Securities Trading from Both Sides of my Brain: September 2009

Wednesday, September 30, 2009

systemic trading for the discretionary trader: can it work?

now this is where things are starting to get tricky for me...
my systemic swing trading system 'SPY Gopher', which was opened on last thursday's close at 1046.00, is due to be exited at tomorrow's close, if its money management stop is not hit...the stop is currently around 1019.00...
all of the volatility over the past few days, especially today is making me nervous...i hate to see a position that is nicely green, move back to breakeven...yesterday's move in the ESZ09 to 1066ish, had the position up 2%, only to see it go to breakeven and then to red this am...
i am now finding myself wanting to lock in some of the ESZ09 gains even though the systemic model is not due to be closed until 4 pm tomorrow...
fear is leading me to change my plan...
though today's rebound from the early morning selling appears bullish, i am afraid that this is just eom, eoq window dressing and the rug will be pulled out from the market tomorrow...i feel this way, even though i am bullish on the ES in the longer term...it seems a bit conflicted, but this is what i am feeling...
i am long 4 ESZ09, and have put offers out at 1056.50, 1063.50, 1067.50 and 1072.50...the thing is, i am not supposed to be offering anything out until 4 pm thursday when my market orders are released...right now i almost can't help myself...the desire to lock in some gains is very strong....as i am writing this, my offer at 1056.50 has been hit...
i am being driven by fear, by the need to be safe...
i am also driven by the need to book some gains and pay my bills...
good traders might seek to lock in gains...
but great traders can deal with the uncertainty and let the market or the model tell them when its time to get out...
sometimes i will give myself credit and say i am a good trader...
i have never considered myself a great trader...i want to be a great trader...
great trading will require even more emotional fortitude than i currently have...trading with real money is not an academic exercise...it is full bodied and emotional...i can only handle so much uncertainty...
so exiting one ESZ09 contract at 1056.50 feels good, because i have booked some gains and have less exposure...however, i did not follow my systemic trading plan for this model, and this feels bad...
like i said, this is the tricky part...
at heart, i am a discretionary trader who trades a lot of systemic models...is this in sync? probably not...am i trying to grow? definitely...
perhaps the next step is to really recognize that i need to generate enough money every month to pay my bills and if i have to lock in some gains on my systemic trading models to accomplish this, then so be it...
if the emotional uncertainty of an open position is too much for me, then i have to continue to trade even smaller or lock in some gains on systemic trading models that are in the money and are getting close to being exited, until i can build my emotional fortitude back up, and then trade the systemic trading models 100% the way they are supposed to be traded...
right now, i would say that i trade the systemic trading models the right way about 95% of the time...this is a big improvement from a few years ago, when it was perhaps 70% of the time...
hmmm, this is a lot of obsessing regarding 5% of my behavior...

Disclosure: Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

9/30/2009 12:45 pm update

just sold the last NQZ09 lot at 1716.50...
for the swing trade: +14.25 NQ points/contract, 1 contract closed (1702.25 avg entry price)...
for the day: +9.81 NQ points/contract, 3 contracts closed: +29.42 NQ points for the day...
flat the NQ...
NQ now green on the day, ES slightly red...
MeVsWallstreet commented in an earlier post that he believes this move down may be a shakeout...i believe this as well...a close above the 1053ish pivot in the ES will increase my confidence in the shakeout concept...
my original sell level for the first contract picked up during the chicago pmi based swoon, was at 1713.50...i changed it and was filled at 1709.50...
my original sell level for the second contract picked up during the chicago pmi based swoon, was 1723.50...i changed it and was filled at 1716.50...
both of these levels would have been hit, but my decision making process was being influenced by fear, and i lowered my exits...
i cut my profit short by 4.00 NQ points on the first contract and 7.00 NQ points on the second contract...11.00 NQ points left on the table, for this series of trades...

9/30/2009 noon update

lowered my offer on the NQZ09 from 1713.50 to 1709.50 and was filled at 1709.50...
for the swing trade: +7.25 NQ points/contract, 1 contract closed (based on an average entry price of 1702.25)...
for the day: +7.59 NQ points/contract, 2 contracts closed: 15.18 total NQ points booked...
bidding 1702.50 for 1 NQZ09...
changed the offer from 1723.50 to 1716.50 on the remaining NQZ09 contract...
i am happy to have booked some gains today...
however, this is the third time today i have changed the level of the entry or the exit order...part of it is based on analytics, another part is based on fear...
i was afraid of not getting out: 1) 1726.50 to market (1722.00); 2) 1713.50 to 1709.50...
i was afraid of not getting in: 3) 1693.50 to market (1696.00)...
1) worked out well: the exit was at 8:45 am...the NQ then traded as high as 1725.50 shortly after the open of the day session, then dropped nearly 2% to 1688.75...holding this contract, would have led to another drawdown, and i would not have added the contract at 1708.50...
2) did not work out...1693.50 was hit less than 1 minute after 1696 was hit...
3) remains to be seen...the high for the move up was 1710.25...
on another note, the NQ appears to be showing a bit of rs compared to the ES...of the few sectors that i monitor, only the SMH is in the green...this also suggests NQ leadership...i prefer rallies where the NQ shows rs to the ES...rallies that are led by the SMH are even better, in my view...

Disclosure: Long NQZ09, Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

ECRI: "U.S. Economic Recovery is 'Far From Fragile'"

sparked by worse than expected chicago pmi data, market participants on the whole are behaving pessimistically today...
i continue to believe in the rally, and as noted below, have been a buyer of weakness...
last week, ECRI said the following: U.S. Economic Recovery is 'Far From Fragile':

"A weekly gauge of future U.S. economic growth climbed higher in the latest
week, while its yearly growth rate reached a new all-time high, reaffirming
projections of a brisk, uninterrupted recovery..."

"...Last week, ECRI Managing Director Lakshman Achuthan told Reuters that the
group expects an "unstoppable" recovery with "no relevant roadblocks." Fears
over mounting unemployment, debt-laden consumers, and dips in recovery are
typical of recessionary times, he said.

"With WLI growth climbing to a fresh record high, the economic recovery is far from fragile," Achuthan said on Friday..."

Disclosure: Long NQZ09, Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

9/30/2009 10:15 am update

wow, lots of volatility...chicago pmi spooking the market...economic recovery fears are back...
last day of the month and the quarter...maybe some long based portfolio managers are getting scared and booting some inventory...
we shall see if the ES and the NQ can fight this selloff and close green on the day...
glad i sold that NQ lot at 1722.00
got back into the NQZ09 at 1708.50 and at 1696.00...avg entry price is now 1702.25...
not happy to see a nice unrealized gain in the ES go back to breakeven and even red...still lots of time before end of day thursday...
no plans to add to the NQZ09 discretionary swing trade position at this time...
currently offering 1 NQZ09 contract at 1713.50 and at 1723.50...

Disclosure: Long NQZ09, Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

9/30/2009 9:45 am update

my systemic 'NDX 30th DoM' may generate a long entry signal for today's close...i say the odds are 50/50...my systemic 'NDX 1st DoM' may generate a long entry signal for tomorrow's close...i say the probability for this is about 98%...since at least one, if not two models, are probably going to give me a full NQ position in the market by end of today or tomorrow, i am inclined to book some gains in my discretionary swing trade of the NQ...
during the overnight session, i lowered my offer on the 1 NQZ09 contract i am holding from 1736.50 to 1726.50...the morning economic data releases caused some volatility, and the NQ traded as high as 1726.25, 1 tick below my offer...upon returning from my morning errands, i noticed this missed offer, and sold my last NQZ09 contract at market (1722.00)...
+7.92 NQ points/contract, 1 contract traded...
currently flat the NQZ09...
having said all that, i am interested in picking up some NQ if we trade down to the lower portion of the recent daily range...i am bidding for 1 contract at 1708.50, and 1 contract at 1693.50...
i am still long a full position in the ES via my 'SPY Gopher' systemic trading model, which is due to be exited on thursday's close...since i am long the ES and it is highly co-related to the NQ, i would rather not see the NQ trade down to 1708.50 or 1693.50, but if it does, i will get back in it...
so over the past 3 days, i have sold the 3 NQZ09 contracts picked up during late last week's downdraft, for a total of about +8.33NQ points/contract, 3 contracts held...at the worst level last week, the NQZ09 traded down to 1688.75...i was averaged in at 1714.08...at that worst level, i was down about 25 points/contract...so my return on these 3 contracts relative to my max intraday drawdown was not good...if i was not holding a full position in the ES or about to get a systemic signal to get long a full position in the NQ, i would have held these 3 contracts for a longer period of time, and ideally exited them at higher prices...this would have increased my profit relative to my drawdown...trading multiple styles on multiple time frames with limited capital sometimes leads to non-ideal entries and/or exits for my discretionary trading...
trading with oliver at vcm today and tomorrow...

Disclosure: Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

Tuesday, September 29, 2009

9/29/2009 945 am update

just before the market opened, i changed a NQZ09 order from limit 1726.50 to market, and was filled at 1723.00...
+8.92 NQ points/contract, 1 contract traded...
i am well positioned for the current rally, and am just looking to book some gains, reduce some of my exposure and free up some capital...
i will be looking to buy some more NQ at a lower price or after a certain period of time has gone by...what that lower price is or how long of a period of time, has yet to be determined...
quantifiable edges put out another study, this time regarding low volume during SPX rallies, and concluded that there is a slight bearish edge to this behavior...check the link for the details....i will do some further modeling on this concept...

9/29/2009 9:10 am update: NQ, ES

NQ showing some rw compared to the ES...including the monday night session, the NQ has traded about 1% below yesterday's intraday high, while the ES is only traded about 0.50% below yesterday's intraday high...
because i already have a full position on in the ES, i am changing my offers on the NQ to: 1 at 1726.50 and 1 at 1736.50...
if i sell the first lot at 1726.50, i will look to buy another NQ lot at a lower price (which has not been determined yet)...if the first lot does not get sold at 1726.50, i will hold off buying a third lot at a lower price (for now)...
i am still bullish on both the ES and the NQ, i am just managing my size...

Monday, September 28, 2009

was friday's low volume selloff in the spy bullish?

quantifiable edges studies on low volume during consecutive day selloffs in the spy tends to be bullish...check the link for specifics...
this is something i will do some further modeling on...
lots of studies to model and so little time!
time for a bit of a nap...

9/28/2009 11:30 update: NQ

wow, the bulls are back in town...i am heavily position for their return, though i did not think they would bound back in so adamantly...
in response to their quick return, i started monkeying around with my first sell level of 1726.50...i started looking a bit closer at the 15M chart and saw a minor pivot around 1725, so changed my offer from 1726.50 to a market order when the NQ was trading in 1722/23s around 10:08 am and got filled at 1722.25...
+8.17 NQ points/contract, 1 contract closed...
the impetus for the order change was fear...since the run up occurred so quickly, i was afraid it could drop back down just as quick...i am also long a full position in the ES via the 'SPY Gopher' model...i guess i wanted to reduce some exposure and take advantage of the quick run up...
it is this type of dynamic which continues to effect my game...on many occasions, i lower my offer or raise my bid because i am afraid the NQ will not move to the level that i originally targeted...sometimes it works in my favor, and sometimes it doesn't...i don't have enough stats on this to determine if this order level change, mostly influenced by fear and somewhat influenced by re-analysis, is helping or hurting my discretionary performance...
i am not sure if i even want to commit to finding out...i feel as if i have so many trading related things to attend to, that i just don't have the time to get some stats on whether discretionary swing trading plan changes are helping or hurting my performance...maybe i am just making excuses...this is something for me to think about...
i am currently offering 1 NQZ09 at 1736.50 and 1 at 1746.50...
i am currently bidding for 1 NQZ09 at 1713.50...if this fills, it won't bring my avg cost immeasurably down (1714.08), it will just get me bigger for in my view, the probable move back up to new swing highs...
both the NQ and the ES are in my view, behaving quite bullishly...both found support at the previous mentioned levels of 1690 and 1035, and have now broken above friday's high (1709 and 1049.50), firmly putting in higher highs on the 15M intraday charts...the trend up today has been so strong, i can not find any meaningful pivots or lows on the 5M or the 15M charts of the NQ or the ES!!
this move up is also occuring on essentially no news...yeah, there is some M&A this morning, but there is no economic data and no major earnings news...the upside move in the market in the absence of any major news catalyst is quite bullish in my opinion...
how probable is it that both the NQ and the ES will see new swing highs by the end of this week? i don't know, but today's powertrend reversal to the upside after last weeks downdraft, increases the odds...
i can't find any freely available links to reference this, but from the research i have followed over the years, the last few days of the current month, and the first few days of the new month, tend to be the best performing days of the month...i am not sure why this is the case...perhaps it has something to do with end-of-month money manager window dressing, or mutual fund inflows being quickly put to work, or something else...
in any case, i have noticed this end of month and begining of month bullish tendency...it factors into my discretionary swing trading as well as some of my systemic trading models...
this end of month and begining of the month bullish tendency, combined with the upside reversal of last weeks downdraft has me allowing for the increased possibility that we will at least test last weeks swing highs, and perhaps generate new swing highs by the end of this week...
my 'SPY Gopher' model is due to be exited at the thursday's close...if new swing highs are generated this week and can stick, this model will generate some nice performance for me...

Disclosure: Long NQZ09, Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

Using systemic trading models as an aid in discretionary trading

brett steenbarger recently posted on the potential benefits of using "...system-related research as decision support for discretionary traders..."
this comment mirrors how i use my 'BTD Index' model to not only generate systemic trading signals for the NQ, but to also influence where i bid for a second or third contract when adding size to my discretionary swing trading in the NQ:

this summer's rally has seen 4 swing lows...they are highlighted on the above 'BTD Index' NDX chart with white circles: 6/23, 7/8, 8/17 and 9/2...
the last 3 swing lows, occurred on the same day or on the following day that the NDX closed below its lower bollinger band (yellow bar highlighting an NDX close below the lower red line)...this area around the level of the lower bollinger band has acted as support, and marked the general area of the swing low...
last friday's low was just above the lower bollinger band (lower red line), suggesting this 1690 area may be the general area of the current swing low for the NDX (NQ)...
while i did not add another NQ contract to my discretionary swing trade, i have been using the lower bollinger band level on the 'BTD Index''s NDX chart to help inform me of where a possible bottom for the NDX (NQ) may form...this potential swing bottom area has influenced the general levels where i will consider bidding for a 2nd and 3rd contract when building the size of my NQ discretionary swing trade...
i take the same view brett takes: systemic trading models can be useful inputs into the decision making process for the discretionary trader...
my overall trading plan contains both systemic and discretionary trading styles, and i believe i am a better trader for it...of course i still have a lot more to learn cognitively about both trading styles, as well as practicing to become more emotionally comfortable with the uncertainty of each trades outcome, but using the tools and bias's of both styles has made me a better trader...

Disclosure: Long NQZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

9/28/2009 930 am update

pre-market futures in the green...
the 1688 pivot on the NQZ09 which formed from 9/11-9/15 is acting as support...friday's midday dip held at 1689...
today could be a potential reversal day in the NQ...i will be watching for another series of higher highs and higher lows, with the first important pivot coming at friday afternoon's high of 1701.75...if the NQ can trade above this level, and pre-market futures are suggesting it will, and then not dip below friday's late afternoon low of 1691.75, then NQ will have its second set of higher highs and higher lows since friday's midday breakdown...
the next important pivot i will be watching is the 1711.75 high from late thursday afternoon...trading above this level will increase my confidence that friday may have been the swing low of this move...
i am still long 3 NQZ09 at average price of 1714.08 on a discretionary basis....i am currently offering out 1 contract at each of the following levels: 1726.50, 1736.50 and 1746.50...
i am not bidding for any more NQ at this time...once i let go of some inventory, i will probably start bidding again...

Disclosure: Long NQZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

Friday, September 25, 2009

9/25/2009 4:45pm update

the ES and the NQ did bounce after the midday breakdown, but not enough to have them close green on the day...the ES bounced up from 1036 to 1045 and the NQ from 1689 to 1702, but they closed right around the 1041 and 1695 midday breakdown pivots...
the NQ has dropped 3.7% from its swing high (1753) on wednesday to the current swing low (1689) hit today...the previous august and september swing high to lows was around 4%...
overall it has been a mixed week swing trading the NQ on a discretionary basis...
for the swing trades that have been closed, the performance has been very good: 6 swings, all winners averaging just a tad under 10 NQ points/swing, 1 contract/swing: +60 NQ points realized...
however, the swing trade which is open, is underwater by about 17 points/contract, 3 contracts open: -51 NQ points unrealized...i am happy that i booked enough profits earlier in the week to cover the current drawdown...
this is part of my style and is to be expected...when the trading vehicle moves against me and i begin to add size, i will experience a decent size drawdown...i am confident in my analysis that the NQ will hit many more swing highs going into the end of the year, and perhaps longer...i will ride this down swing out...the only thing that may get me to change my long term directional bias is a significant non-market related exogenous event...
today, my 'BTD Index' model came very close to generating a long entry signal for the NDX, but the NDX was just a bit too strong...the NDX needs to close below the lower bollinger band in order for me to get long this systemic swing trading model...if the NDX closed below 1688ish today, an entry signal would have been generated:

have a great weekend!

Sell Rosh Hashanah, Buy Yom Kippur

there is an old wall street adage: 'sell rosh hashana, buy yom kippur'...
stock trader's almanac performed a study on this concept, using DJIA from 1970-2008, concludes that this tendency yielded an average trade return of +0.80%...i don't believe this includes commisions, etc...
the max closed trade drawdown is 3.90%...their study does not include a max intraday drawdown figure...
this is a behavioral tendency that i can attempt to model for a possible systemic trading system to be in place for september 2010...i would probably substitute the SPY or the NDX for the DJIA...
some of the trading patterns that stock trader's almanac has highlighted over the past 10 years, i have been using as starting points for modeling stock market behavior...ultimately, some of these initial behavioral models have become full fledged systemic trading models...'SPY Gopher' is one of them...

9/25/2009 115 pm update: NQ, ES

in my view, a breakdown today of the ES and the NQ during the midday hours, is NOT bearish...
while the ES and the NQ may trade a bit lower toward their respective support levels at 1035 and 1790, i believe the odds are now tilted a bit more to the bullish side for an upside recovery in the ES and the NQ by the close of trading today...

ECRI's radio interview discussing the US business cycle over the past 100 years

http://www.businesscycle.com/news/press/1568/

9/25/2009 1035 am update

NQ and ES are both trading today within the base that has forned since the low of yesterday morning...
i am currently long 3 NQZ09 for a discretionary swing trade...
my average price is 1714.08...
currently offering out 1 NQZ09 contract at the following 3 levels: 1726.50, 1736.50, 1746.50...
while i am bullish on the NQ longer term, i would be surprised if any of these offers were taken today...however they are out there because one just never knows, does one?
i am also long ESZ09 via my 'SPY Gopher' systemic trading model...
ES appears to be showing a bit more RS than NQ today...it is trading closer to the top of the range than the NQ is...i imagine the negative reaction to the RIMM announcement is influencing this...i will be watching RIMM today as a potential tell for the NQ...right now RIMM is sitting at the $70 support level and hasn't moved much (up or down) since its opening gap down...i will be watching it for a break above or below its morning base...
trading the odds posted some studies last night...these studies suggest bullish behavior for the ES today...Setup 3 in particular intrigues me, and i will model it myself for some more detailed analysis...
jason goepfert at sentimentrader performs and posts very informative technical studies, primarily involving sentiment analysis...i have been following his work for most of this decade and it has been a significant input into my market analysis and directional bias...he offers monthly and annual subs at very reasonable rates for the retail trader...i highly recommend his work...

Disclosure: Long NQZ09, Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

Thursday, September 24, 2009

9/24/2009 415 pm update: 'SPY Gopher'

'SPY Gopher' has generated a long entry signal for the SPY at today's Close. This is one of my favorite systems. I have been trading this model (or an earlier version of it) since the summer of 2004 (trade #65 on the above Equity Curve chart). Whenever it goes through a drawdown, it has always gone on to ultimately make new Equity Curve highs. It performed extremely well during the recent bear market, and is currently trading at its all time high.

Model Performance Stats:

Model Tracking Vehicle=SPY
Start Date=2/2/1993
Number of Trades=95
Average Trade Return=1.19%
Win Rate=69%
Ration Average Win/Average Loss (RAWAL)=1.41
Profit Factor=3.21

The caveat with this model is its Money Management Stop is moderately high, currently 2.43%. Historically, if I can handle risking that much capital on the trade, the performance of the model over the following year has been very good. The model generates 5-6 trades/year, which on average returns 6-7%/year. Each position is modeled to be open for 5 days unless the Money Management Stop closes the position sooner.

Disclosure: The performance results shown above are for Model analysis purposes and do not include commission or slippage. The model is built on data from the SPY, but I trade the model with the ES e-mini. Actual trading results from the ES usually differ from the model results of the SPY, with the ES showing somewhat weaker performance data. Nonetheless, I still trade this model with the ES and when executed according to the plan, it has generated consistent profitability for me.

Disclosure: Long ESZ09.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk***

9/24/2009 1130 am update: NQ, emotions influencing the decision making process, emotions as information

NQZ09 traded down to 1696, and then bounced back to 1700...
it then started trading to 1701, 1702, 1702.75, then back down to 1702, 1701, 1700.50...
i began to think that the low for the morning may be in, and began to get just a bit anxious that my 3rd entry order at limit 1693.50, which missed getting filled by 2.50 points, was not going to get filled this morning...
i canceled my previous bid at 1693.50 and place a buy stop at 1703.00...
i got filled a few minutes later...
currently long 3 NQZ09 at an average of 1714.08...
the last two additions (1711.75, 1703.00) occurred at higher levels than i initially planned (1708.50, 1693.50)...
part of the change in the trading plan is related to fear of missing an opportunity to increase my size because my limit order may not get filled...part of the change is also a re-analysis of the trading environment...i am not sure how much of the change in my plan is related to emotion and how much is related to cognition...
if the change is more related to emotion, i have to pay more attention to how my emotions factor into my decision making process...the problem is, i don't know how to determine or measure how much the emotion played into the trading plan change...
if anyone has any suggestions on how to do this, please let me know...
i hear and read a lot on how traders are supposed to remove as much emotion as possible from the decision making process...this is part of the reason why a large part of my overall trading plan includes systemic trading models...
i wonder if a further goal of trading is to not remove emotion from our decision making process, but to use what we are feeling and what the market as a whole is feeling, as part of the decision making process: emotion as information...
perhaps we are not supposed to immediately react to an emotion that happens to pass through our being on any given moment (sad, glad, mad, scared), but rather recognize what we are feeling, and then cognitively decide if this is something that we need to respond to on a trading basis...what do you think?

Disclosure: Long NQZ09.

9/24/2009 1050 update: NQ, ES, 'BTD Index', 'SPY Gopher'

wow, volatility is back...
the NQZ09 contract i purchased around yesterday's close at 1722.50 i sold this morning around 9am at 1736.50...the high for the swing move up was 1736.75...my analysis suggested that the NQ could trade up to this area, and i think i also got a bit lucky as the swing high was 1 tick above my target...
+16 NQ points/contract, 1 contract traded...
because of this show of strength, i was willing to re-enter at a higher level then the last entry (1722.50), so i began bidding at 1727.50...
i was filled at 1727.50 @ 936 am...however, the NQ had some other things on its mind and then traded just below the support area at 1711.75...i was bidding at 1708.50 and was afraid that i might not get filled, so i put in a market order and was filled right at 1711.75 (right at support)...
a few minutes later, the NQ traded below support and down to 1704...
i am currently long 2 contracts at an average price of 1719.63...
i am bidding for a 3rd contract at 1693.50...
i don't think i will be bidding for a 4th NQ contract for a discretionary swing trade below 1693.50...my 'BTD Index' systemic swing trading model will be looking to get long the NQ if the NDX closes below the lower bollinger band (in the low to mid 1680's today)...i hope this model generates an entry today...since june this model has generated 4 out of 4 winning trades:

i believe this is just a bout of profit taking and the NQ and the ES will be making new swing highs in october...however, i still want to manage my open trade drawdown, so i will be more conservative with adding to the size of the NQ discretionary swing trading position...
the NQZ09 has now traded down to 1696, and i am hoping for more weakness...i am bidding at 1693.50...
my 'SPY Gopher' systemic swing trading model is also generating a pending long entry signal for today's close...i hope the NQ and the ES just continue to selloff today..
the 1035 level on the ES looks like a strong support level, and i would be expecting a bounce there:

Disclosure: Long NQZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

Wednesday, September 23, 2009

9/23/2009 5pm update: NQ

wow! i thought we would see some volatility after the FOMC release, but not as much as this...
when i exited the second NQZ09 swing position of the day at 1738.50 around noontime, i continued bidding for it at 1731.50...however, the NQ just traded sideways from 1737-1741 into 2pm...
to me, this was a demonstration of strength, so i wanted to be long for the FOMC release and purchased 1 NQZ09 at 1740 at 154pm...
shortly after the FOMC announcement was made, the NQ broke above 1740 resistance and traded up to 1748.50...i was offering out at 1747.50 and was filled...
+7.50 NQ points/contract, 1 contract traded...
total for the day: +7 NQ points/contract, 3 contracts traded: +21 NQ points...
then i thought we could see a retracement to the breakout level, and while i thought 1742.50 would be a good level, i was hesitant that with the initial show of strength, if there was a selloff, it may not get down to 1742.50, so i bid 1743.50...
i was filled a few minutes later at 1743.50, with the low of that swing coming in at 1740.50...
i thought that if the NQ were to rally from here, it would take out the 1748.50 high and trade into the low to mid 1750's, so i offered out my 1 contract at 1752.50...
if i were to be filled at 1752.50, i didn't want to take any more entries in the low 1740's because somehow someway, i just didn't think that the NQ trading there during anytime in the afternoon would be bullish...
i was a bit tired from working through lunch, so i took a nap until about 350 pm...
when i got back to my desk, i saw that i missed a lot of the fireworks!...i was happy to see that my offer level of 1752.50 was on target, that i got filled, and that i had held off from re-entering in the low 1740's...
+9 NQ points/contract, 1 contract traded...
however getting long again in the 1720's was very interesting to me, so i moved my 1715 bid up to 1722.50 and got hit a few minutes before the 4pm closing bell...
this late day selloff looks bearish in the short term...the NQ put in a topping tail on the 15M and the 60M chart, is now trading below the 1740 and the 1730 pivots and below some key moving averages on the 60M chart...
so if i think this is short term bearish behavior in the NQ, why am i buying it instead of being flat or shorting it? well, i stayed flat on test of the 1740 pivot and on a test of 1730 pivot...even though i slept through the test of these areas, i purposely did not want to buy at these levels and was not bidding for the NQ there...i was bidding for it at 1715 and at 1693.50...
with the NQ trading down to the low 1720's, it is now down about 2% from its highest swing high...the august and september selloffs saw the NQ fall 4-5% from its swing highs to swing lows...the june and july selloffs saw the NQ fall about 7% from its swing highs to its swing lows...
i am also very bullish on the NQ heading into the end of the year...with a little luck, the NQ will continue DOWN, and i can pick up more of it to sell higher some period of time later...i want the NQ to come down, as this is when i can increase my average swing trade return from about 7.5 NQ points recently up to perhaps 12.5 NQ points or more, and get larger in size in the process...
total for the day: +7.5 NQ points/contract, 4 contracts traded: +30 NQ points...
i have been swing trading the NQ on a discretionary basis since mid july, and today has been one of my best days so far..i am cognizant of the tendency for me and for other traders to get sloppy after a good day, so my job is to stay focused and trade the NQ with the some analytical rigor and the same risk management (position sizing), as i have been over the past 2 months...
i am currently bidding for more NQZ09 at 1708.50 and at 1693.50...
i am currently offering out 1 NQZ09 contract at 1736.50...

9/23/2009 1230 update: NQ

wow, the NQZ09 bounced right back up to the resistance area rather quickly...this occured around noontime, which left more than 2 hours before the FOMC release...
the lot i added at 1731.50, i sold at 1738.50...
not sure if i am getting too cute here, but i am open to the possibility of another swing down to support at 1730ish...i am bidding at 1731.50 right now....
i am not sure what i will do if the NQ continues to trade around or above the 1740ish resistance area through 2pm...
the most recent trade: +7 NQ points/contract, 1 contract traded....
total for the day: +6.75 NQ points/contract, 2 contracts traded: +13.50 NQ points total...

ES / SPY / SPX behavior on FOMC announcement days: tends towards bullishness.

yesterday, i referenced a setup (S5) by Trading the Odds, which suggested that the day before the FOMC announces their latest interest rate targets, tended to be bullish during the 1990-present time frame...
in an attempt to potentially build a systemic trading model based on this bullish behavior, i modeled the behavior of the SPY on the day before the FOMC announcement for the 1996-present time frame...
i too came to the conclusion that since 1996, the SPY has shown an overall bullish bias...however that bullish bias peaked in 11/2001 and since then, the SPY has traded bearishly on the day before the FOMC announcement...i did not build a systemic trading model based on this behavior...
today, Trading the Odds posted another FOMC related study...this setup (S2), from 1990-present, goes long the ES at the close of the day before the FOMC announcement, and then exits the trade at the close of the day of the FOMC announcement...this simple strategy generated 156 trades, with a Profit Factor=2.13...
this study peaked my curiosity, so i attempted to build a trading model based on the bullish behavior of the SPY on the day of the FOMC announcement...my study runs from 1996-present, and at the close of the day before the FOMC announcement, buys $100,000 worth of the SPY and upon the close of the next day, which is the FOMC announcement day, sells the entire position...there are no additional filters and there are no stops...
my study, generated 107 trades, a Profit Factor=2.17, and an average trade return of +0.36%:

a Profit Factor above 2.00 is pretty good...the next thing i want to see is what the trend of model has been over the life of the model, so i looked at the Equity Curve:

the equity curve has shown extremely good performance lately...
Quantifiable Edges also performed a similar study on this behavior, using SPX data from 1982-present...their equity curve chart shows similar performance...
the next step for me was to see if i could build a systemic trading model based on this behavior...i divided up the SPY datastream into two slices: an in-sample slice from 1/1/1996-8/30/2006, and an out-of-sample slice from 9/1/2006-present...on the in-sample slice, i tested a simple moving average filter, a RSI filter and a stop...when i found a filter level that met my criteria, i would then run the model on the out of sample data...prior to adding any filters or a stop, i knew the Profit Factor was already 2.17...i like my models to have a Profit Factor of at 3.00...however in this case, neither a moving average filter nor a RSI filter combined with a money management stop yielded a model with a PF over 3.00...i was hard pressed to find something a model that yielded more than the baseline Profit Factor of 2.17...
i was not able to build a systemic trading model based on the bullish bias that the SPY/ES/SPX tends to have on the day of the FOMC announcement...however, this bullish bias is good data in and of itself, and it has already factored into my thinking for my discretionary swing trading of the NQ...
thanks again to Trading the Odds and to Quantifiable Edges for posting very relevant and useful studies of stock market index behavior....
prior to the next FOMC announcement (11/4/2009 i believe), i will model the NDX and see how it performed on the day before the FOMC announcement and the day of the FOMC announcement...if there is a bullish bias, then i will attempt to build a systemic trading model...

9/23/2009 1045 am update: NQ

got filled on the NQZ09 at 1731.50...
offering this contract out at 1743.50...this is just below the red sell band on the ATR Volatility Band chart...it is also ABOVE the 1640ish resistance level...
so why am i trying to sell above resistance instead of just under it? since today is FOMC day, i am open to the possibility of increased volatility after the 215pm FOMC release and want to be offering above resistance into this potential volatility...
if the NQ drops to the low 1720's prior to testing the high 1730's then i may change the offering price...

Disclosure: Long NQZ09.

9/23/2009 940 am update: NQ

the NQZ09 didn't trade up to my 1745 target during the overnight session, so i sold it prior to the open of the day session at 1739.00, which is right below resistance at 1740ish...
bidding for NQZ09 at 1731.50, 1715.00 and 1693.50...
+6.50 NQ points/contract, 1 contract traded...

Tuesday, September 22, 2009

finding a relaxation response in my belly

when i got sick earlier this month, i had to find a way to relax my mind and my body when the headaches and the dizziness got too intense...
one of the things i discovered was that i could relax my mind and my body by extending my breath exhalation by about 2-3 seconds...i was able to accomplish this by noticing when the breath exhalation was about to finish, and then use my diaphragm to push more air out of my lungs...
since last wednesday, i have been intentionally practicing this new breathing technique while i am at my desk and at random times throughout the day...
when i do this, i notice i am able to become more aware of my thoughts and feelings, especially if i am getting stuck on a particular thought or a particular feeling...the increased awareness of getting stuck and then remembering to breathe with the extended exhalation has been helpful in getting 'unstuck'...
this breathing technique has been extremely helpful in reducing the amount of anxiety i experience, including when i have a trade open...
i plan on practicing this breathing technique more and more during the course of the trading day and when i am away from my desk...
this technique has definitely helped me relax...while it's not the relaxation response per se developed by herbert benson, it has helped me reduce my level of anxiety in both my professional and personal life...

The SPY tended to trade bullishly on the day before the FOMC interest rate announcement from 1/1996 - 11/2001, but has been bearish since then.

Trading the Odds posted an interesting study on the behavior of the ES on the day before the FOMC announces their decision on interest rates:

from their study (S5), the key takeaway for me was the Profit Factor of 1.70 over the course of 156 trades...this peaked my interest, so i wanted to see if i could build a systemic trading model based on this behavior...
their study uses the ES datastream and the FOMC interest rate release dates from 1990-present...i had somewhat easy access to the SPY datastream and the FOMC interest rate release dates from 1996-present, so i began there...
my study identified the date which was 2 days prior to the FOMC interest rate announcement, purchased $100,000 worth of the SPY at the close of this day, and then sold it the following day (the day before the FOMC rate announcement) at the close...i did not use any other filters and i did not use any stops...
my study came up with 106 trades and a Profit Factor of 1.42...there are less trades primarily because my study contains 6 less years of data compared to Trading the Odds study...the FOMC announces a potential change to interest rates 8x/year, which would amount to 48 additional instances over the 1990-1995 period...adding those 48 trades to my studies 106 trades, would make a theoretical set of 154 trades, which is pretty close to the 156 trades in the Trading the Odds study...this is close enough for me for a preliminary review of the SPY behavior...
once i completed my study, the thing that jumped out at me the most, is the Equity Curve chart:

the equity curve peaked at trade #46 (11/05/2001) and has been basing, with a recent downward bias since then...
this equity curve suggests to me that while the SPY had a bullish bias on the day before a FOMC rate announcement from 1/1996-11/2001, there has been a bearish bias since then...
even though the Profit Factor from my study is a bullish 1.42, it has been on the decline since 11/2001...
even if i added the performance data for the 1/1990-12/1995 period, it would not change the equity curve from 11/2001-present...
i will not be building a systemic trading model based on the behavior of the SPY on the day before the FOMC interest rate announcement...
the purpose of this post is to add some color to the setup that Trading the Odds posted...it is not meant to discredit the great work they do...on a daily basis, i look forward to reading their research...it has been a great addition to my knowledge base and to my trading...
the following is the list of dates that are two trading days prior to the FOMC interest rate announcement that i used in this study:

9/22/2009 955 am update: NQ

i got filled at 1732.50 in the NQZ09...
NQZ09 upside target for today's day session: 1745.00...
bidding for NQZ09 at 1715.00 and 1693.50...

'Trading the Odds' Blog: Pre-FOMC Day shows enough of a positive bias, that I might be able to build a trading model based on it.

Trading the Odds Blog:

Pre-FOMC day with strong upward bias on the SPY...
i should model this to see if i can build a trading system based on this setup...
i will continue to follow this blog for additional setups that may lead to viable systemic trading models...
i am also following Quantifiable Edges blog for additional setups that may lead to viable systemic trading models... the SPY Rising While SPY Volume Declines study (selected from the 8/25/2009 - 9/22/2009 QE posts) is another candidate for me to model...

9/22/2009 900 am update: NQ

the NQZ09 contract i purchased on friday at 1722.50, i sold at 1739.50 at 647 am this morning...
+17 NQ points/contract, 1 contract traded...
this sell level is below the 1642.50 limit that i originaly targeted...the NQ traded up to 1641 around 4 am and had been basing for 3 hours, so i figured this was where the NQ wanted to go, and my 1642.50 level for the overnight session was a bit too aggressive...
i am currenlty bidding for the NQZ09 at 1732.50...

Monday, September 21, 2009

Zen Trader System's T.Y.P.S.: Tap Your Power Source

the following are notes from this evening's free webinar given by Mike Kanuika of Zen Trader System on his T.Y.P.S. (Tap Your Power System) program/product...
the T.Y.P.S. audio product uses alpha wave/state entrainment with customized nlp (nuero linguistic programming) to reprogram the traders subconscious paradigm such that it becomes synchronized with the traders conscious intention...
trading success is significantly influenced by subconscious programming...
synchronize conscious intention with subconscious paradigms...conscious intention may win a battle but the subconscious paradigm tends to win the war...
learn how to consciously communicate with the subconscious brain...
alpha wave/state training extremely important for shifting/changing the subconscious paradigm...
enter into the alpha state ==> identify negative energy patterns ==> change the program via customized nlp...this will reduce/eliminate the impact/charge of the previous negative energy pattern...
enter into the alpha state ==> identify positive energy patterns that i wish to have ==> program the new pattern via customized nlp...this will lead to relaxed precision...
birth to age 7ish we develop our survival paradigms within the family/environmental structure...this paradigm influences everything we do, including how we trade...
perceptual misalignment's need to be realigned...
deep sleep wave session (alpha and theta states while sleeping: 50 minutes); morning magic session (30 minutes); neuro nap (noontime refresher)...

9/21/2009 post close update: NQ

NQZ09 discretionary swing trading:

after some overnight and opening weakness for the day session, the NQZ09 powered back on up to test 1730 resistance numerous times today, posting a new high for the move in the 1733s...
i was offering 1 contract at 1736.50 during the day session....
for the overnight session, i am offering 1 contract at 1742.50...
i am also bidding at 1708.50 and at 1793.50...

Friday, September 18, 2009

9/18/2009 4pm update

NQZ09 did eventually hit my 1726.50 target...
it is now forming an ascending triangle...i re-entered NQZ09 long at 1722.50...
not sure if i will sell this lot just below the 1730 resistance area during the sunday night session or in the mid to high 1730's during the monday day session...
now that NQ has been basing for a few days and has worked off some of its short term overbought condition, i am looking for NQ to break above this base and continue its run higher...if it doesn't, then i will be accumulating more NQ as it pulls back, with the intention of selling it higher sometime within the next few weeks...
good week discretionary swing trading (NQ, FAS), systemic trading ('IDX OU'), and even discretionary daytrading at vcm (+1 R)...
no systemic swing trading entries for today's close...
hope everyone has a good weekend...

9/18/2009 1115 am update: NQ

got nervous that NQZ09 wouldn't make it through the minor resistance area at 1724ish to reach the target of 1726.50...
sold it at 1722.50 for +7.50/contract (1 contract closed)...
as i write this, the NQZ09 is trading in the low 1724s...
i am a bit frustrated with how i managed the exit for this trade...i am supposed to sit and catch the bigger swings on the 15M and the 60M chart, yet i found myself watching the 2M and the 5M charts and worrying over nearly every tick and oscillation between 1720 and 1724...
i didn't follow my plan for this trade...
in the absence of some catalyst, i think today's range will be contained by yesterday's high of 1730ish and low of 1713ish...
looking to re-enter long at 1715.00 and if we break below yesterday's low, then looking to add another contract at 1703.50...
currently up 14.75 NQ points for the day (7.375 points/contract, 2 contracts closed)...

9/18/2009 1015 am update: NQ

long NQZ09 at 1715.00...this level is just above a pivot on the 15M chart and just above the green buy level on the ATR Volatility Band chart...
bidding for another contract at 1703.50...this level is also just above a pivot on the 15M chart, at the dark green buy level on the ATR Volatility Band chart, and just above the whole number of 1700...
looking to sell the NQZ09 at 1726.50...this level is below the 1730 pivot on the 15M chart and just below the red sell level on the ATR Volatility Band chart...

Wednesday, September 30, 2009

Tuesday, September 29, 2009

Monday, September 28, 2009

Friday, September 25, 2009

Thursday, September 24, 2009

Wednesday, September 23, 2009

Tuesday, September 22, 2009

Monday, September 21, 2009

Friday, September 18, 2009

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