Just A "Normal" Day - August 12, 2011

[Billy]

Forum Clusters 110812.xlsx

The GDX trade was entered at the open (58.96), found quick support at the 200-day moving average (58.01) around the mid-point of the first support cluster and finished its first day in the green. Not bad considering the revised margins on gold futures and gold weakness for most of the day.

The stop for the initial position (54.41) is very well protected under two strong support clusters. But an exit on a PM 20 DMF signal change is most likely at this stage in the trade. That’s why today’s buy limit entry (59.04) is also safe. This trade will likely become a big success if and when QS1 and SS1 (62.12) are decisively conquered, because there is very little floor resistance left above.



I was one day too early in anticipating the death crosses that will certainly occur today and will be widely commented by others over the weekend.

If there is one indicator that is becoming essential in day trading this HFT-driven market, it is certainly cumulative $TICK as simply following its trend (higher highs-higher lows) and moving averages would have kept you on the right side of the trade for all of the day with huge gains. But it remains a one-day at a time affair with big overnight gap risks.

These HFT moves look very suspect to me as they have been unable to trigger any 20 DMF buy signal. Large players are clearly avoiding falling in an artificial rally trap and are perhaps the engineers behind the lure, waiting in ambush to suddenly unload positions massively again. IWM briefly reversed the 65,5 volatility stop before closing under its old limit. SPY and QQQ reversed exactly just before their own volatility stops could react. This can only be interpreted as yesterday’s gain being extreme, but just “normal” under current volatility. Only a solid follow-through could prove the contrary. This extreme volatility move should initially trigger new sell orders that are unlikely to help issuing a 20 DMF buy signal today if not strongly reversed intraday.
Billy

[adam ali]

IWM briefly reversed the 65,5 volatility stop before closing under its old limit. SPY and QQQ reversed exactly just before their own volatility stops could react. This can only be interpreted as yesterday’s gain being extreme, but just “normal” under current volatility.

Billy, could you elaborate on this when you have a moment, i.e., why it would be interpreted thus, and add a bit more explanation on the use of 65,5 vol stops. Some of this you've covered before but my recollection is a bit stale. Thanks very much.

[Billy]

IWM briefly reversed the 65,5 volatility stop before closing under its old limit. SPY and QQQ reversed exactly just before their own volatility stops could react. This can only be interpreted as yesterday’s gain being extreme, but just “normal” under current volatility.

Billy, could you elaborate on this when you have a moment, i.e., why it would be interpreted thus, and add a bit more explanation on the use of 65,5 vol stops. Some of this you've covered before but my recollection is a bit stale. Thanks very much.

Adam,
The TC2000/freestockharts help menu links to this page for the definition and settings of the indicator they use.
http://www.linnsoft.com/tour/techind/vstop.htm
On the 30 minute chart, I use a 65-period (rolling 5 days) true range with a multiple of 5 times the true range. Hence the 65, 5 setting.
So, my settings show what “extreme” moves are “normal” without warning of a trend reversal within a rolling 5-day window. I came to use these settings by trial-and-error and to use it in conjunction with the 5-day average of price and VWAP.
I don’t use it as a stop reference but as an area where to enter a new position in the direction of the former trend, especially if I see a 3:1 R/R pivot entry limit in the vicinity. Today, all 3 ETFs have reversed their volatility stop, so I am looking to enter shorts at or near 3:1 R/R pivot entries.
These are : 70.81 for IWM, 116.74 for SPY and 53.10 for QQQ. Any short entry at or above these prices do provide strong reward-risk edges for the next 5 days from my experience.
Billy

[Billy]

Responding to a private message, and as a precision to the above about volatility stop:
- it is for my discretionary personal use and not used at all by the robot;
- yes, I use it as a contrarian tool when I deem the trend "reversal" as indicated by the stop is a false signal.
- I normally wait for the signal failure to be confirmed by intraday price action.
- For today's setup, if the 20 DMF does not seem able to issue a buy signal near the close, I may hold all or partial short positions over the weekend.
That's just me of course!
Billy

[adam ali]

Billy, alot of meat to digest here. Thanks for the in-depth reply.

[brrim]

Billy; On 8/10 you wrote "The volatility stop with settings 65,5 on the 30 minutes chart has contained all bounces in the decline. It is at 69.69 or just above yesterday’s high. A reversal of the stop could have bullish short term implications. I remind everyone that one needs to wait for the CLOSE of a 30-minute bar above the volatility stop for a confirmed signal, temporary violations are an alert, but not a confirmation."

Today the V stop reversed on IWM and is now below price. Why is this now not bullish and suggestive that the rally has further to go?
Why do you not like using this as an actual stop?
On today's chart you have moving VWAP 52 whereas on 8/10 the moving VWAP was 26. How do you decide which to use?

Thank you for all of your help.
Best regards,
Robert