com/content.php?830-Subscription-Information
All subscriptions already paid or paid prior to July 6th will be recorded as starting on July 6th for the renewal calendar.
From now on, I’ll spend much less time convincing readers of the robot’s design quality and I will focus instead on professional trading of the multi-pivots and floor levels in relationship with the robot’s algorithms.
For IWM, at the start of this shortened 4-session week, the most important development is that total floor selling pressure of 28 is beginning to outweigh the total floor buying pressure of 25. This implies that the current short-term overbought readings may soon resolve in a time consolidation or a pullback. However, the very strong first supports cluster (22) and the absence of any floor resistance before the Yearly R1 (85.68) 1.89% above Friday’s close, could easily resolve into an initial continuation of last week’s strong momentum.
Whether the next pullback starts from here or later from YR1 vicinity, it is most likely to retest the upper boundary of the very powerful first cluster support. If the pullback starts on this Tuesday, that boundary will be exactly at daily S1 (83.06) which is also the optimal daily long entry from the IWM robot. The stop from the day’s entry is 81.19 not far away from the trailing stop of the initial robot position at 81.33. Both stops are well protected by numerous support confluences; therefore, 83.06 looks like an ideal low-risk entry both for adding up to your position or initializing a new one.
You may remember that the robot’s initial risk was 2.20% from the entry price of 78.39. So, a 3:1 reward-risk setup would have given you a target of (78.39 * 1.066) = 83.56. On Friday’s close, IWM was already above the target with a 3.31 : 1 reward-risk ratio. We have checked with Pascal’s backtests and we found a very high probability that the current trend-following trade may be near its highest potential return. But the robot will only sell on an objective sell signal. Looking at the clusters structures, one scenario that I see as the most likely in the near term is a multi-days or weeks 4% trading range between QPP (82.28) and YPP (85.68) or a typical mean-reversion environment. Since the robot is now in trend-following mode with an excellent trailing stop, it will simply let the potential mean-reverting yo-yo game develop as long as a signal change doesn’t trigger. For discretionary traders, they may envision mean-reversion position-sizing trades within the expected 4% consolidation trading band.

9156

The GDX robot remains pretty flat with its current long position entered at 53.26 on 6/23/2011. The statistical buy settings have remained neutral (i.e. weak) from the start and the floor structure has also handicapped the long trades with currently a total selling pressure of 33 battling a total support structure of 11.
I am looking forward to welcome only dual robots subscribers on Wednesday morning and thank you in advance for joining what we hope will become the most advanced and private professional trading forum on the internet.
Billy

9155

Billj
07-04-2011, 09:11 AM
Billie,
Are you saying that if we subscribe to IWM but not GDX we do not receive your daily multi-pivots comments/
Bill

adam ali
07-04-2011, 09:55 AM
Billy,

Could you send along an updated SPY chart as well - thank

Billy
07-04-2011, 11:36 AM
Billie,
Are you saying that if we subscribe to IWM but not GDX we do not receive your daily multi-pivots comments/
Bill

Dear Bill,

Yes. We are sorry but that's the only way to maximize the added value from this forum as both robots setups will be discussed and compared. Optimal allocations between the two robots will also be suggested from time to time. All this is impossible to do without revealing both robots settings to the readers.
Subscribers to only one robot will have access to the individual robot comments page from Pascal.
Billy
PS. You may upgrade to a dual robots subscription if you wish to. Please contact Pascal personally to proceed.

Pascal
07-04-2011, 11:46 AM
Billie,
Are you saying that if we subscribe to IWM but not GDX we do not receive your daily multi-pivots comments/
Bill

Yes Bill, your understanding is correct.
Some people do not need a specific interpretation or analysis, but only the signals.
For those who need to read an interpretation by a former MM, then you might think that this is what you are paying for with the full subscriptiion and then that the second ETF is the free part.


Pascal

Billy
07-04-2011, 11:50 AM
Billy,

Could you send along an updated SPY chart as well - thank

Here it is, Adam. SPY is already testing YR1 134.26), but also has a very powerful support cluster. Total selling pressure of 27 is now beginning to outweigh total buying pressure of 25. This is increasing the odds of some mean-reverting action for the whole market soon.
I also show QQQ with a clear blue sky up to YR1 (59.02), similar to IWM. Here too, the total selling pressure of 28 begins to outweigh total buying pressure of 25, but the extremely powerful first support cluster should limit any pullback.
Both ETFs are confirming a rising probability of some consolidation or pullback in the innings.
Billy

9161
9160

adam ali
07-04-2011, 12:50 PM
Much obliged, as always.

Billy
07-05-2011, 09:26 AM
IWM will trade ex-dividend at the open today.
The dividend is estimated around 25 cents.
Billy

barbados11
07-05-2011, 09:40 AM
Billy,

I need to ask a question which may have an obvious answer but I need to know: What or where is "floor selling pressure of 28" and "floor buying pressure of 25"? I can't relate it to the chart.

Thanks,

Pablo

Billy
07-05-2011, 09:45 AM
Billy,

I need to ask a question which may have an obvious answer but I need to know: What or where is "floor selling pressure of 28" and "floor buying pressure of 25"? I can't relate it to the chart.

Thanks,

Pablo

Pablo,
For IWM,
Total selling pressure is the total resistance clusters weights: 15 + 13 = 28
Total buying pressure is the total support clusters strength: 22 + 3 = 25
Billy

barbados11
07-05-2011, 10:06 AM
Billy,
I knew I'd feel stupid after getting the answer.
Thanks,
P



Pablo,
For IWM,
Total selling pressure is the total resistance clusters weights: 15 + 13 = 28
Total buying pressure is the total support clusters strength: 22 + 3 = 25
Billy

Billy
07-05-2011, 10:16 AM
Successfull Breakout would be confrmed above the first cluster or at daily R3 =
55.53. But R3 has also a 95% probability of being the high for the day.
9168

Riskslayer
07-05-2011, 10:35 AM
Successfull Breakout would be confrmed above the first cluster or at daily R3 =
55.53. But R3 has also a 95% probability of being the high for the day.
9168

Billy, does GDX need to close above R3 (55.53) for confirmation, or just get there intraday?

At some point, I would be interested in hearing your views on the significance of closing vs intraday breaches/breakout of support/resistance, e.g. last week we saw the IWM trade above and below intraday the key IWM levels of QPP (81.80) and 50 dma (82.11); we always resolved and closed above the key marks, so I take closing to be much more important than intraday - is that correct? and, if so, when do we have to give into the intraday breaches/breakouts? the next daily pivot level?

Thanks,

Shawn

Billy
07-05-2011, 10:56 AM
Billy, does GDX need to close above R3 (55.53) for confirmation, or just get there intraday?

At some point, I would be interested in hearing your views on the significance of closing vs intraday breaches/breakout of support/resistance, e.g. last week we saw the IWM trade above and below intraday the key IWM levels of QPP (81.80) and 50 dma (82.11); we always resolved and closed above the key marks, so I take closing to be much more important than intraday - is that correct? and, if so, when do we have to give into the intraday breaches/breakouts? the next daily pivot level?

Thanks,

Shawn

Hello Shawn,

Since the robot is an EOD system, we should focus on a close above daily R3. That would put the WR1, YPP and MPP confluence into a very strong first support cluster for tomorrow. Such a support cluster could then act as a springboard for crossing decisively the 50-day moving average tomorrow. A new strong cluster support including the 50 dma could then act as a springboard for breaking above SPP and QPP. Then these would act as a springboard for crossing the 200 dma and so on.

This is how market makers are planning their books, but in GDX case, market makers are seldom the main force. So far today they clearly shorted the gap up into the YPP resistance. We know it was them selling because retail traders don't care about YPP.

In intraday discretionary trading, if you have a bullish market direction bias and want to buy on strength and breakouts, you would buy at daily R3 (55.53) with a stop buy order and a stop at the first daily level below the resistance or just below daily R2 (54.89) today.
Billy

9169

buzzman
07-05-2011, 01:17 PM
What is the book that you recommend on pivots? bz

EB
07-05-2011, 02:16 PM
The "system" is not nearly as advanced as Billy's, but it is a good overview/introduction:

http://www.amazon.com/Forex-Conquered-Probability-Systems-Strategies/dp/0470097795

Forex Conquered: High Probability Systems and Strategies for Active Traders (Wiley Trading) [Hardcover]
John L. Person

buzzman
07-05-2011, 03:09 PM
Thank You.