Debriefing of yesterday's FOMC IWM/TZA discretionary trade

I received the following message:
“Billy,
I think it would be hugely instructive to put the Cum Tick chart up from yesterday and tell us how you traded the Fed announcement, what you looked for, how tick influenced your trading decision(s), etc. Many thanks.”

Actually, it was a very simple and easy trade.
First, cumulative TICK kept making lower highs and lower lows after the announcement, so the program trading sell bias was pretty obvious.

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Second, my setup for entry and stop was the most textbook one:
The announcement came when price was waiting on VWAP at 68.96.
The initial false move jumped as high as 69.25, instantly reverting and testing daily S1 (68.42). I was expecting a bounce from S1 and planning a short entry at a failure to regain VWAP. This happened with 3 consecutive minutes of testing, I then enter at market after the close of the first minute that doesn’t touch VWAP. This gave me an entry on TZA executed at 45.84 with a gain of 8.73% into the close.

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I use a 1-minute bar close above the VWAP as my initial trailing stop and switch to a 5-minute bar close above the (65.5) volatility stop on a 5-min chart as soon as the volatility stop is below VWAP. The stop was at 67.71 at the close. From here, I’ll trail the stop with that 5-minutes volatility stop.
These setups and settings are my favorite ones for discretionary trades.
Billy

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Thanks for sharing

Nice work, Billy.

Your success is clearly well deserved.

Thank you for the positive feedbacks, also for those received yesterday in the algo forum.
Note that this trade is typically a "reactive" trade setup, the opposite of a "proactive" robot setup. Real professionals try to excel in both approaches to optimize their risk management and drawdowns on their leveraged position.
I still trail my initial unleveraged short IWM position proactively entered at 70.81 with the robot stop.
The volatility stop has just been tested, but did not trigger, above daily S1.
Billy

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Hi Billy,

To summarize, you are using the more conservative of (VWAP, Volatility stop) as your initial entry stop, right?

[QUOTE=Wei;16966]Hi Billy,

To summarize, you are using the more conservative of (VWAP, Volatility stop) as your initial entry stop, right?[/QUOTE]

Wei,

Yes, but it is almost always VWAP that will be the most conservative initially.
I present here a successful trade (with big reward) but maybe 60% of them are stopped out at VWAP with microscopic losses. If you do such trades outside of a news event reaction, the failure rate will increase dramatically maybe over 80%. That's why I always wait for a programmed news reaction, where price usually waits near VWAP and I play the first successful pullback above VWAP if long, or the first failed bounce below VWAP if short. I prefer to see cumulative TICK trend confirmation before taking the trade.
Billy
Billy

Thank you so much, Billy.

I really appreciate you sharing all your insights from many many years of trading experience. This is priceless. All the other subscription services that I have visited, they only tell you what to do, but rarely teaches you how and why. What you and Pascal are doing here is really beyond generous. Truly appreciate it.

Billy,

I know yesterday it was recommended we pay no attention to the $TICK prior to the Fed announcement. Yet, it's interesting in reviewing the chart to see that the trend had been negative pretty much all day. I can only assume it's been yours and Bob's experience that tick direction can change on a dime when the Fed speaks, and it was only by coincidence yesterday that the trend continued in the same direction post-announcement as pre.

[QUOTE=adam ali;16974]Billy,

I know yesterday it was recommended we pay no attention to the $TICK prior to the Fed announcement. Yet, it's interesting in reviewing the chart to see that the trend had been negative pretty much all day. I can only assume it's been yours and Bob's experience that tick direction can change on a dime when the Fed speaks, and it was only by coincidence yesterday that the trend continued in the same direction post-announcement as pre.[/QUOTE]

Adam,
Large institutional players make pivotal strategic decisions after such an important event as yesterday. We can see in hindsight that the strategic decisions were massively bearish, but heading into the event, most players will lighten up anyway their risk and positions and book short term profits with mild sell programs. These low-volume programs pushed the cumulative TICK lower but were actually kind of neutral since price was holding VWAP.
On the reaction, you always have an explosion of volume and it meant that, from the time of announcement, the TICK pressure was really serious compared to the morning. If the reaction had been bullish, cumulative TICK would have sky- rocketed instantly to the upside, no matter what it did before. So I prefer to ignore the TICK readings preceding the event.
Billy

Thanks, as always.

This is a great complement to trading the Robot & better understand what to do when with the indicators used with the Robot. A logical extension.
Thank you Billy.
Normand

Fantastic Billy, thank you so much!