IWM Robot in Cash – March 14, 2012

[Billy]

I have nothing to add to Pascal’s comments in his IWM robot notes. Large players clearly showed their hands yesterday and they want to go long at this juncture.
Four RT ETF models issued a fresh buy signal EOD: XLB, XLE, XLI and XLU. This is confirming institutional support of these sectors out of the pullback.

GDX and PM Money Flow were relatively weak, allowing the robot to trail the stop loss to 55.13. As Pascal also wrote in his comment of the day, the possibility of a buy signal from overbought is approaching with further physical gold weakness today.
Billy

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[davidallison@gmail.com]

Billy,

Looks the EOD GDX robot will remain in the short position while the RT entered the long. With a little luck hopefully the MF will rise and cross the zero level without re visiting the oversold levels. When that happens I will be adding to my long position. It will be interesting to see if the RT robot picked the bottom. I was wondering how you set a stop for the RT trade?

Thanks,
Dave

[Billy]

Billy,

Looks the EOD GDX robot will remain in the short position while the RT entered the long. With a little luck hopefully the MF will rise and cross the zero level without re visiting the oversold levels. When that happens I will be adding to my long position. It will be interesting to see if the RT robot picked the bottom. I was wondering how you set a stop for the RT trade?

Thanks,
Dave

Dave,

With the RT GDX Model and unleveraged positions, using a stop is counterproductive and will deteriorate the performance of 95% of the trades. All you need is a “worst-case” stop in case of real black swans. Due to the high volatility of GDX, such an arbitrary “worst-case stop” should be set 10% away from entry. Note that the GDX robot uses a different proprietary risk and stop management which adapts to the daily evolutions of volatility.

So, if you are trading 3X leveraged ETFs (NUGT and DUST), an equivalent 30%+ stop is very likely unreasonable and you’ll need to use discretionary stops for your leveraged equity. My preference goes for an initial stop set at your comfort level and then trailing the leveraged position with an anchored GDX VWAP from entry as a stop. Because the MF model is volume-based, I feel more comfortable trailing volume-based stops. Of course, any other trailing stop technique will do well, including monitoring in RT the PM MF spikes, divergences and reversals.
Billy

[sesorensen]

Dave,

With the RT GDX Model and unleveraged positions, using a stop is counterproductive and will deteriorate the performance of 95% of the trades. All you need is a “worst-case” stop in case of real black swans. Due to the high volatility of GDX, such an arbitrary “worst-case stop” should be set 10% away from entry. Note that the GDX robot uses a different proprietary risk and stop management which adapts to the daily evolutions of volatility.

So, if you are trading 3X leveraged ETFs (NUGT and DUST), an equivalent 30%+ stop is very likely unreasonable and you’ll need to use discretionary stops for your leveraged equity. My preference goes for an initial stop set at your comfort level and then trailing the leveraged position with an anchored GDX VWAP from entry as a stop. Because the MF model is volume-based, I feel more comfortable trailing volume-based stops. Of course, any other trailing stop technique will do well, including monitoring in RT the PM MF spikes, divergences and reversals.
Billy

Hi Billy. You write for trailing leveraged positions you would apply an anchored GDX VWAP from entry as a stop. I read the words but are not fully clear on what you mean by "anchored" - is it moving average, or - If possible I should be most grateful to have a more practical guidance; an example based on fx. yesterdays entry buy of NUGT when OS reached -1.45% on the RT... How would you go about it today applying an "anchored GDX VWAP"? Thanks a lot. sorensen.

[Billy]

Hi Billy. You write for trailing leveraged positions you would apply an anchored GDX VWAP from entry as a stop. I read the words but are not fully clear on what you mean by "anchored" - is it moving average, or - If possible I should be most grateful to have a more practical guidance; an example based on fx. yesterdays entry buy of NUGT when OS reached -1.45% on the RT... How would you go about it today applying an "anchored GDX VWAP"? Thanks a lot. sorensen.

Sorensen,

I don’t take my volume signals on NUGT but directly on GDX and then I execute the trades on NUGT.

The anchored VWAP is “fixed” from the entry point. Let’s look at a 5-minute chart. Yesterday the buy from oversold triggered on the 11:05 am candle at $50.13 and I bought NUGT at $17.10. At the close, 59x5minutes have passed so I draw a moving VWAP for the number of periods or 59. It is the white line at 50.02. It represents the average price paid by all buyers since the signal and my entry triggered. Because GDX officially closed at 50.12, I am in company of a winning and controlling group of buyers from the entry time. I want to monitor from now on if I stay in good company and will only exit if the anchored VWAP is decisively violated. At the open, I will increment the moving VWAP periods by 1 every 5 minutes. As time passes by, you can switch and adapt the moving VWAP for 10, 15 or 30-minutes charts.

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It is still too early to trail a stop, and my current initial (leveraged) stop is at Daily S1 (49.42). I am waiting for GDX to trade above the high of the entry (yesterday’s) date to start trailing.
Note that if the anchored VWAP is hit once trailing, but the PM Money Flow is strong and rising, I will allow for a lot of discretionary wiggle room around that VWAP. If the MF is weakening instead, I will be very quick to exit.
Hope this helps.
Billy

[sesorensen]

Sorensen,

I don’t take my volume signals on NUGT but directly on GDX and then I execute the trades on NUGT.

The anchored VWAP is “fixed” from the entry point. Let’s look at a 5-minute chart. Yesterday the buy from oversold triggered on the 11:05 am candle at $50.13 and I bought NUGT at $17.10. At the close, 59x5minutes have passed so I draw a moving VWAP for the number of periods or 59. It is the white line at 50.02. It represents the average price paid by all buyers since the signal and my entry triggered. Because GDX officially closed at 50.12, I am in company of a winning and controlling group of buyers from the entry time. I want to monitor from now on if I stay in good company and will only exit if the anchored VWAP is decisively violated. At the open, I will increment the moving VWAP periods by 1 every 5 minutes. As time passes by, you can switch and adapt the moving VWAP for 10, 15 or 30-minutes charts.

13412

It is still too early to trail a stop, and my current initial (leveraged) stop is at Daily S1 (49.42). I am waiting for GDX to trade above the high of the entry (yesterday’s) date to start trailing.
Note that if the anchored VWAP is hit once trailing, but the PM Money Flow is strong and rising, I will allow for a lot of discretionary wiggle room around that VWAP. If the MF is weakening instead, I will be very quick to exit.
Hope this helps.
Billy

Thanks a lot. Really excellent practical guidance. One follow-up question: I assume changing to different time charts includes Moving VWAP changes proportionally: now 59x5, and a 10 min chart: 30x10, etc. Is that correct? sorensen

[Billy]

Thanks a lot. Really excellent practical guidance. One follow-up question: I assume changing to different time charts includes Moving VWAP changes proportionally: now 59x5, and a 10 min chart: 30x10, etc. Is that correct? sorensen

Yes, you simply use the number of candles since the entry as the moving VWAP setting, adding 1 at each new candle.
Billy