You can see in the figure below the entry and exit points.
I entered it when the MF started to display a positive divergence on a short-covering push.
Unfortunately, there was no follow through the next day (Friday) and I had to exit the trade.
Short-covering moves can be very profitable if one can ride them early in the push, but when they fail then there is no possibility to keep a trade. On Thursday evening, XME closed above its 5MA, but by Friday evening, we were back to the bottom of the envelope.
I might retry another long position if the MF shows that a tentative bounce is again coming.
The XME long trade is almost identical to the SCO short trade. The logic behind is the same: fading a very overextended instrument by following the early signs of large money starting to reverse its position.
Let's look at the SCO short trade. We can see below that we are in an almost parabolic move. These moves can revert in an instant, because it only needs a few committed traders to take the air out of it.
Let's first examine the latest SCO uptrend, which started in June. We can see below (green arrows) that each price push has been confirmed by a positive MF... except for the most recent 10% push from $90 to $100, which displays a negative LEV pattern. This indicates that large buyers of SCO are liquidating.
The same behavior marked the tops in March and the end of January. This does not mean that the oil market will bounce from here, but I decided that the odds were for a bounce. I therefore increased my short SCO on Friday.
As you can see below, SCO carries a lot of risk: there is more than a 60% probability of hitting the 5% stop in the next five days. That is a very large risk for me.
How large is this level of risk for the portfolio? You can see it in the two figures below. These figures show the profits and losses on all the trades that were executed for the past two years, separating long and short trades.
A few notes:
1. There are slightly more blue than pink dots. This means that the stock selection process has a slight positive profit expectation (the win/loss ratio is 54.3%.)
2. There are more long than short trades (because during that period, the market was more bullish than bearish.)
3. The average gain is higher than the average loss. This is more evident for long than for short trades (also due to the market's bullish aspect.)
4. The most important element of this strategy is that there are comparatively many more large winners than large losers. You only need to see the number of trades than gained more than 5% compared with the number of trades that lost more than 5% (this is because I prefer to exit a losing trade early before losses can grow.)
When you see the two figures above, you can easily understand that with the SCO short trade, I accept a 62% probability to lose at least 5%. It is because I believe that the probability is much lower than 62%. This probability has been evaluated by the Breakout Calculator looking at past price moves. The only difference is the LEV divergence.
TSLA
The TSLA trade is still well and alive. We can see that on Friday, some money moved in the stock. This is because short-selling was forbidden on Friday. This restriction will come out this Monday and we should expect selling to resume.
Finally, the TNA long idea has been posted here. It is the same trade as the SPXU short.
http://www.effectivevolume.com/showt...?8766-Long-TNA
As usual, the short trade ideas shown in Pink are Breakdown on volume.