Confusion Only For the Latecomers! July 8, 2011

[Billy]

Forum Clusters 110708.xlsx

Before I forget, make sure to study the stunning Bob’s post about pivots and market environments in the “Price Action” thread of his E-mini forum yesterday. It couldn’t be timelier.

The daily stages score is now at its critical positive threshold but with another huge divergence from the indices prices. It is on its resistance downtrend line.



The daily stages structure has pushed a massive majority of stocks into accumulation stage, usually preceding a strong mark-up stage. I hope we will be able to witness what a “strong” mark-up stage following such a “super strong” accumulation will look like.



We all know that much will depend today on the reaction/follow-through/reversal or not reversal after the job report will become public.

The IWM robot is not much concerned with this news and even less with predicting its outcome! It has raised its trailing stop (83.17) above the day’s optimal long entry buy point (83.06). This suggests that buying today at the limit buy entry is probably not the best course of action. But it is so far away anyhow, that it won’t likely happen in one day.
The only reason the limit buy entry price remains at 83.06 is because IWM closed below YR1 (85.68) by a few pennies. A close above YR1 would actually have given the green light to buy today up to 86.12. This is quite confusing and that’s why we cannot stress enough the importance of entering at once on an initial robot signal change.

Backtesting proved that the best money is made at the market turns, provided you can pinpoint them with a high probability, and a positive mathematical expectation of success, like the robot does. Most market players try to play the trend in the middle, which has as much credibility as the pure Buy and Hold approach.



GDX still has to prove its ability to decisively break above SPP and QPP (56.61), but the close above the 50-day moving average (55.55) is a positive sign. Here too, if you entered at the initial long position from the robot, your trade is evolving nicely with the growing strong first support cluster and the rising trailing stop.
Billy

[adam ali]

Thank you, Billy. Would you mind putting up the SPY chart as well? I'd also like to know where the stop-loss would be if we were trading this ETF as a robot...if that's possible.

[Billy]

Thank you, Billy. Would you mind putting up the SPY chart as well? I'd also like to know where the stop-loss would be if we were trading this ETF as a robot...if that's possible.

The trailing stop for SPY would be 132.25, not far from the 50 dma.
Billy

[Pascal]

Thank you, Billy. Would you mind putting up the SPY chart as well? I'd also like to know where the stop-loss would be if we were trading this ETF as a robot...if that's possible.

Adam, the Stop strategy on SPY would be set differently to the IWM strategy and hence, since there is no SPY robot, we have no way to exactly know the stop level for this ETF.

I however believe that you or anybody else could easily build the same file for SPY.
You can use the freestockcharts features and the link to the pivots Software that was posted many times on the VIT thread. Please also feel free to ask questions on how to build this type of file.

http://www.freestockcharts.com/



Pascal

[adam ali]

Got it - thanks

[Pierre Brodeur]

I am having a problem understanding why the GDX robot is willing to take so much risk and is basically disregarding the confluence support area in protecting the capital of the owner of this security. At closing of $56.25, the robot is willing to sell stop the shares at 6.58% below the close in the context that ATR% is 2.56% which is almost a 3 standard deviation event. This makes no sense to me and does not appear prudent at all. Again, the implicit Expected return appears to be around 18.4% but I, as a prudent trader would not be willing to wait for the stop to be hit on this trade. And it has nothing to do with emotions...!

Pierre

[davidallison@gmail.com]

I am having a problem understanding why the GDX robot is willing to take so much risk and is basically disregarding the confluence support area in protecting the capital of the owner of this security. At closing of $56.25, the robot is willing to sell stop the shares at 6.58% below the close in the context that ATR% is 2.56% which is almost a 3 standard deviation event. This makes no sense to me and does not appear prudent at all. Again, the implicit Expected return appears to be around 18.4% but I, as a prudent trader would not be willing to wait for the stop to be hit on this trade. And it has nothing to do with emotions...!

Pierre

Pierre, I'm sure Pascal or Billy will say something, but if you had entered the trade at "The buy entry price was 53.26 and the current stop level is 52.55. Last close: 56.25" your stop is only 71 cents below your cost. Did you enter the trade at 53.26? If not, you are comparing apples to oranges. Dave

[Pascal]

I am having a problem understanding why the GDX robot is willing to take so much risk and is basically disregarding the confluence support area in protecting the capital of the owner of this security. At closing of $56.25, the robot is willing to sell stop the shares at 6.58% below the close in the context that ATR% is 2.56% which is almost a 3 standard deviation event. This makes no sense to me and does not appear prudent at all. Again, the implicit Expected return appears to be around 18.4% but I, as a prudent trader would not be willing to wait for the stop to be hit on this trade. And it has nothing to do with emotions...!

Pierre

I understand very well Pierre.

What you are saying that you would not want to enter such a trade today. I understand. The signal is neutral and I would not be willing to do that either. Would you have been ready to enter a long trade with the same stop conditions on June 17, when the MF signal turned to a buy and when the robot started to look for a long entry (As I wrote it here, I entered at the open when this signal change occurred.)

I suppose that you would have not entered the trade then or you would have used much tighter stops.

So, is it ok to say that your question is basically why the use of wide stops on GDX?
The second question seems to be why disregard the close strong support levels and place a stop so far away and not just below these?

The answer to the first question is that the robot has been programmed to trade both extreme moves and trend reversals in GDX. You cannot trade extreme move on tight stops. It does not work that way, because intraday volatility is pretty high when the situation gets jumpy.

The second question is that pivots do not work well for GDX. Therefore, when the current trade closes, I will change the GDX settings and the GDX Robot will enter at the open of a signal change, disregarding the pivots completely. That has been announced some days ago.

If I may compare IWM to GDX, I would say that IWM is like watching the changing of the guard in front of Buckingham palace while GDX is watching a 15 years old kid riding a wild horse in the forest. It is just not the same.

I also prefer the prudent IWM Robot to the wild GDX Robot. Their combination gives excellent results though.


Pascal

[Pierre Brodeur]

I also prefer the prudent IWM Robot to the wild GDX Robot. Their combination gives excellent results though.
Pascal

Me too ...! I thank you for your reply Pascal. It is very clear to me now. Given that I prefer to identify new and surf trends, I did not realize (or perhaps forgot) that the robot switches from trend following to consolidation range trading.
It now becomes the user's choice to identify one or the other and to enter the trade on his preferred environnement.

What also threw me off was that Billy publishes confluence pivots every day on GDX and thus, in my mind, it reinforced the impression that these pivot levels had some influence of the robot behaviour (risk management, Expected return probabilities, and so on...) while the statistics tell a different story.

Pierre

[Billy]

What also threw me off was that Billy publishes confluence pivots every day on GDX and thus, in my mind, it reinforced the impression that these pivot levels had some influence of the robot behaviour (risk management, Expected return probabilities, and so on...) while the statistics tell a different story.

Pierre

Pierre & all,

Let me know if the GDX cluster chart and commentary are a distraction. Our common goal is to have the clearest appreciation of the robot trades. I am the first one to be aware of the limited use of the pivots for GDX and it was my conviction well before the robot research started.
I have no problem with dropping the daily cluster chart since it could often contradict the robot decisions.
Just give me some feedback on this.
Billy