12/17/2009: NQ, ES, XLF

• well wednesday's FOMC rate announcement did not act as a catalyst to move the NQ and the ES above resistance...instead it led to selling on wednesday and on thursday...
• so the major indices remain mired in a narrow 6 week base...
• feels like the bulls want to get going for an end of year ramp, yet the bears keep beating the advances back...
• with the selloff in Citigroup today, the bank index (XLF) keeps on dripping lower towards support...contrary dynamic with the XLF trading towards the bottom of its range while the ES trades towards the top of its range...
• one way or another, i think we will see a move out of this range by the second week of january...

***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 ***

12/15/2009

• the NQ and the ES 'feel' like they want to break above their current resistance levels (NQH10 around 1815 and ESH10 around 1115)...
• with positive historical december opex week, and positive end of december seasonality, tomorrow's FOMC rate announcement at 2:15pm might be the catalyst to get the indices over these levels...
• if they do pop, i can envision them running up around 2-4%...
• however, many of the short term and intermediate term oscillators i follow are getting overbought, so i believe a smallish upside break in mid to late december will lead to a larger downside move sometime in january...
• for a discretionary swing trade, i will probably be looking to get long the NQ after the january move down...i am not sure if i will play a decemeber break above resistance to the longside in the NQ as a discretionary swing trade...
• my systemic swing trading models continue to get chopped up...
• i believe i may have found a setup and money management strategy that fits my personality over at 'team trading' (fka velez capital managment, llc)...i have been working on it for the past few weeks and have seen some positive results...still, there is much work to be done here...
• additionaly, i have joined the forex division of 'team trading' led by dr. todd hanson, and am currently going thru the initial 7 day training...
• lots of juggling right now: systemic swing trading the u.s. stock indices for my account, discretionary swing trading the NQ for my account, discretionary daytrading u.s. equities for my prop account, and discretionary/systemic swingtrading/daytrading forex for my prop account...yes, my head is spinning a bit...
• good trading to everyone!

11/4/2009 2:45 pm update: NQ

• during the post FOMC flurry down, i picked up 1 NQZ09 at 1683.25...the low of that swing was 1682.25...
• now long 2 NQZ09 at avg 1685.79...
• resistance for the rest of the day is at the whole number 1700.00
• offering 1 out at: 1707.50 and 1725.00
• bidding for 1 at 1661.50...

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***

11/4/2009 11:30 am update: NQ

• heading into 10:30 rt, just below the 1700 whole number, and below the declining 200ma on the 15M chart, i lowered the NQZ09 1705 offer to market, and was filled at 1694.75...
• the high so far for the morning was 1700 even...
• this trade:  +6.42 NQ points/contract, 1 contract closed...
• if i am going to hold multiple contracts on a move against me, i have to get better at holding multiple contracts when the move goes in my favor...
• i only have 1 more NQZ09 contract (avg entry is 1688.33)...my current target is 1725.00...if i were to hold for this target, that would be +36.67 NQ point profit...
• before i can get good at holding multiple contracts that are going in my direction for a discretionary swing trade, i have to get good at holding 1 contract....this contract will be my practice...i am a bit better at holding multiple contracts for systemic swing trades that are going in my favor...
• bidding at 1682.50 and at 1657.50...
• FOMC announcement at 2:15 could shake things up...
• i am still wary of the intermediate term, and would not be surprised if the NQ dropped to the 1600 level and the ES drop to 980ish before thanksgiving...this is not a prediction, just a possibility....
• i am still bullish longer term...

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***

9/23/2009 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...

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...***

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...

***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...***

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...

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:
  

'NB #2 SPY' Generated an Entry Signal for Tuesday's Close

NB #2 SPY' Generated an Entry Signal for Tuesday's Close. The position is only held for 1 Day, so unless its Money Management Stop is hit intraday today (Wednesday), the position will be closed at 4pm.

'NB' stands for 'Narrow Bar'. In addition to Tuesday's Daily Bar in the SPY being the narrowest bar for the most recent X number of days, there are two additional price related filters. This model has a Profit Factor=3.14 (which is above the 3.0 that I strive to find and trade), average trade returns 0.7% (excluding commission and slippage) and generates 2-3 trades/year.

At the time of this posting, the position is up about 1.5%. Who knows where this will be by the end of the day, especially since today is FOMC day. But my plan is to hold it until 4pm or I get stopped out.

Disclosure: Long the ESU09.

***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***