Missing Catalyst - December 14, 2011

[adam ali]

$SPX 10-day historical volatility set to fall under 20 for 1st time since August 3rd.

VIX under 25 (yesterday) normally a bullish sign??

Normally bullish signs?? What the heck is going on here?

[Billy]

Nickola,
You are asking for guidance about two different TNA positions running simultaneously.
There is no double TNA open robot position possible. The robot is always 100% invested in a non-leveraged IWM position until a signal change or stopped out.
Secondary and leveraged entries are never taken by the robot and are provided as indicative edges for discretionary trades. It is your responsibility to manage your risk with secondary positions and with leveraged ETF’s.
The aim of the robot is to avoid such complex decisions. There are infinite ways to manage secondary and leveraged trades and it is impossible to provide guidance for everyone.
Novice traders should trade exactly like the robot at first and progressively develop their own discretionary style for secondary and leveraged trades with a very small portion of their capital. Experienced traders can apply more aggressively their own trading style.
As an example in choppy environments, you remember that I exited 2/3 of my initial TNA position for a small profit and would re-enter the proceeds only at a secondary active entry. I would have had to wait for today, but I would use the same stop as the one from the original robot position. All in all, it would have made it a flat positive trade instead of a losing one. But I didn’t do it because I mistakenly concluded too early that the choppiness was about to end and I went back in way too aggressively with a TNA average price of 44.73 that was stopped out today at 39.64 for a loss of -11.37%. The position was still a winner just yesterday morning. This tells you how delicate and dangerous it would be for me to provide individual guidance or coaching to all subscribers. I’d look like a genius of risk management if I had stayed in my choppiness assumptions and I actually look like a clown now with my aggressive trend-following choice.
Billy

[nickola.pazderic]

In fact, your answer provides excellent counsel.

[TraderD]

I’d look like a genius of risk management if I had stayed in my choppiness assumptions and I actually look like a clown now with my aggressive trend-following choice.
Billy

Having the robot detect choppiness (and take profits accordingly) rather than manage the position with a trend-following setup would be a useful enhancement imo.

Trader D

[nickola.pazderic]

So, with the move of IWM below the Robot stop today, the robot is entirely out of the market?

And the secondary entry is inconsequential to it?

Thanks,

[Billy]

So, with the move of IWM below the Robot stop today, the robot is entirely out of the market?

And the secondary entry is inconsequential to it?

Thanks,

Yes you are right. The robot is 100% back in cash. It would only re-enter a position tomorrow if there is an edge to do so.
Billy

[Billy]

Having the robot detect choppiness (and take profits accordingly) rather than manage the position with a trend-following setup would be a useful enhancement imo.

Trader D

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

[vfc10us]

$SPX 10-day historical volatility set to fall under 20 for 1st time since August 3rd.

VIX under 25 (yesterday) normally a bullish sign??

Normally bullish signs?? What the heck is going on here?

VIX seems to be above support at 25. Frankly, I'm not sure it matters. In my humble opinion, there's nothing more powerful than a declining or a rising 200ma. It takes a lot of courage to go long against a declining 200 day moving average without seeing some clear divergences on longer term (weekly) charts.

[nickola.pazderic]

I never felt more like a clown than when I tried to teach undergraduates in a low level required (meaning big money for the university) course. But even with the best graduate students in the country, it is hard to not feel a clown as a teacher. There is a nice name in the title and certain afforded pleasures, but the indignities are many. I can only thank you as a form of encouragement for the work you've taken to instruct us all.

[roberto.giusto]

Excellent idea! Now, how do you detect choppiness with confidence?
We have tested selling on targets and it consistently deteriorates long term cumulative performance.
Billy

Billy,

I was thinking to the very interesting example you showed us a few days ago, using 3 different (with 2 tighter) trailing stops for your triple leveraged position.

That could be a way to limit the loss, or even to have a little profit even if the official robot trade incurs into a loss.

The reverse of the coin is that long term cumulative performance still risks being deteriorated if compared to a "full" position.