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How we made 8% in 24 hours on DATA Trade
Its very common at ATP for our swing traders to book 6-8% gains inside 24-48 hours. The reason is we look to buy strategic dip patterns in strong stocks in a certain window of time. Besides needing to like the fundmentals, we look for crowd behavioral patterns to identify opportune times to strike with attack trade capital.
More importantly, we know when the opportune time is to take the profit as the crowd floods into our play. We often sell 1/2 at a time, and depending we may sell the entire position at one time.
This week (June 24th-June 28th) we took a shot at DATA, a recent IPO that we really like fundamentally.
We watched the stock for almost 2 weeks to learn the trading patterns of it first. Once we had a grip on how it trades, we waited patiently for the opportunity to strike.
That came on June 26th in Pre market, and we alerted our Traders to buy from 54.50 and lower only that day. It traded in that range or lower til about 1120am EST, then it started up, rising 6% by end of day!
Today, June 27 we alerted to sell 1/2 when the stock hit $59, and from here, we tend to hold the remainder 1/2 and look for higher prices and if the pattern or market dictates we will adjust the stop or move out of the remainder.
http://www.activetradingpartners.com...7-atp-data.jpg
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During Recent Market Carnage, OTS Locked in 16.80%, 32.20%, & 41.49% Returns
As we move into Quarter end, many investors and traders suffered a sizable drawdown in mid to late June. However, members of OptionsTradingSignals.com closed 3 trades during the selling carnage for huge overall gains.
As a professional trader, a focus on implied volatility, probability of success, and a typically contrarian market view have served members well since the inception of the service back in December of 2010. A summarized description of recent action in the OTS Portfolio is described below.
On June 13th the OTS Portfolio took a Put Debit Spread on VXX. The reasoning behind the trade was the expectation that volatility would decline going into triple witching on Friday’s expiration. As expected, volatility contracted and on June 19th the VXX position was closed for a gross gain per spread of $21. The maximum risk per spread was $125 so the trade produced a gross gain of around 16.80%.
http://www.optionstradingsignals.com...6/Chart111.jpg
While volatility contraction going into triple or quadruple witching is a high probability event, it is not a certainty. However, as can be seen above the trade worked nicely and we were able to exit with a tidy profit with a very short-term holding period.
The 2nd trade that was closed for strong gains was a MA Put Diagonal Spread. The trade was entered on June 19th and was subsequently closed on June 20th for a holding period of less than 36 hours. The trade produced a gross gain per spread of $285 on maximum risk of $885. Thus, the trade produced a gross gain of 32.20% on maximum risk per spread.
http://www.optionstradingsignals.com...6/Chart211.jpg
As can be seen above, MA was trading near the top of its recent price range and we used a diagonal spread to take advantage of time decay and lower prices. Obviously we saw a big selloff transpire in MA shortly after entry and the trade structure produced some strong gains for the OTS Portfolio.
The final trade that was closed prior to the June monthly option expiration was an AMZN July Put Butterfly Spread. AMZN was trading near the top of its recent price range and as a contrarian I took a short position that would capture time decay and profit from a decrease in the AMZN stock price. The trade was entered in the OTS Portfolio on June 18th and was closed on June 20th.
The AMZN Put Butterfly Spread took a maximum risk of $470 per spread. The trade produced a gross gain of $195 per spread. Thus the overall gross return on maximum risk was 41.49% per spread. As can be seen below in the chart, the position was net short AMZN and members entered the trade right before a large selloff transpired.
http://www.optionstradingsignals.com...6/Chart311.jpg
Ultimately AMZN fell further, but we were able to lock in some nice gains in a short period of time. Typically the OTS strategy focuses on entering a lot of trades and locking in profits quickly. My goal is to take at least 2 – 3 new positions each week while managing other open positions.
The majority of opened trades have a better than 50% probability of success based on the implied volatility levels at the time of entry. I typically focus on a probability of success at the time of entry between 60 – 80% and my track record has about roughly a 70% probability of success on all trades entered since the OTS Portfolio inception.
Right now I have been slow to add any new positions into this bounce higher in equity prices, but if prices continue to drift higher the rest of Thursday and into tomorrow I will likely begin looking at the short side again in specific names in the near future. This week I have been pretty quiet in terms of new positions, but I suspect that I will start to get busy on Friday and into the early part of next week with new positions.
Obviously the recent performance has been outstanding, but most long-term members would tell you that the service helps teach option traders how a professional option trader views the marketplace with a focus primarily on probability driven trading where implied volatility and time decay are commonly the primary profit engines for trade entry. The service is a great value from an educational standpoint and I welcome you to give it a try. Happy Trading!
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1 Attachment(s)
How to make profits on gap fill swing trades every week
As a short term trader, one of the best ways to make consistent profits and take them out of the market is buying oversold gap fill set ups. I’m looking for strong stocks that are having very rapid short term pullbacks in price. *When I see the pullback, I immediately check the 5 or 10 day charts on an hourly basis and look for any gaps in the chart below.
Gaps are a situation where a stock moved up with a higher bid price than a recent closing price (Can be on a 15 minute, hourly, or daily basis even) and never came back down to where that Gap was created. *These gaps often close because traders set stops just at or below where that gap was created and then often the computer trading systems end up running all the stops until the final stops are filled at or below those gaps.
I use that type of arbitrage and volatility to scale into that stock as the gap is approaching. *I never try to buy the exact gap because often a stock will fill the gap on 100 shares and then reverse quickly to the upside, and then you are stuck watching and or chasing the stock higher. This only adds further risk to your trading, not less.
Often a gap will fill and the stock will dip a bit below the gap as well, so I will continue to buy shares as that occurs as well looking for the reversal while lowering my average entry point at the same time.
Attachment 1710
We have a real time sample below in DATA (Tableau Software) a recent IPO. *This stock is pretty thinly traded so it can move up or down a few dollars quickly for no real reason, thus creating the arbitrage. *Yesterday this peaked near $60 and as of this morning it was trading below $55 per share on light volume as a gap on the 10 day chart was sitting there around $54.80. *Noting that gap and the near term oversold condition, as a trader, you would want to begin to buy just over 55 and down to and below the gap. The stock filled that gap and dropped into the 54.50
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Long or Short Stocks is the Question: I’ve Got the Answer!
Stocks managed their third session higher as of Thursday June 27th and its too late to jump onto that move. Major indexes and leading stocks have rebounded into resistance along with a few key moving averages. The next 1-3 days favor a pause or pullback at the least simply because of the selling momentum and multiple resistance levels being tested. It is only natural for traders and investors to pull some money off the table or short at these levels.
Stepping back seven days and looking at the overall stock market we have seen a substantial drop in prices across the board. A Ton of stocks have formed their first impulse thrust to the downside which is typically what happens when a stock market is in a topping process (Stage 3 Distribution). The type of damage we had cannot be fixed overnight. This will be a process if it is to resolve to the upside and price action will remain wild (volatile).
The odds from a technical analysis stand point using Price, Momentum, Cycles, Volume and Moving Averages point to lower prices still to come. Actually they point to another 5% drop from the current level.
Major Points to Be Aware Of:
1. 20 Simple Moving Average is crossing below the 50SMA. Last time this took place it triggered a 5% drop in the SP500.
2. Price has bounced for three consecutive days. This typically puts the odds in favor for a pullback.
3. Price bounced and hit it’s head on the 20 and 50 moving averages on Thursday (RESISTANCE).
4. Market Time Cycles are in a decline phase meaning there will be a negative bias and seller will be actively pulling price lower on bounces.
5. Major Long Term Chart looks favorable for a bear market to start which may last 12 months. If so this is just the beginning of some scary yet highly profitable potential trades in the coming year. Stocks fall 3-7 times faster than they rise…
Daily SP500 Trend & Analysis Chart:
http://www.thegoldandoilguy.com/arti...6/spydaily.png
Long Term SP500 Trend Chart:
http://www.thegoldandoilguy.com/arti...spymonthly.png
BEARISH SP500 Price & Volume – 60 Minute Intraday Chart:
http://www.thegoldandoilguy.com/arti...pyintraday.png
Looking at these charts from a long term, intermediate and short term basis the odds are favoring lower prices. Being short stocks or buying inverse ETF’s is the current play for the market. But analysis and trends are subject to change depending on price and volume action each week. Do not get your heart set on the BIG picture outlook of a yearlong selloff. That could prove to be dangerous. We take this market one bar or candlestick at a time and trade based on current short term analysis.
Chris Vermeulen
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They Just Rang A Bell On Gold-Gold Stocks
They Just Rang A Bell On Gold-The Lows Are In!
As they say on Wall Street, “They don’t ring bells at the top” and for sure they usually don’t give you a phone call at the bottom either. Many heads have rolled trying to call this recent near 2 year downdraft in Gold in terms of bottom callers, me included. I thought we would never get much below 1440 or so from the 1923 highs, but alas we all know we did.
What makes me think that last week put in the final Gold low for the bear cycle? Too many things to mention, but based on the work I do enough to give me some chutzpah to make this call now. The 1180’s are very close to a classic ABC 61.8% Fibonacci retracement of the prior 34 month bull cycle. That cycle ran from October 2008 to August 2011 with a rally from $681 to $1900’s area. The most recent 21 plus month decline dropped right into the 61% pivot retracement of that entire move, and over a Fibonacci 21 month period as well! Human behavior does repeat over and over again, and as we all know in hindsight at the tops everyone is bullish and at the bottoms everyone is bearish.
I think it’s pretty much as simple as that. Investors get overly optimistic and exuberant in all kinds of asset classes and finally at the highs everyone believes the rally can only go on and on forever. At the opposite near the bottoms nearly everyone is calling for lower prices and further catastrophe ahead. Stocks in the sector are priced for near bankruptcy. Newsletter writers are universally bearish, and the small trader has a big short position. Only a few weeks ago the Bullish Percentile index measurement on the Gold Stock Index was at 0! That means nobody was bullish on the Gold stocks by the measure that is used. We quickly had an 8% rally in the index after that reading, then in the last few weeks we came all the way back down again to even lower levels!
If you watched the action last Thursday as Gold was melting down below $1200 a curious thing happened. The gold miners were ignoring the move and going green! On Friday, as Gold reversed to 1234 they went ballistic with one of my favorite miners going up 16% on Friday alone on the highest volume in 5 years! Those are the signals I’ve been waiting for to call the capitulation lows. My guess is some money managers are front running the coming 3rd quarter rotation they see in Gold and Gold Miners, Copper, Coal, and other commodity stocks.
So below is my basic GLD ETF multiyear chart using very simple monthly views to see the big picture. You can see a classic ABC pattern of bear market correction and now a near 61.8% perfect Fibonacci retracement of the prior leg up. I’d say enough is enough, pick your spots and start buying.
http://www.themarkettrendforecast.co...7/629-gold.jpg
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Leading Sectors, Cycles and Momentum Point To Drop This Week
As talked about almost two weeks ago when the SP500 trend reversed to the down side we have been waiting for a bounce in price to short the market (buy and inverse ETF). That happened last week and now we are waiting for the market to shake out the short positions and suck in as many traders to get long before the next wave of major selling takes place.
It seems traders are becoming bullish again as prices rise and they are dumping their precious metal positions and rotating into equities again from the looks of things. Also if you know the Dow Theory then you know the industrial and transportation sectors tend to lead the broad market. Well today the only two sectors trading lower are just those two.
See the charts below for a visual:
http://www.thegoldandoilguy.com/arti...ectorsdown.png
The Market Forecast Cycle Analysis, Trends & Signals
http://www.thegoldandoilguy.com/arti.../2013/07/s.png
http://www.thegoldandoilguy.com/arti...3/07/PYjy2.png
http://www.thegoldandoilguy.com/arti.../07/gdxjy2.png
All these things paint a clear picture for lower prices to come. But as we know, surprise news can change the technical outlook of the market from time to time. This is why constant analysis is needed along with protective stops for any open positions.
Chris Vermeulen
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An Option Trader's View of New Highs in the S&P 500 Index
Every investor and novice trader is looking for a newsletter that exemplifies the holy grail of investment acumen. It would seem that so many newsletters promote their latest or greatest trade idea. If the trade idea works, readers get quickly reminded of the analyst’s success. However, failed predictions about future price action in stocks typically are ignored by the analyst in subsequent articles.
I do not make wild predictions about the future prices of anything; much less make suggestions that are not based first on option chain derived probabilities. In fact, I spend most of my time studying probabilities that are driven by implied volatility calculations in the equity options marketplace. From an option standpoint, I would characterize myself as a volatility trader. I focus on equities which have implied volatility levels that are significantly higher than their historical norm.
Obviously I do take trades that are directional in nature, but I am typically contrarian in my view of the marketplace. I use very little technical analysis because most studies are not profitable consistently because of their inability to remedy the passage of time as a function. This more simply can be described as a false signal that is generated due to consolidating or choppy price action. When you hear the term price action moderated as a function of time rather than price, many times indicators and oscillators have thrown off failed signals that lead to losses.
Instead of having my screens full of indicators and analytical tools, I spend most of my days looking at option chains and price charts. My view of the marketplace is simple. Sell when prices are near recent highs and buy when prices are near recent lows.
As an example, recently I heard an analyst on television say that the S&P 500 would get to 1,700 by the end of the year. Instead of listening any further, I pulled up an S&P 500 Cash Index (SPX) option chain and looked at the December Quarterly contracts for more clarification.
http://www.optionstradingsignals.com...07/Chart11.jpg
As can be seen above, based on current implied volatility level calculations the analyst has a probability of being correct based on the July 2, 2013 close of about 28%. As shown below, in order for price to get to the 1,700 price level by the end of 2013, we would need to take out the all-time highs set back on May 22, 2013.
http://www.optionstradingsignals.com...07/Chart21.jpg
I have identified the key price levels on the chart above which ultimately have an impact on the short to intermediate term price action in the S&P 500 Cash Index. However, what is more important to understand is that the probabilities are not overwhelmingly favorable that a move to 1,700 will take place that holds through the end of the year.
Based on current market conditions, the odds of us taking out the all-time highs before 12/31/2013 are a little better than 1 out of 4. In reality, these numbers indicate that any perma-bulls out there should be cautious.
However, the short-term bulls out there or those analysts that are pontificating about new all-time highs being set in the near future need to consider the July monthly option expiration probability data which is derived yet again from implied volatility calculations.
As of the close of trade on July 2, 2013 the probability that the S&P 500 Cash Index (SPX) will close above 1,700 on Friday, July 19,2013 is less than 1.76%. The July monthly SPX option chain shown below highlights this important information.
http://www.optionstradingsignals.com...07/Chart31.jpg
I want to be clear that these probabilities change every day based on price movement and changes in the underlying asset’s implied volatility levels. However, what does not change are the standard deviation calculations that govern this data.
Based on the closing data for the S&P 500 Cash Index (SPX) on July 2, 2013 a one standard deviation move to the upside (68% Probability Price Stays Below This Strike) would be the 1,635 SPX July Calls.
Based on the closing data for the S&P 500 Cash Index (SPX) on July 2, 2013 a two standard deviation move to the upside (95% Probability Price Stays Below This Strike) would be the 1,685 SPX July Calls.
Based on the closing data for the S&P 500 Cash Index (SPX) on July 2, 2013 a three standard deviation move to the upside (99% Probability Price Stays Below This Strike) would be the 1,715 SPX July Calls.
While this data does not reveal precise expectations for future price action in the S&P 500 Cash Index (SPX), it does shed context on the wild predictions some of these television and newsletter analysts provide. In financial markets anything is possible, but I will continue to trade using statistical analysis that has been proven to be effective over long periods of time when large quantities of trades are taken.
I prefer analysis that is backed by statistical studies versus a quantity of indicators that all have their own set of limitations. While the probabilities are not always going to be favorable, over long periods of time the numbers will solidify the trading results.
While there is much more to my strategy than just this basic explanation, I was hoping that readers could come to understand that there is a mathematical way to use statistical analysis to enhance trading results.
Would you rather base trade decisions on indicators and oscillators? Or would you like to learn a system that uses probability and basic statistical analysis to arrive at conclusions which are relevant over large data sets?
Ultimately no trading system is right all of the time, but a system built on probabilities will likely perform over large quantities of trades within the desired success range. I hope at the very least this article will open readers’ eyes to a different style of trading that is statistically relevant. In the meantime, have a safe and enjoyable Independence Day!
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The 30 Second Technical Flash Chart Report on US Equities
US Equities opened higher this morning and are setting up for a sharp pullback based on technical analysis using trends, cycles, momentum, volume, market breadth and key resistance zones.
Take a look at the charts below for a quick flash of what I think.
Barchart Market Momentum Index
This chart I look at daily. In short if its price is at 101 or higher I expect the broad market to pause or pullback within the next day. It tells me if stocks have moved to far in one direction on a daily basis and if so sellers (big money players) are likely to re-align stocks by taking profits or shorting during these times.
http://www.thegoldandoilguy.com/arti.../Momentum1.jpg
Stock Trading Above the 50 Day Moving Average
Here we can see that while the SP500 has been rising over the past 6 months less stocks are trading above their 50 day moving average. This means a smaller group of stocks is holding the market up and it’s just a matter of time before those stocks burn out and roll over also.
http://www.thegoldandoilguy.com/arti...tstrength2.png
SPY Swing Trading Analysis – Daily Chart
With the SP500 breaking down from its trend channel and testing a short term resistance trend line. Odds favor sellers should become more active and pull the market down as they unload any remaining long positions and possibly get short the market. Both of these actions will put pressure on US Stocks.
http://www.thegoldandoilguy.com/arti...swingTrend.png
Big Picture Outlook – Don’t Get Me Wrong!
This chart is just to show you what is possible. I am not a perma-bear nor do I want another bear market like this to happen. But knowing what is possible still has to be known. Major market tops are a lengthy process and tends to take several months. If this is the case then it could be a wild and choppy market for the rest of 2013 and a great way to play this is through writing options. Do not expect price to just collapse and free fall for 18 months… Dreams like that do not happen. Bear markets must be actively traded as they carry a lot of risk.
http://www.thegoldandoilguy.com/arti...ongTermTop.png
Flash Chart Analysis Conclusion:
This week is do or die for US stocks. We need sellers to step in here and pull stocks down. With the SP500 trading at resistance, stocks being overbought on a short term basis and the holiday week behind us which typically favors higher prices it is now time for sellers to become active once again.
Chris Vermeulen
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Jul 9th- New highs on the way as we suggested in late June
Wave 5 up has been in our forecast ever since we started correcting down below 1600, because wave 5 must follow wave 4, its in the Elliott Wave Bible.
Wave 5 can be difficult to forecast, but we have said at a minimum it will test the all time highs at 1687-1689 pivots, which would be a shallow wave 5 rally from 1560.
Today, we updated to our paying subscribers that we have 1768-1771 as the upper end of this rally and where the market likely would top out and begin a larger correction pattern, what we would call a “Major wave 4
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Continuous Commodity Index Points to Rally in Gold & Silver
During the recent weeks we have seen commodities especially precious metals continue to drop in value. Market participant sentiment has become more bearish on commodities and couple that with a rising dollar it’s no wonder why we continue to see commodities as a whole fall in value.
Money has been flowing out of bonds at record levels this summer telling us most of market participants are feeling bullish on the stock market. This shift in sentiment of the masses are typical as they move their money from the risk on safer assets (bonds & commodities) and rotate into risk-on assets like stocks. While this is a bearish (contrarian sign) stocks could easily continue to rally for an extended period of time and possibly several more months before they actually top out.
Let’s take a look at the financial market business cycle diagram:
Bond prices have been falling for months and they typically lead the stock market lower. I feel we are starting to enter the phase where stocks will soon top and head lower also. Once this starts money will naturally flow into safer assets that are more tangible like commodities.
Keep in mind this cycle is very slow moving and rotation from one phase to another takes months. This is a process not an event but it is still very tradable.
http://www.thegoldandoilguy.com/arti...07/JMCycle.png
Now let’s fast forward to precious metals both gold and silver are likely to do in the next couple months. If you review the charts below you will see gold and silver bullion prices are looking primed for a bounce/rally from these deep oversold levels.
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Gold Weekly Price
http://www.thegoldandoilguy.com/arti...13/07/gold.png
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Silver Weekly Price
http://www.thegoldandoilguy.com/arti.../07/silver.png
Take a look at a basket of commodities through the GCC ETF.
GreenHaven Continuous Commodity Index Fund (GCC) is an Exchange-Traded Fund (ETF) that provides an innovative and efficient way to deliver broad based, diversified commodity exposure. It aims to achieve this by using futures contracts to track the Thomson Reuters Equal Weight Continuous Commodity Total Return Index (CCI)†. The CCI-TR is an equal weighted index of 17 commodities plus an additional Treasury Bill yield. Because of the equal weighting, GCC offers significant exposure to grains, livestock, and soft commodities and a lower energy weighting than many of its peers. In addition, GCC is rebalanced every day in order to maintain each commodity’s weight as close to 1/17th of the total as possible.
So, knowing metals are 24% of the index it bodes well for a bounce in the overall commodity index. Keep in mind this report is only focusing on precious metals, but many other commodities look ready to rally also like natural gas.
http://www.thegoldandoilguy.com/arti...3/07/GCC-H.png
GCC – Continuous Commodity Index Fund Weekly Trading Chart
The chart below shows a very bullish 4 year chart pattern. At the very minimum a bounce to the $29 is highly.
http://www.thegoldandoilguy.com/arti...013/07/gcc.png
Commodity Basket Trading Conclusion:
In short, commodities as a whole remain in a down trend. Until they show signs of real strength I will not be trying to pick a bottom. Several commodities are starting to look oversold and ready for a bounce like sugar, coffee, copper and natural gas.
Last month I talked about how a major market top is likely to unfold during the second half of this year. I still believe this to be true. But keep in mind these major market tops which only happen every few years are a MAJOR PROCESS. They take time to form and often we will see a series of new highs followed by quick sell offs as the market gets more people long as they big money distributes their shares/contracts into the new money rotating into the market.
Chris Vermeulen
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Why Great Stocks Drop Hard and Reverse
One thing that will always over rule charts and technical analysis is fundamentals in the long run.
To be sure, I love technical analysis but I always combine my work there with fundamental research. I rarely if ever buy a stock just because the chart looks nice, that is almost always a recipe for disaster.
With that said, how many times have you seen a good company with strong fundamentals and a seemingly great looking chart break down over 1-2 weeks and take everyone out of the trade?
Then for sure, the stock reverses right back up all the way back to where the decline began? *To make matters worse, this happens without any real news or any bad news as it were. *What is it that causes these crazy down the mountain and up the mountain moves anyways?
How does it work?
In an apparently strong fundamental growth stock with no apparent issues, an institution will have a pre-defined price at which point instructions are triggered to liquidate the entire position almost at any price once that price point is hit. They protect themselves ahead of time with Puts, which give them profits if the targeted stock drops hard while they are selling out of the position, thereby locking in their targeted sell price.
Lets take several examples below with 3 month charts to show you exactly how they look on paper. If you can learn to spot these moves you will be more likely to add to positions on big declines rather than selling out at a loss as all the stops trigger along with the margin calls:
The stocks we will chart out here are AMBA, DATA, DECK, and GILD.
All strong companies with good growth profiles:
http://www.activetradingpartners.com...7/715-amba.jpg
http://www.activetradingpartners.com...7/715-data.jpg
http://www.activetradingpartners.com.../715-deck-.jpg
http://www.activetradingpartners.com...7/715-gild.jpg
So what have we learned? *In a Bull cycle buy the dips on the stronger fundamental stories when the Algo and Institutional programs start kicking in. *Don’t panic out of your position at a loss, study the fundamentals and trust your instinct.
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18.23% Return Produced During July Option Expiration Cycle
As we move through the July monthly option expiration which will occur on July 19, 2013 at the close of business we can look back at the expiration cycle that was. The end of the June monthly option expiration nearly marked the recent market lows. Since the beginning of the July expiration cycle we have seen the S&P 500 Index charge higher.
The recent performance in the OptionsTradingSignals.com portfolio has charged higher as well. There were 4 trades that were closed during the July expiration cycle. The 4 trades that were closed had a total gross gain of $169 per spread. The total risk assumed in the 4 closed trades was $927. Thus, the four trades produced a gross return on maximum risk of 18.23%.
A trader that risked roughly $2,500 per spread would have had a gross gain of $1,951 for the month of July. The table below demonstrates the trades that were closed during this expiration cycle.
http://www.optionstradingsignals.com...7/otsperf1.png
In full disclosure, there were three trades that were rolled forward as price action did not accommodate trade expectations. However, the overall results of the OTS Portfolio since the beginning of the June expiration cycle have been outstanding. The full trade performance is shown below based on actual trading results from the portfolio.
http://www.optionstradingsignals.com...7/otsperf2.png
Since the beginning of the June monthly option expiration cycle, the Portfolio has closed 15 total trades. In that time frame only 1 trade has produced a loss and that trade essentially was breakeven overall. The total recent trading results speak for themselves.
Since inception, the OTS Portfolio has taken 171 trades publicly that have been opened and closed. Of the 171 trades executed, 125 trades have produced gains. This equates to over a 73% success rate for all trades that have been opened and closed for the OTS Portfolio since late 2010. It is not a coincidence that the typical probability of success that I focus on for the service is between 60% – 80% probability at the time of trade entry.
Overall, the OTS Portfolio continues to generate strong trading returns while providing members with an opportunity to look over a professional trader’s shoulder to watch how trades are evaluated and when they are taken and why.
The OTS portfolio strategy is focused on a mathematical approach to trading options that gives traders a probability based edge. No more red and green arrows, no more charts with 500 indicators, and no more confusion. The system used is simple and has proven that strong trading results are possible when simple discipline is applied.
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How we bought right and sold right for 9-15% gains AMBA
At our ATP trading service, we look for entries on pullbacks in strong stocks. *We also look for the opportune times to sell and take our profits out of the market, which is what the purpose of swing trading is after all.
With AMBA, we alerted our traders to buy only from 16.50-17.10 ranges on July 8th. *Over the next 48 hours the stock dipped right into those exact ranges, bottomed at 16.50, and then shot higher.
On July 18th we sent an alert to sell 1/2 the position at $19.24 per share for 13-16% gains depending on entry point.
We held 1/2 long in case it broke higher, but 6 days later on July 24th we alerted to liquidate the remainder at 18.60 ranges for 9-10% gains on the back 1/2 of the position.
Our net gains were in the 12-13% total return ranges on this swing.
We can now see on July 29th, just 5 days after our last sell alert that the stock broke down and dropped into the mid 17
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Aug 1- Our Latest Market and Gold Views
Since that point, we outlined a Wave 5 pattern that should take the SP 500 to 1736-1771.
Several weeks ago we patterned out 1768-1771 as a perfect target for a Major wave 3 high.
This will be followed by a 125-200 point SP 500 correction if we are correct.
Below is our chart update outlining what we project ahead. A run to 1736-1771, followed by a 120-200 point correction for Major Wave 4 in the SP 500.
http://www.themarkettrendforecast.co...08/81-tmtf.jpg
http://feeds.feedburner.com/~r/TheMa...~4/DFg1yqvrIBE
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The S&P 500 is Plagued with Divergences
By now everyone has a prediction about where the S&P 500 Index (SPX) is going to be heading in the future. Most of the sell side and their ilk are all rolling out the green bullish carpet and predicting that a major bull run is right around the corner.
I am a contrarian investor by nature and I tend to sell when others are buying.* When retail investors are buying and the professional sell-side is quickly reducing their long equity exposure I get increasingly more bearish. A recent report from Zerohedge shown here, was accompanied by the charts shown below courtesy of Bank of America Merrill Lynch:
http://www.optionstradingsignals.com...3/08/Chart.jpg
As can clearly be seen above, retail investors have been strong buyers as of late while the institutional or professional investors have been sellers. The institutions almost always are net sellers near market tops while the retail crowd buys up the professionals’ inventory at high prices only to sell lower. The sheep are coming to the slaughter, they just do not know it yet.
Using a more quantitative methodology, it becomes apparent that the probabilities are not favorable for a significant bull run to emerge as we edge toward the back half of the year.
As a professional options trader, I focus on probabilities to help guide my investment thesis. One of my favorite underlying indexes to monitor for probability based moves is the S&P 500 Index (SPX).
The probabilities shown below were derived from statistical calculations based on the SPX option chain that will expire December 31, 2013.
http://www.optionstradingsignals.com...08/Chart11.jpg
As can clearly be seen above, the probability that price will close at the end of this year above 1,750 on the S&P 500 Index (SPX) as of Monday’s close was roughly 35%. Based on current implied volatility, there is a nearly 72% chance that we will trade up to 1,750 before the year is over at some point in time.
Again, referring to the SPX option chain shown above, there is a 20% probability***** that price will close above 1,800 on the last day of the year with only a 41% chance that price will reach 1,800 at any point from now until December 31, 2013.
The numbers go down considerably when we begin to look at the probabilities of reaching 1,850 on the SPX. The probability that price closes above 1,850 at the end of this calendar year is less than 10%. However, the probability we touch the 1,850 price level at some point later this year is around 20% based on current implied volatility levels.
The SPX option chain is telling us that this monstrous move is unlikely to be able to hold through the end of the year based on current implied volatility levels. Clearly these levels will adapt to market conditions as they change every day during normal market hours, but at this point they are not providing a strong indication of significantly higher prices before year end.
By now readers are probably expecting me to make a prediction about where prices are going to be headed. I do not do specific predictions because I do not feel that I know anymore than anyone else regarding future price action. However, I do believe we are closing in a topping pattern that is likely to give us a strong correction sometime before year end.
In addition to the professional versus retail investor charts and probability based determinations for future price expectations, there are two more indicators which are showing a divergence or a non-confirmation signal from the price action in the S&P 500 Index (SPX).
As shown below, the money flow indicator has failed to break to new highs as of today (Monday) which thus far fails to confirm the recent move to new highs in the S&P 500 Index (SPX).
http://www.optionstradingsignals.com...08/Chart21.jpg
The chart above does not require much explanation. The last time we witnessed a major divergence was in the autumn of 2011 which culminated into a nasty correction.
In addition to the divergence shown above in the Money Flow Indicator, there is also a strong non-confirmation signal in the NYSE Advance / Decline Index which is shown below.
http://www.optionstradingsignals.com...08/Chart31.jpg
I want to be clear to readers that I am not trying to imply that prices are going to collapse tomorrow or even in August or September. I am simply trying to point out through the use of a variety of analytical methodologies that buying here is a rather risky endeavor.
While more upside may await in the short-term, the intermediate term could be plagued by strong selling pressure. One thing is certain, I expect the selling pressure to come out of nowhere and the retail crowd will most certainly be left holding the bag. Risk is high.
See more here.
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The SP 500 Enters Major Correction Period
Market close to confirming new correction
David A. Banister- 1685 support is KEY!
The SP 500 has been on a tear since late 2012 with the SP 500 bottoming at 1266. The rally though we have been charting out as part of a “Primary wave 3″ uptrend for this Bull market cycle from March 2009, and we are likely entering a Major correction or what we would label “Major wave 4″. Since the 1266 lows, we have had Major Wave 1, 2, and now 3 completed at 1710. We are entering Major wave 4 which should correct 23-38% of the entirety of Major wave 3, which was 444 points.
This correction will be confirmed with any close below 1674 and nails in the coffin begin with any close below 1685 on the SP 500 index. Primary wave 1 of this super bull cycle ended at 1370, a 704 point rally. Primary wave 3 will likely be larger than Primary wave 1 and I am projecting a top between 1900-2000 on the SP 500 before it’s completed. The current correction is Major wave 4 of Primary wave 3, which has 5 Major waves required. With that said, our projections are for 1605 on the shallow side and 1540 on the deeper side for Major wave 4 of Primary wave 3.
Now it is possible that we may extend a bit higher yet in Major wave 3 to 1736-1772, but only if we hold the 1685 support lines which the market is basing around currently. In any event, at our Trading service we have been aggressively taking profits in the past two weeks on multiple positions while still holding a few open at this time.
See more here.
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Precious Metals & Miners Flash Short-Sell Signal
It has been a bumpy ride for precious metal investors over the past couple of years and it unfortunately I do not think its over just yet.
The good news is that the bottom has likely been put in for gold, silver and gold miners BUT the recent rally in these metals and miner looks to be coming to an end. While we could see another pop in price over the next week or so the price, volume and momentum see to be stalling out.
What does this mean? It means we should expect short term weakness and lower prices over the next month or two.
Below are three charts I posted several months ago on my free stockcharts list. These forecast were based off simple technical analysis using cycles, Fibonacci and price patterns. As you can see we are not trading at my key pivot level which I expect selling pressure to start to increase and eventually overpower the buyers sending the prices lower.
Gold Trading Weekly Chart:
Here you can see that gold is technically in a bear market when viewing it on the weekly chart. If you were to pull up a daily chart you would likely notice how the price of gold is trading at a key resistance level on the chart and has reached its full flag measured move.
What does this mean? It means the odds are pointing to lower prices for gold in the next few weeks. Keep in mind though I do feel as though a major bottom has been put in place for the precious metals sector. So buyers are likely to step back in around the $1300 area.
http://www.thegoldandoilguy.com/arti...overbought.png
Silver Trading Weekly Chart:
Silver has a little bit different looking chart but the same analysis applies here as it did in gold.
http://www.thegoldandoilguy.com/arti...overbought.png
Gold Miners Trading Monthly Chart:
Gold miners may have bottomed on this monthly investing timeframe chart but the daily chart which you will see next clearly shows short term weakness has started.
http://www.thegoldandoilguy.com/arti...termBottom.png
Gold Miners Trading Daily Chart:
This daily chart really shows my thinking for miners and the overall precious metals sector as a whole. The recent weakness in gold miners to the down side point to distribution of shares. This is very negative for the price of physical gold and silver as gold mining stocks tend to lead physical metals.
The yellow box shows a possible major stage 1 basing pattern forming. If this is the case, then we will have a great opportunity in the coming months when the precious metals down trend completes a reversal and start heading higher.
http://www.thegoldandoilguy.com/arti...overbought.png
How to Trade Precious Metals & Gold Miners Conclusion:
In short, I think that staying in cash or shorting metals is the play for the next couple weeks. After that anything can happen and until price breaks down or finally completes the basing pattern and confirms a market bottom I would be very cautious trading here.
Chris Vermeulen
www.GoldAndOilGuy.com
See more here.
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Trading Around Core Positions for Big Gains- DATA
Todays’ example is Tableau Software which we really like for long term growth, but there are going to be periods where the stock dips, and ebbs and flows. *Well, instead of sitting around doing nothing, we can make some money while holding a core position on the *swings.
We recommended the stock in the 54-55 ranges for a full position in June, a recent IPO.
The stock bucked and kicked but moved up to over 59 and we alerted our traders to sell 1/2 for 8-9% gains.
We waited quite a while and then a few weeks later we alerted to re-enter that 1/2 position sold in the 54-55 ranges again which we did.
Now back to a Full position, we sat on it for weeks and then after earnings we sold 1/2 at 72-73 for 30% plus gains, holding 1/2 long.
So here we are today, having booked 8-9% and 30% gains twice already, and still holding 1/2 the position from 55 at 69 per share.
http://www.activetradingpartners.com...0-data-atp.jpg
See morehere.
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Is 1,600 the Next SP500 Support Level?
Investors and traders alike are heading into the long weekend with a variety of potential risks facing them. The media has made us aware of the situation that is going on in Syria and that the United States may be planning a military strike.
Since the current Syrian situation arose, we have seen some strong volatility return to U.S. financial markets. The observed volatility has included both realized volatility and implied volatility in many of the various option chains. There are pundits who will surmise a variety of outcomes, but frankly no one knows for sure. Will oil prices spike if military action occurs in Syria? Will oil prices fall on a military action(s)? What will happen to gold? What will happen to risk assets? Will they find Jimmy Hoffa?
I have recently received several emails asking these questions. I have answered them all in the same manner. I have no idea what is going to happen in financial markets for sure. Anyone who says they do does not respect the randomness of markets. We can look at option based probabilities for some clues, but there is no definitive answer.
Instead I want to look at a very powerful tool that is available on most trading software platforms. Volume by price is a powerful tool to determine where key levels are in an index or price chart. The S&P 500 Index is shown below.
http://www.optionstradingsignals.com...8/Chart1-1.jpg
As can clearly be seen above, the obvious price points where we saw the most volume trade are highlighted. If price breaks below the current support level the 1,580 – 1,600 support zone is likely going to act as a magnet for price action.
Currently I think there is a high probability that we at least test the 1,600 price level in the next few weeks. The current probability that the 1,600 price level will be at least touched before the September SPX option expiration (expire in 20 days) is around 65% on Friday morning. The probability that the SPX touches 1,600 before the October SPX option expiration (48 days) is over 76%.
Clearly the implied volatility in the SPX option chain is telling us that odds are greater than 50% that prices work below the current support level over the next 3 – 7 weeks. Additionally we have strong volume by price data that indicates that the 1,580 – 1,600 price level will act as support.
I do not believe that making predictions is a great way to trade, but I think assumptions based on obvious support / resistance level as well as implied volatility based probability assumptions keep traders from making just pure guesses based on very little facts.
Back on August 16th I displayed the following chart in an article that was titled “Will 1,650 Offer Buying Support for the SP500?”.
*http://www.optionstradingsignals.com...8/Chart2-1.jpg
Unlike many market prognosticators, I will tell readers when I was wrong, when I was right, and when I was close. On August 16th I called for a bottom to play out around 1,650 and I was close. The bottom was actually formed intraday on August 21st. The forthcoming bounce rallied roughly 30 points before reversing back to the downside to our next support level around 1,630.
Ultimately we have the long weekend ahead and with Syria remaining in the forefront and the United States government fiscal debate looming down the road, markets could become quite volatile over the next 6 – 8 weeks. Traders need to act accordingly and manage risk through appropriate position sizing. Market conditions could get very interesting in the near future.
See more here.
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ATP Smashes Market In August- Updated Track Record
Our Track record updated through August 28th 2013, our last Closed out Trade.
During the month of August we opened and closed 12 Trade Positions.
Each position is assumed to be $20,000 for calculation purposes, but what matters is whether its a Full or 1/2 Position.
We can see our positions below resulting in gains of just over $6,000 assumed with a $60,000 weighted portfolio.
This is a 10% return vs -3.13% for the SP 500 during August using our methodology of swing trading.
http://www.activetradingpartners.com...august-atp.png
Taking our work from April 1st 2013 to August 28th 2013 we are up just over 53% weighted average non compounded vs 4.49% for the SP 500 index during the same period with a total of 57 open and closed positions, about 10-12 per month.
This assumes 3 open positions on average over that period of time and is based on all closed out trades.
http://www.activetradingpartners.com...t-to-83013.jpg
See more here.
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Oil Prices, Syria, and the Probability of a Price Shock
Oil prices have been in the spotlight as the Syrian chemical weapons crisis became front and center in the media. As the political process has unfolded, price volatility in oil futures in both directions has been extreme. Oil prices have traded in a wide range the past two weeks between $104 – $112 dollars per barrel.
As a professional option trader, I wanted to look at what the implied volatility within options on oil futures was saying about future oil prices. The oil futures option chain would give me some possible clues about near and intermediate term price direction.
As an options trader, I am constantly focused on implied volatility. I regularly look for stocks or futures that are showing implied volatility levels which are higher than their historical average. The very first thing I look at is the implied volatility skew across multiple option chains with different expiration dates. As such, when I looked at the oil futures option chains I noticed that the longer dated expirations had a slightly higher than normal implied volatility.
It is normal for the longer dated expirations to have higher volatility levels, but what was striking to me was the implied volatility in December was not much higher in the December oil futures options than what it is in the front month expiration. I found this odd so I looked at the spot oil futures prices going out in time. The following chart comes directly from www.cmegroup.com.
*http://www.optionstradingsignals.com.../09/Chart1.jpg
As can be seen, as you move out further in time the oil futures prices decline. This is a condition in the oil futures market known as backwardation.
According to Goldman Sachs in an article posted HERE:
“This rise in backwardation in oil, in our view, is not driven by the events in Syria, but rather by increasingly tighter fundamentals that are a result of the production shortfalls in Libya and Iraq against improving Chinese demand.”
Essentially Goldman Sachs’ analysts go on to say that they believe oil prices will see modest declines over the next 12 months, but the backwardation will likely lead to returns being mostly flat over the next year.
The fundamental backdrop according to Goldman Sachs appears to be bullish in the short-term based on supply data. Unfortunately fundamentals usually explain why an underlying asset moved the way it did after the fact. Making money in the short term as a trader is difficult when basing entry and exit decisions solely on fundamentals.
With the fundamental backdrop explained, I thought it would make sense to look at key technical levels in the oil futures price chart. The chart below illustrates key price levels based on recent price action in oil.
http://www.optionstradingsignals.com.../09/Chart2.jpg
Obviously the consolidation zone is setting up for a large move in oil prices. The more important question to answer is which direction will oil prices move? Will we see activity or supply data that pushes prices above the resistance zone? Under that scenario, the next logical price target for oil would be between $121 – $130 per barrel.
Should prices reverse course and break below support we should see strong buyers come in around the $90 – $95 per barrel price zone. At this point, the next stage in my analysis is going to be probability based support and resistance for oil futures.
This process has to do with calculations involving implied volatility to derive a probability based on price action today. Clearly those probabilities change constantly, but the probability data set is accurate in real time or at the time of entry.
Traditionally I will use standard deviations to help determine price ranges as well as setting up trades that are directional such as credit or debit spreads. Other times I will use standard deviations to place credit spreads like Iron condors which focus more on the passage of time and are generally more agnostic to price action.
One standard deviation is typically calculated as 68%. Based on the options on oil futures which expire in 36 days on October 18th, a one standard deviation move would place oil prices around $103 per barrel to the downside. A one standard deviation move to the upside based on Wednesday’s closing prices would put oil prices around $110 per barrel.
Interestingly enough, the price range expectations for a one standard deviation move from current prices today (09/11) at the close fits precisely into the price range discussed above using technical analysis.
Varying data lining up like this does not always happen this precisely, however when key price levels line up in this manner it should not be ignored. The option data is basically indicating that there is a better than 68% probability that in 36 days the price of oil will be in the $103 – $110 per barrel price range.
The oil futures price chart shown below illustrates a two standard deviation move. The lines drawn on the chart below demonstrate the next key price levels should a 2 standard deviation move occur from the current price at the October option expiration.
http://www.optionstradingsignals.com.../09/Chart3.jpg
It is important to understand that there is roughly a 10% probability that oil will even touch either key price level shown above before the October 18th expiration. So what do all of these probability calculations tell us?
Right now the implied volatility in the options that expire on October 18, 2013 based on current oil futures spot prices has a low probability of seeing a surge higher or a major move lower. The option data essentially concurs with Goldman Sachs fundamental view that oil prices are likely to stay in a trading range and probabilities do not favor a big unexpected move.
I would point out however, that the probabilities for a big move are not 0%. There is a 1 in 10 chance that we see a big surge or breakdown in price. As far as I am concerned, this is the option markets calculated odds on any major escalation taking place in Syria or the Middle East prior to October 18, 2013.
I think in the short-term we could see oil futures prices move up toward $115 / barrel. However, the probabilities simply do not favor a prolonged move above that level. Furthermore, it seems likely that when the Syrian debacle concludes that prices will be more likely to be in the $103 – $110 price range in roughly one month.
Instead of reading articles written by pundits who are making price projections based on an educated guess, why not let the options market be a guide for where the marketplace is pricing in the next move. The analysts that are calling for a monster move in oil in the near term have roughly a 10% probability of being right. I will let readers decide whether a pundit or the option pricing in oil futures is likely to be more accurate.
See more here.
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Indexes continue to sputter on news out of Washington
While the indexes continue to sputter on news out of Washington, we continue to focus on the charts and trade with the trend and what we see.
As usual, the media is playing with human emotions – Fear. As talked about before, fear in my opinion the most powerful emotion and force in the financial market. So when true fear hits the country it will be clear to see, but right now, investors are in no rush to sell their positions in stocks just yet.
If our leaders fail to come to some agreement in the next couple weeks the question many want to
know is
How Will We Trade This Event/News?
The answer: we ignore it. Though we could reduce position sizes to be safe when the time comes on Oct 17th.
During most bull markets, there is typically a “wall of worry” to traders and investors climb. The details are different every time, but there are usually one or two major “risk factors” that investors worry about when the broad market is trending higher.
Traders and investors who focus on doom and gloom headlines are more than likely to be shaken out of their long positions…especially those who lack conviction in their trading system.
Conversely, I focus on individual price and volume action of leading sectors and ETFs.
Holding long positions through market corrections is never easy, but it is NOT our job to decide when a trend is over.
If we approach trading with a clear and objective mindset, the stock market will always tell us what to do, based on the price, cycles and volume action. If our ETF positions sell off to trigger our protective stops, we will simply be forced into 100% cash position.
The beauty of such a rule-based trading is that it removes some human emotion and guesswork from trading.
This increases our long-term trading success, and the added benefit of being calmer and stress-free, regardless of what is happening in the stock market.
http://www.thegoldandoilguy.com/arti...NewsNeeded.png
Trading Plans…
If you are new to swing trading, or have had little success in the past with trading, it is a great idea to get in the habit of planning your trades (trading rules) and trading your plan.
You must continually try to identify all potential outcomes before entering a trade.
If you do, then you should not be surprised when price moves because you realize that anything is possible, and you have already accounted for it and used proper position management to protect capital and lock in partial gains.
Trading with rules allows you to prepare and worry before the trade takes place, so that you can focus on executing the plan when the time comes.
Above all, focus on the price, momentum and volume action, rather than the amount of profit or loss a trade is showing in your account.
If you focus on proven trading rules and execution, consistent trading profits will eventually and inevitably follow.
See more here.
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Who Knows More: The S&P 500 Options or Financial Pundits?
By now the major media outlets have made sure to inform the public that the U.S. government is shut down, or partially shut down depending on your political perspective. Most financial pundits are looking to the recent past for clues about what to expect in the future.
While the situation appears to be similar to what we witnessed in 2011 with the debt ceiling debacle, the outcomes may be significantly different. I am a contrarian trader by nature, and as such I am constantly expecting for markets to react in the opposite way from what the majority of investors expect.
A significant number of financial pundits and writers all have a similar perspective about what is likely to occur. It seems most of the financial punditry believe that until there is a resolution in the ongoing government debacle, market participants should expect volatility to persist. Some of the talking heads are even calling for a sharp selloff if no decision on the debt ceiling is made by early next week.
The debt ceiling decision needs to be made by midnight on October 17th otherwise the first ever default on U.S. government debt could occur. Thus far, the volatility index (VIX) has moved higher as investors and money managers use the leverage in VIX options to hedge their long exposure.
As can be seen below, we are seeing the VIX trade at the second highest levels so far in 2013.
http://www.optionstradingsignals.com...0/Chart1-3.jpg
The volatility index (VIX) is clearly sending a warning signal about risk in the S&P 500 Index based on price action. However, that warning signal relies on current uncertainty in the marketplace. Most sell side analysts and economists believe that once a deal is done, risk assets will rally. What happens if they are wrong?
Trying to play a fool’s game by calling future price action correctly without supporting facts in hopes of being right is not honest analysis or commentary. Instead, why wouldn’t investors put the situation in context using information available from calculations derived from option chains? I want to be clear in saying I have no earthly idea what is going to happen once a deal is reached or when said deal will be reached. I have no idea!
Readers should be completely leery of anyone trying to tell you what is going to happen with supposed certainty. Whether they want to admit it or not, no one in the financial punditry knows for sure what is going to happen.
I believe that the options marketplace is much more competent about future price action than some financial pundit or sell side analyst that is trying to push their book of assets. As such, the S&P 500 Cash Index (SPX) option chain is shown below:
http://www.optionstradingsignals.com...0/Chart2-2.jpg
As can be seen above, the probability that the SPX 1,620 October 10/25 Put expires worthless is roughly 68%, or 1 standard deviation from Wednesday’s closing price. The probability of the SPX 1,685 October 10/25 Call expiring worthless is also roughly 68%, or 1 standard deviation to the upside from Wednesday’s closing price.
As of the closing bell on Wednesday, October 9th the SPX options chain is telling us that there is a 68% probability that price will stay between 1,620 and 1,685 by the close of business on Friday, October 25th.
Where the probability analysis gets interesting is when we look at a 2 standard deviation move which gives us a near 90% probability of being accurate with our expected price range. The 2 standard deviation move from the October 9th close on the put side is 1,525. The 2 standard deviation move from the October 9th closing bell on the call side is 1,720.
Thus, as of the closing bell on Wednesday, October 7th the SPX options chain is telling traders that there is a 90% probability that the S&P 500 Cash Index (SPX) will close on October 25th between 1,525 and 1,720.
This analysis gives us some expected price ranges for the S&P 500 in the near future. However, there is something I want to point out to readers about what the SPX option chain is telling careful observers. As of the close of business on October 9th, the S&P 500 Cash Index closed the day at 1,656. At this point we need to revisit the previous price ranges.
The one standard deviation (68%) price range is shown below:
http://www.optionstradingsignals.com.../10/Chart3.jpg
As can be seen, the 1 standard deviation price range is centered fairly well with the closing price on 10/09. However, it should be noted that the SPX options chain is implying slightly more risk to the downside. Consequently, something rather significant occurs when we look at the 2 standard deviation (90% probability) expected range for the SPX options chain.
The two standard deviation price range is shown below:
http://www.optionstradingsignals.com.../10/Chart4.jpg
The upside expectation that has a 90% probability of being accurate implies a 3.86% increase potential by October 25th. However, the 90% probability of being accurate to the downside implies a -7.91% move. Clearly the option market is telling us that the marketplace believes there is much more possible risk to the downside.
The question I would pose to readers and financial pundits alike is the outcome no one is talking about. What is the least likely outcome for the markets to traverse? In my humble opinion, the least likely expectation would be that we get a resolution regarding the government shutdown and the debt ceiling. Then as expected risk assets rally sharply higher, only to reverse and selloff sharply a short time later.
That would be the least likely scenario that market participants would expect and a large downside move is being priced into the S&P 500 Index option chain. I want to reiterate that I have no idea what is going to happen, but what I do know is the S&P 500 Index options are telling us that it is possible for a large selloff to potentially occur.
The most important question of all is what source of information is more credible? Is information coming directly from the marketplace in an extremely liquid underlying asset like SPX options credible? Or is a financial pundit trying to push their book of assets or their firm’s book a more likely source of honest information? I will let readers decide.
See more here.
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Why Investors Must Be Cautious At These Prices
Last week on October 8th the financial market experienced a broad based sell off. Every sector was down with utilities being the only exception.
The individual leadership stocks, which are typically small to mid-cap companies (IWM – Russell 2K) that have a strong history and outlook of earnings growth, were hit hard as well.
Whenever the broad market experiences a price correction, one of the most important factors I analyze is*how well leading stocks hold up and show relative strength*to the broad market.
So, where does this leave us going forward?
When stocks that have been leading the market higher and only pausing during market corrections in the S&P500, Dow, and NASDAQ, it’s a positive sign. This tells us investors and big money continues to flow into the risk on assets (stocks).
Conversely, when these leading stocks/sectors begin succumbing to the selling pressure of the broad market, it quickly grabs my attention and tells us it’s*time to be aware that a major top may be forming.
It looks as though the broad market rally is just barely hanging on. If the leading stocks and sectors begin breaking below their 50-day moving averages, my proprietary*SP500 Market Timing & Trading System will shift to sell mode and things could get ugly for those who do not know how to trade a bear market.
Weekly Relative Strength Showing Negative Divergence
This chart has two important things I would like to point out. First is the fact that the RSI has being overbought twice in the past three years with the most recent one taking place a few months ago. The last time this took place the SP500 had a very strong correction.
The second insight the RSI is providing us with is the diverging price and relative strength as shown with the purple lines on the chart below. This is telling us that the power/momentum behind the market is slowing.
http://www.thegoldandoilguy.com/arti...13/10/div1.png
Daily Bullish Percent Index – Shows Negative Divergence
I always prefer to watch and analyze the NYSE as it’s the big board where all the HUGE money is flowing from traders and investors. The chart below clearly shows that less stocks are moving higher as seen with the purple bullish percent index line. With less stocks making new highs, yet the stock market continues to climb this is a warning sign that this bull market is slowly running out of steam.
http://www.thegoldandoilguy.com/arti...13/10/div2.png
Technology & Financial Sector Are Rising But For How Long?
Two very powerful sectors are holding up well but once they start to breakdown from these chart patterns things could get ugly real quick. Our 3x ETF trading newsletter becomes very active in bear markets as the upside potential is much larger.
The XLK technology sector looks to be forming a bearish rising wedge. If/once it starts to slide it will have a strong impact on the broad market.
http://www.thegoldandoilguy.com/arti...13/10/div3.png
Financial Sector XLF
The recent price action of scattered trading ranges looks to be similar to the top we saw in 2011. If this is the case then we have bearish head & shoulders pattern with a rising neckline forming. Once price breaks through the neck line we should expect sharp drop in price.
This sector is heavily weighted in the SP500 so if it start to drop, expect the SP500 to fall with it.
http://www.thegoldandoilguy.com/arti...3/10/dvi41.png
Major Market Top Lurking…
The chart below pointing out the next bear market likely to take place is a scary looking chart to most individuals. But if you know what you are doing, they can provide more profits in a shorter period of time than a four year bull market.
If this market is starting to stall out and is in the process of forming a top. Keep in mind that market tops are a process. They take typically 3-6 months to form before a true breakdown occurs and the bear market starts. And until then, price will be choppy and difficult to trade.
http://www.thegoldandoilguy.com/arti...majorcycle.png
Cautious Trading Conclusion:
In short, this report shows you some major divergences in the financial market. Remember, you do not really trade off divergences, as they are not good at timing. They are simply a warning sign telling us that something large is brewing and that risk is higher than normal.
There are few ETFs I like on various sectors and commodities that show some oversized upside potential in the coming weeks/months. Depending on what takes place in Washington this week will move the market and likely trigger some sharp moves. Until then, sitting tight is the safe play.
See morehere.
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Precious Metals: Gold, Silver and Miners Are Trapped
The precious metal market has been stuck in a strong down trend since 2012. But the recent chart, volume and technical analysis is starting to show some signs that a bottom may have already taken place.
This report focused on the weekly and monthly charts which allow us to see the bigger picture of where the precious metals sector stands in terms of its trend.
Gold Spot Price – Weekly Chart
This chart clearly shows the trends which gold has gone through in the last three years. With simple technical analysis trend lines, clearly price is nearing a significant apex which will result in a strong breakout in either direction.
Remember, this is the weekly chart, so we could still have another month or three of sideways
chatter to work through. But a breakout in either direction will trigger a large move.
http://www.thegoldandoilguy.com/arti.../goldtrend.png
Silver Spot Price – Weekly Chart
Silver is also stuck in a similar pattern.* Currently the odds still favors lower prices and for the upper resistance trend line to reject price and send it lower. But if we keep out eye on the leading indicators like gold miners, we may be able to catch a breakout or traded the rejection of resistance in the next month or so.
http://www.thegoldandoilguy.com/arti...ilvertrend.png
Gold Mining Stock ETF – Monthly Chart
Gold miners have a very sloppy looking chart. Price is extremely volatile and the recent price action in 2013 could go either way VERY quickly. I have a gut feeling GDX in the coming months could have a washout bottom and tag the $20 price level. While I hope I am wrong for many investors sake, if it does happen, it will be a very strong investment level to accumulate a position.
http://www.thegoldandoilguy.com/arti...0/gdxtrend.png
Precious Metals Bigger Picture Outlook:
In short, I remain neutral – bearish for this sector.* In the next 1-3 months we are likely to see some strong price action which will be great. We need a breakout or bottoming pattern to form before we get involved at this level.
I know everyone is dying to get involved in precious metals again for another huge rally… but sometimes it’s just best to wait for the big picture chart to catch up with your bias before taking a position of size.
See more here.
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The Great American Wall Of Worry – US Stock Market
Traders and investors all around the world is having trouble climbing over the wall of worry/fear with the US stock market, and rightly so. There is a lot of things taking place and unfolding that carry a high level of uncertainty. Let’s face it, who wants to invest money into the market when it’s hard to come by (high unemployment, banks are still extremely tight with their money, companies are nowhere near wanting to hiring new staff).
The hard pill to swallow is the fact that the stock market loves to rise when uncertainty is high. It’s almost doing it just to drive investor’s nuts who sold out near market bottom or recent correction. You must overcome the urge to short the market when the economy looks so bearish in the years ahead, and continue to trade with the trend.
Short Term Investing – Weekly Volatility Index Chart
Below you can see the fear index. The chart is self-explanatory showing where it should move next. But if you are not familiar with the VIX then here is definition by investopedia:
“The first VIX, introduced by the CBOE in 1993, was a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors’ expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.”
http://www.thegoldandoilguy.com/arti...VixBottom1.png
Weekly Investing Chart of the SP500 Index
After reviewing the VIX chart above which points to stocks nearing a level of selling pressure, then review the chart below we come to a conclusion that a minor pullback of 2-5% is likely to take place in the next week ortwo.
The divergence in the Relative Strength Index is a bearish sign for the broad market. While I feel a pullback is do and needed for the market to regroup, it is important to review the seasonality chart and know that we are entering one the strongest times of the year for stocks.
http://www.thegoldandoilguy.com/arti...Divergence.png
SP500 Seasonality Chart
Again, using the data from the previous two charts along with this graph clearly shows that a pullback in the stocks is likely going to be bought back up by the brave investors willing to override their fear and go with the trend. For more interesting charts check out my stock chartlists:*https://stockcharts.com/public/1992897
*http://www.thegoldandoilguy.com/arti...easonality.gif
The Wall Of Worry Conclusion:
In short, expect the stock market to correct in the next week or two. But once we get a correction of two percent or more, be prepared for buyers to step back in and buy things up into year end.
This WALL OF WORRY is about to GET HIGHER!
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Chris Vermeulen
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Stock Market Trend – Eye Opening Information
My Stock market trend analysis is likely different from what you think is about to unfold. Keep an open mind as this is just showing you both sides of the coin from a technical stand point. Remember, the market likes to trend in the direction which causes the most investor pain.
Since the stock market bottom in 2009 equities has been rising which is great, but this train could be setting up to do the unthinkable. What do I mean? Well, let’s take a look at the two possible outcomes.
The Bear Market Trend & Investor Negative Credit
The S&P500 has been forming a large broadening formation over the last 13 years. The recent run to new highs and record amounts of money being borrowed to buy stocks on margin has me skeptical about prices continuing higher.
Take a look at the chart below which I found on the ZeroHedge website last week. This chart shows the SP500 index relative to positive and negative investor credit balances. As you can see we are starting to reach some extreme leverage again on the stock market. I do feel we are close to a strong correction or possible bear market, but we must remember that a correction may be all we get. It does not take much for this type of borrowed money to be washed clean and removed. A simple 2-6 week correction will do this and then stocks will be free to continue higher.
http://www.thegoldandoilguy.com/arti.../10/credit.gif
Monthly Bearish Trend Outlook
Below you can see the simple logical move that should occur next for stocks based on the average bull market lasts four years (it has been four years) and the fact the negative credit is so high again.
Also, poor earnings continue to be released for many individual names across all sectors of the market. While corporate profits may be holding up or growing in some of the big name stocks, revenues are not. This means the big guys are simply laying off workers and cutting costs still.
Overall the stock market is entering its strongest period of the year. So things could get choppy here with strong up and down days until Jan. After that stocks could start to top out and eventually confirm a down trend. Keep in mind, major market tops are a process. They take 6-12 months to form so do not think this is a simple short trade. The market will be choppy until a confirmed down trend is in place.
http://www.thegoldandoilguy.com/arti.../MajorBear.png
Monthly BULLISH Trend Outlook
This scenario is the least likely one floating around market participant’s minds. It just does not seem possible with the global issues trying to be resolved. With the Federal Reserve continuing to print tens of billions of dollars each month inflating the stocks market this bullish scenario has some legs to stand on and makes for the perfect “Wall of Worry” for stocks to climb.
The US dollar is likely to continue falling in the long run, but I do not think it will collapse. Instead, it will likely grind lower and trade almost in a sideways pattern for years to come.
http://www.thegoldandoilguy.com/arti...ForThought.png
Major Stock Market Trend Conclusion:
In summary, I remain bullish with the trend, but once price and the technical indicators confirm a down trend I will happily jump ships and take advantage of lower prices.
Remember, this is big picture stuff using Monthly and quarterly charts. So these plays will take some time to unfold and within these larger moves are many shorter term opportunities that we will be trading regardless of which direction the market is trending. As active traders and investors we will profit either way.
See morе here.
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Trading DATA Stock with Elliott Wave Theory for Massive Profits
Trading around a core position using elliott wave analysis: DATA
Often you can spend a fair amount of time with “dead money” in a growth stock that you love, but again, your money is sitting dead for weeks or even months on end while you hold it.
What we often do at ATP is try to trade around a Core long position, in this case we look at DATA (Tableau Software).
We first picked up a Full position at around $55 per share in the late summer
We sold 1/2 at 59, bought it back at 55 for a net average of 51 on 1/2 the position.
Then we sold that 1/2 at 72-73 after 2nd quarter earnings for huge 32% gains
Then we just bought it back at 60-61 when that gap in the chart we watched for a few months finally filled last week.
We just sold that 1/2 for 69 this morning for a 14% gain
We still hold the original 1/2 from 55, but net net we have booked huge gains by trading around this core holding.
Below is the chart showing you our entry and exit points, and again in the meantime we continue to hold the original 1/2 from $55.
55-59- *9%
55-73- 32%
61-69- 14%
So 3 trades of 9, 32 and 14% on 1/2 , while still holding 1/2 currently up 25%.
http://www.activetradingpartners.com...13/10/data.jpg
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SP 500 in Major 3 Final Stages Using Elliott Wave Analysis
The SP 500 staged an improbable come back on Friday November 8th from the 1747 lows of Thursday.
As it turns out, an examination of the shorter term waves can call the low at 1747 an ABC wave 4 bottom, and now wave 5 up to complete Major wave 3 seems under-way. Our Elliott Wave analysis continues on track, but a few short term adjustments are in order.
We had Elliott Wave targets of 1768-1829 for weeks now in that wide range. At 1829 we have symmetry with a 562 point rally from 1267 Major 2 lows, and that 562 is virtually identical to *the 666-1221 wave structure off the bull market cycle lows in March 2009. *That rally was 555 points, so at 1822 in fact we would have a nice neat 555 point Major 3 rally of Primary 3 to equal the initial leg up of Primary 1
Below is our updated Elliott wave analysis for the market:
Key support is 1747, the 20 day moving average, below that and we have a truncated 5th wave of Major 3 and we head lower….
So lets look at 1778 resistance again (704 point rally off the 1074 Primary 2 lows and equal to 704 point Primary 1 rally)
And then 1822 as next up in line.
1778 resistance, 1747 key support, 1822 next top target.
http://www.themarkettrendforecast.co...mtf-sp-500.jpg
http://feeds.feedburner.com/~r/TheMa...~4/tKFL2UZwTHQ
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Option Probabilities Spell Possible Trouble for Treasury’s
The incredible rally in equities in 2013 has begun to stir concern among many that the stock market is now in a bubble. We have entered the euphoric stage of this bull market and equity prices cannot and will not go lower according to some talking heads in the financial punditry.
While chatter is starting to heat up that equities are in a bubble, the real bubble seems to be ignored for the most part. The larger, more concerning bubble is in the Treasury marketplace where the Federal Reserve continues to print money to purchase treasury bonds to help keep interest rates artificially low.
Instead of debating the bubbles in Treasury’s versus equities, or trying to predict when the bubble in either asset class may pop, I want to focus on the near term for price action expectations in longer-dated Treasury bonds.
Below is a weekly chart of the Treasury ETF TLT which is supposed to reflect the price action and yield generation of a portfolio of 20+ year duration Treasury bonds issued by the U.S. federal government.
http://www.optionstradingsignals.com...1/Chart1-4.jpg
I have identified the key support areas which are supported by the price by volume indicator as well. No one in the financial media seems interested in discussing the nearly 13% drop year-to-date we have seen in longer-dated Treasury bonds shown above.
Furthermore, based on current price action we could see lower lows in the days and weeks ahead if price breaks below near-term support levels around $102.20 / share. I wanted to take this analysis one step further and look out into the future from an option trader’s perspective.
Based on the bill which was recently passed to reopen the government, there are two key dates which could impact Treasury bonds. The recently passed bill keeps the government open until January 15, 2014 at which point Congress will either compromise on a budget or accept additional sequester cuts. Furthermore, if no compromise is achieved and the sequester cuts are not favored, the federal government could shut down again.
The other key date is February 7th which is the date where Congress will yet again hit the debt ceiling. It is likely that through special measures the Treasury can push that date beyond February. However, the debt ceiling discussion will yet again impact government bonds as the threat of another default will likely emerge if recent discussions are any blueprint for the future.
Since the key dates are known, it allows option traders to focus on a specific expiration month. Based on the debt ceiling date of February 7, I wanted to look at the March 2014 TLT option chain for clues about what the options marketplace is indicating about any future event(s) and the potential impact on Treasury prices.
The first thing I did was to check the implied volatility of the various monthly option expirations and I found a glaringly obvious warning signal. The table shown below demonstrates that implied volatility is higher on the March 2014 options than the December or January expirations.
Expiration Month |
Implied Volatility – 11/14/13 Close |
December Monthly |
11.95% |
January Monthly |
12.17% |
February Monthly |
12.57% |
March Monthly |
13.20% |
The March 2014 option series has 10.46% more implied volatility than the December 2013 monthly option series based on the November 14th close. As can be seen above, the March monthly expiration has considerably higher implied volatility than the rest of the expiration series leading up to March.
Essentially this implied volatility skew is telling us that the option market believes that volatility will increase as we move into the March to April time frame. This corresponds with my expectations that Treasury’s may see serious price volatility late in the first quarter of 2014. The timeline fits nearly perfectly with the next debt ceiling discussion.
The next examination I look at is standard deviation based price levels to ascertain clues about the market’s expectations in the future. The TLT March 2014 monthly put option chain is shown below with the 1 standard deviation and 2 standard deviation price points highlighted.
http://www.optionstradingsignals.com...1/Chart3-1.jpg
The chart above illustrates the closing price levels on November 14, 2013. As can clearly be seen, the 99 strike is roughly 1 standard deviation (68% probability) lower from the closing price of $104.52 / share. A 2 standard deviation move (90% probability) corresponds with the 91 put strike.
What the March 2014 put option chain is telling probability based option traders is that implied volatility levels are indicating that there is a 68% probability that TLT closes above $99 / share. There is a 90% probability that price closes above $91 / share at the March monthly expiration. Now we will look at the call side of the March 2014 TLT option chain.
http://www.optionstradingsignals.com...1/Chart4-1.jpg
The closing price on November 13, 2013 was $104.52 / share. A 1 standard deviation (68% probability) corresponds to the 107 strike. A 2 standard deviation move (90% probability) corresponds with the 112 strike. Thus, there is a 68% probability that TLT closes below $107 / share at the March monthly option expiration. There is a 90% probability that price closes below $112 / share.
So what does this data tell option traders looking at probabilities? The answer is simple. The TLT March 2014 options’ implied volatility levels are telling us that presently the marketplace believes that TLT has a higher probability of being lower than today’s closing price of $104.52 / share on March 21, 2014.
There is a 68% probability that the price of TLT at the March expiration will be between $99 – $107 / share. There is a 90% probability that the price of TLT at the March expiration will be between $91 – $112 / share.
The one standard deviation upside strike is $107 / share which is just 2.37% above $104.52 / share. The downside strike is $99 / share which is 5.28% below today’s closing price. Based purely on those numbers, there is nearly a 2 : 1 probability that TLT’s closing price on March 21, 2014 will be below today’s closing price of $104.52 / share.
The same situation is true when we look at the 2 standard deviation predicted price range. The 90% probability upside target is $112 / share which would correspond with a 7.15% move to the upside. However, the 90% downside target is $91 / share which would correspond with a 12.93% move to the downside from today’s closing price.
I want to be clear that this does not mean TLT’s price will go down for sure. It is merely a road map as to what TLT’s option chain is indicating about future price action. It is without question that the implied volatility levels in March TLT options indicate that there is risk ahead regarding Treasury bonds.
Whether the risk revolves around the debt ceiling debate or a possible taper from the Federal Reserve is hard to know for sure, but at this point TLT is nearly 2 times more likely to move lower in the months ahead.
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Silver, Gold & Miners About To Sell Off Again
Silver, Gold & Miners About To Sell Off Again
A couple weeks ago I posted these same charts talking about the pending breakout (in either direction) with silver, gold and mining stocks. Fast forwarding to this week its clear this sector continues its struggle to rally. Key support levels are now being tested and if these levels fail prepare for a sharp correction with mining stocks showing the most downside potential of roughly 25% for the GDX ETF trading fund.
Let’s take a quick look at what is going on.
Gold Trading Chart:
The chart of gold shows price being wedge into the apex of the down sloping resistance trend line and the rising support trendline. Gold was trading below this level but has since bounced. But if gold closes the week below this line in the sand the price could start to fall quickly and test the $1200 per ounce within a week or two.
http://www.thegoldandoilguy.com/arti.../11/gold18.png
Silver Trading Chart:
Silver is under performing gold and trading below its support level currently. If silver does not recover by Friday’s closing bell then things could get ugly for a few weeks as investors start to exit their positions. That being said, I need to point out that silver is more of a wild card when using trend lines like this. Both gold and gold miners should be confirming this breakdown in silver if it is the real deal.
http://www.thegoldandoilguy.com/arti...1/silver18.png
Gold Mining Stocks ETF:
The chart of gold miners I like the most. I like it because it’s pointing to lower prices, roughly 25% lower if the breakdown takes place. Gold mining stocks could be a fantastic long term investment if we see the $17.50 level reached on this GDX etf.
http://www.thegoldandoilguy.com/arti...3/11/gdx18.png
See more here.
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Dollar Index ETF Trading Strategy
We all know quantitative easing devalues the Dollar but contrary to that general statement it looks as though we could see the dollar index continue to rise for a few more weeks.
If we analyze the chart of the Dollar ETF (UUP) it is clear that the short term momentum has turned up. The break above the down trend line and recent bounce off support bodes well for the dollar index.
The bull flag chart pattern that has formed in the past month has a measured move price target of roughly $22.30. The level also happens to be a key pivot point on the chart along with high volume resistance.
I expect the dollar to continue to work its way higher over the next week or two with $22.30 being the line in the sand where sellers will jump on price and drive it back down, or at minimum force price to consolidate for a few days.
US Dollar ETF Trading Strategy – Daily Chart Analysis
http://www.thegoldandoilguy.com/arti...013/11/UUP.png
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When To Trade? My Algorithmic Trading System Shows You
Pre Algorithmic Trading System Analysis: This week has been a little wild as stocks pulled back due to headline news. The two big drops which took place on heavy volume sent market participants into an emotional state liquidating their long positions on fear of a collapse. Even though the stock market shows no sign of the trend reversing down, traders are jumpy and quick to lock in gains with any negative new. Sounds like a “Wall Of Worry” to me.
Taking a look at the ES mini futures chart below which is a ten minute intraday chart. It is clear the recent pop in price is testing high volume resistance as seen on the chart with the blue horizontal bars.
Also the previous pivot highs and consolidations on the chart highlighted in red also confirms there is price resistance at this level. Thursday’s rally is likely ready for a little pullback or sideways consolidation at this point based on this information.
http://www.thegoldandoilguy.com/arti...11/firstrz.png
If we take a look at the Barchart Market Momentum index which is something I follow closely because it tells me when stocks have moved to far too fast in either direction. In simple terms, the market is either overbought or oversold when this chart reaches either extreme.
When the market closes with this indicator in the overbought or oversold zone, you should expect a pause or 1-3 day reversal in the opposite direction.
But keep in mind, when the trend is up, the only high probability zone to focus on is the oversold. We want to buy dips within an uptrend, and take partial profits or tighten our stops when the stock market is over extended to the upside. This is exactly what members and myself did today, locked in some profits and tightened our stops, well my Algorithmic Trading System told us to do it…
http://www.thegoldandoilguy.com/arti...1/Momentum.jpg
Logical Market Analysis Combined with Automated Algorithmic Trading System
Reviewing the charts for high volume resistance levels, previous pivot highs and lows, and a close eye on the Barchart momentum index like we just did in this report is only the tip of the iceberg when it comes to complete market analysis.
There are many other things one should analyze for precision market timing of the broad market. The stock market has several different forces at play which move price and using a type of analysis which I call INNER-Market Analysis allows us to capture all the market moving forces within one indicator. This February when my book is published on INNER-Market Analysis and algorithmic trading systems all this information will be available if you would like to learn more.
Some other areas of the market which must be analyzed are trends, active cycles, volatility, volume flows, and market sentiment to name a few.
Over the years I have been converting the way I analyze the market into an algorithmic trading system that catches each overbought and oversold market condition on specific chart timeframes. I have also implemented position and money management rules for the algorithm to trade in my brokerage account completely hands free which I must admit is the coolest feeling thing to experience.
What is an algorithmic trading system?
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A trading algorithm is nothing more than a bunch of rules which you create (your trading strategy) converted into a computer language so a financial charting platform can run your trading strategy automatically. Everything is done for you including the trading. The only thing the system creator needs to do is monitor the algorithmic trading system for technical issues and possible tweaks here and there.
Take a look at the 30 minute algorithmic trading results
Since Oct 30th the S&P500 index has been chopping around and shaking traders out of their long and short positions with intraday price whipsaws (nominal new highs and lows which runs the stops of the average market participant). The index is only risen by 1.2% in the last 23 days while my algorithmic trading system which trades the S&P 500 index futures (ES Mini) and/or (3x Leveraged ETFs UPRO & SPXU) has been pulling money out of the market at an incredible rate.
http://www.thegoldandoilguy.com/arti...lgoTrades1.png
Conclusion About Using an Algorithmic Trading System:
Trading or investing for that matter is no easy task. And I know firsthand that even if one has a proven winning strategy it’s almost impossible follow the rules and catch every trade setup generated. I do not know how many times I see perfect setups about to unfold and then miss them because I was reviewing other charts, sending an email, going to the washroom or grabbing a bite to eat.
These missed opportunities along with a few other reasons I will explain in my next post, is what got me started programming my trading strategies to do exactly what I showed you here.
I will admit, it has been a major learning process, ridiculously expensive to create and I can safely say that I now know several of the main stream programmers available. I also know who can make miracles happen and who cannot.
This post is to share with you some new and exciting things unfolding based around my index trading strategy. Over the next week I will share my story of how algorithmic trading became my focus, passion and automated income stream and how you can do it also.
Chris Vermeulen
See more here.
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Silver, Gold & Miners ETF Trading Strategy
Precious Metals ETF Trading: It’s been a week since my last gold & silver report which I took a lot of heat because of my bearish outlook. Friday’s closing price has this sector trading precariously close to a major sell off if it’s not already started.
On a percentage bases I feel precious metals mining stocks as whole will be selling at a sharp discount in another week or three. ETF funds like the GDX, GDXJ and SIL have the most downside potential. The amount of emails I received from followers of those who have been buying more precious metals and gold stocks as price continues to fall was mind blowing.
If precious metals continue to fall on Monday and Tuesday of this week selling volume should spike as protective stops will be getting run and the individuals who are underwater with a large percentage of their portfolio in the precious metals sector could start getting margin calls and cause another washout, spike low similar to what we saw in 2008.
ETF Trading Charts:
Below are updated with Friday’s closing prices showing technical breakdowns across the board..
http://www.thegoldandoilguy.com/arti...oldselloff.png http://www.thegoldandoilguy.com/arti...verselloff.png http://www.thegoldandoilguy.com/arti...ningstocks.png
Sweet & Sour ETF Trading Analysis:
Just to make things a little more interesting I would like to point out a couple other types of analysis.
http://www.thegoldandoilguy.com/arti...013/11/cef.png
Sweet: Through analysis of the CEF Central Fund of Canada Ltd. chart and evaluation it is clear precious metals are falling out of favor at an increased rate. This fund owns physical gold and silver bullion and investors are fleeing the fund so fast that it is now trading at a 7% discount of its asset value. While this may not seem good for metals I see it as a positive.
When everyone is running for one door after an extended moves has already taken place it tends to act as a contrarian indicator. Knowing that some of the largest percent moves in a trend takes place before reversing, I see this information as an early warning that a bottom will soon be put in place.
Sour: While the USD index has not been much help compared to 2012, I feel as though a rising dollar is likely to unfold for a couple weeks which may lend a hand to pulling the precious metals sector down.
http://www.thegoldandoilguy.com/arti...11/uupsalt.png
Precious Metals ETF Trading Conclusion:
While I am starting to get bullish for a long term investment in precious metals I know that a bottom has likely not yet been made. But even if it has been, it is better to buy during a basing pattern or breakout to the upside from a basing pattern than to be underwater with a position for an extended period of time along with all the other negatives that come along with it.
I do like the idea of CEF as a long term investment when I feel the time is right. I have invested and traded it many times in the past. The key to trading the fund is to be sure you are buying it at fair value or a discount from the net asset value. You do not want to be buying it when it is trading at a 5-7% premium. The fund owns both gold and silver making it a simple diversified precious metals play.
See more here.
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Fundamentals Rendered Irrelevant by Fed Actions: Probability Based Option Trading
The fundamental backdrop behind the ramp higher in equity prices in 2013 is far from inspiring. However, fundamentals do not matter when the Federal Reserve is flooding U.S. financial markets with an ocean of freshly printed fiat dollars.
As we approach the holiday season, retail stores are usually in a position of strength. However, this year holiday sales are expected to be lower than the previous year based on analysts commentary and surveys that have been completed. This holiday season analysts are not expecting strong sales growth. However, in light of all of this U.S. stocks continue to move higher.
Earnings growth, sales growth, or strong management are irrelevant in determining price action in today’s stock market. In fact, the entire business cycle has been replaced with the quantitative easing and a Federal Reserve that is inflating two massive bubbles simultaneously.
Through artificially low interest rates largely resulting from bond buying, the Federal Reserve has created a bubble in Treasury bonds. In addition to the Treasury bubble, we are seeing wild price action in equity markets as hot money flows seek a higher return. Usually fundamentals such as earnings, earnings estimates, and profitability drive stock prices. However, as can be seen below the U.S. stock market is being driven by something totally different.
http://www.optionstradingsignals.com.../Chart1-41.jpg
The chart above is beginning to illustrate that fundamentals are becoming irrelevant. The only thing that matters in today’s marketplace is the flow of fresh liquidity out of the Federal Reserve and into the banking system. This process helps to fuel more risk taking and pushes longer-term investors away as hot, speculative money flows into high risk assets.
The chart below, which came from Thomson I/B/E/S demonstrates that the future outlook is clearly not any better.
http://www.optionstradingsignals.com...1/Chart2-3.jpg
As can be seen above, over 90% of the S&P 500 companies have already reported negative 4th quarter 2013 pre-announcements. Essentially, these companies are warning equity investors that earnings expectations are going to be lower than expected.
Normally this would be seen as a headwind for equity prices particularly because the ratio is the worst on record. However, equity prices have rallied straight through the dismal earnings data.
In addition to earnings, global leading indicator analysis from Goldman Sachs is also issuing warning signals. The Global Leading Indicator Swirlogram is showing decisively that global leading indicators are slowing down and are moving toward possible contraction presently.
http://www.optionstradingsignals.com.../Chart3-11.jpg
On top of consistently lowered earnings estimates and forward guidance in S&P 500 companies at the worst levels on record, we are seeing evidence that would suggest the global economy is slowing down. In light of this information, how can risk assets be rallying?
The weekly chart of the S&P 500 Cash Index (SPX) going back to the beginning of 2012 tells a rather compelling story. The S&P 500 Index in that period of time has rallied by more than 43% as shown below.
http://www.optionstradingsignals.com.../Chart4-11.jpg
However, readers should note that the past 6 – 8 weeks have seen prices move higher. In fact, the last time the S&P 500 Index had 7 consecutive weeks of higher prices was back in 2007. In light of the negative fundamental data, this is the price action we are witnessing in real time.
How can anyone realistically purchase risk assets here? I realize that prices could go higher and likely will go higher if the Federal Reserve continues to accommodate the U.S. capital markets.
However, as prices move higher and bears continually get run over at some point a correction or possibly worse could be initiated. Clearly a bubble has formed in Treasuries, but if this type of price action continues a bubble will form in equities as well. Several famous financial pundits are already beginning to discuss this very real possibility.
Financial pundits and asset managers are beginning to come forward to discuss their views that equities are at full value and are forming a possible asset bubble. Famous investors and portfolio managers like Larry Fink and Carl Icahn have stated recently that they believe the U.S. equity market is moving into dangerous territory where large corrections could loom in the future.
Furthermore, in a recent interview with Fox News, renowned economist and political pundit David Stockman made the following statements:
“This is the fourth bubble the Fed has created through easy money and printing press expansion.”
“The Fed has taken itself hostage.”
“This is a destructive poisonous monetary medicine that is being put into the system that is distorting all kinds of economic mechanisms with mal-investments on a massive scale.”
Stockman concludes that “its like 2007 – 2008 all over again.” Whether the bubble exists in the Treasury market or in U.S. equities is hard to say. In fact, we maybe witnessing bubbles in both asset classes and history says the endgame will likely end badly.
I want to be clear that many times bubbles are viewed in hindsight and we may be months or even years from the top. What I do know is that the Federal Reserve has a horrible track record. They have reduced the U.S. Dollar’s purchasing power incredibly since their inception. Additionally they have always reduced economic stimulus too late and inflation has ravaged markets historically.
While I do not know when the bubbles will burst, what is known is that recently the mere mention of a possible tapering of the Fed’s Quantitative Easing program sent U.S. stocks considerably lower.
All eyes are on the Fed and when they finally taper, they will find out that they are trapped. While prices may continue higher for months or years in the future, history suggests the endgame will be ugly for those who chased the speculative bubbles.
In closing, I will leave you with a quote from a recent interview with legendary investor Jim Rogers, “The Fed will self-destruct, before the politicians realize what is going on.”
See more here.
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Why You Loses Money Trading & The Answer
How to turn your trading into a simple automated trading strategy: you know the difference among a winning and losing trade – we have all experienced both and know the excitement and the frustration associated with it.
The brutal honest truth is a tough pill to swallow. The fact that most of the time it’s not the strategy that has failed; it’s you (the trader) which is why you need a simple trading strategy drawn out on paper with detailed rules for you to follow.
In today’s report I am going to talk about how you can stop losing money and become a successful trader. We all know that before you even enter a position, you must know where you place your stop-loss order.*If you don’t know where you stops are to be placed then you are trading with a major disadvantage.
Your position entry is not complete without having a stop price figured out. It blows my mind why so few investors use stop-losses. If you are guilty of not using stops, you need this information. It might be the difference between retiring on time with a big nest egg or retiring later and still just churning your account.
If you plan and place stops you are planning to win, but prepare to take losses because you will get stopped out and you will have to get back up, brush yourself off and trade another day. So with that said we need to look at the psychology around taking losses because it’s not easy to manage, and is the main reason individuals do not use stops. Being proved you were wrong flat out SUCKS!
Successful traders understand they must know where they are going to be stopped out before they enter a position. They have to know ahead of time what a wrong trade looks like so they can exit it quickly. This is a rudimentary fundamental that EVERY trader knows the answer for.
Do You Have A Trading Strategy That You Can Trade Like a Robot?
Can You Answer The Following Questions?
1. How do you know when to sit tight or cut your losses?
2. Do you have rules to tell you when to sell a losing position?
3. Do you have rules of when to move your stop to breakeven?
If you cannot answer these questions properly, you are not alone. And what it means is that you need to establish some rules for yourself. All the trading rules in the world are meaningless if you do not use them. That is why I am telling about what’s really going on with you when you refuse to manage your risk in a proactive and professional way.
Most traders refuse to take a loss for two basic reasons:
1. They cannot admit they are wrong.
For most traders, this is just too painful to admit. It’s interpreted as failure or feeds a persistent, negative self-image which none of us enjoy feeling.
Humans by nature prefer to remain in denial instead of acknowledging their losses are causing them pain. This type of trader often has to lose it all before he begins to change (or gives up trading).*I know this very well. I lost it all twice when learning to trade. It was not until the second time that I hit rock bottom (financially and emotionally) that I embraced trading rules and hired a mentor to help keep me inline with my trades.
2. The loss is too big relative to their overall portfolio size so they can’t afford take the loss.*
Know this, there’s no such thing as just a paper loss. The investment (stocks, etf, options or futures contract) is worth what it’s quoted whether you realize it or not by closing the position.
Both of these examples are a form of self-delusion that millions of investors, both large and small, suffer from.
If what I am saying here is making you uncomfortable or bringing up feelings of anger or powerlessness, then that is a good sign. It means you have enough common sense and self-awareness to change what you are doing.
Example of How You Can Make Your Trading Strategy To Be More Automated:
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A successful trader uses a different strategy from that of a losing trader (you) by looking at the pain from the loss in an impersonal way. They know the loss as a sign that something went wrong with their approach, or their execution, but NOT that something is wrong with them.
Winning traders separate who they are from what they do. They learn and know, that their trading losses lie in their approach to trading the market and not a reflection of whom they are as a person. The pain they feel is quickly transmuted into motivation, which fuels their desire and determination to become a better trader through refining their trading strategies to better navigate the financial market place.
Both are learned responses and within your control. The opportunity for growth from the pain of our losses are the same. It’s what we do with this emotional pain of a loss that matters, not the loss itself.
Chris Vermeulen
See more here.
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Advanced Automated Trading Systems & Indicators with NinjaTrader
Good Morning,
I just want to touch on two things… the market and my new charting with*NinjaTrader
Today’s video covers the SP500 in a little more detail along with natural gas and precious metals.
It is a big day for the financial sector (banking stocks) and if they turn around and rally expect the SP500 to post some solid gains.
Precious metals may keep selling off. Trend is still firmly down.
Natural Gas is looking lofty… I am starting to drool over a short play or inverse ETF play for that. I am keeping my eye on it.
Financials are on fire this morning, they did gap lower but have posted some big gains this morning. Anyone who got long in the past three days with me should be at breakeven or in the money now. Let’s hop this is a key pivot low and prices rally/grind higher into the holiday season/year end.
Below is a daily chart of the SP500 index using the*NinjaTrader platform. Over the last few months as you likely know, we have been completing our fully automated SP500 trading system so that it will be available to our followers. Over the next month we will be phasing all our charting analysis, tools, indicators and systems to run on the NinjaTrader platform. Reason? because*NinjaTrader*Rocks! and supports all our custom indicators and*automated trading systems*much better than what we are using now.
Anyways, back to the chart below… As you can see there is potential for the SP500 to pullback several percentage points. As long as it stays above our blue support line and short term high volume zone we will remain long the market adding on dips.
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NinjaTrader Platform for Automated Trading Systems & Charting
Talk soon,
Chris Vermeulen
NinjaTrader Partner
See more here.
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Trading System DevelopmentFrom a Novice to a Profitable Investor
When it comes to becoming a successful investor or your, automated trading system development process*for that matter, there are some big picture things that you must have figured out.*Here are some tips that will help you get started in becoming a long term consistent and profitable trader, investor or automated trading system developer.
Having A Master Plan
I’m not talking about a detailed trading plan, but a plan on what strategy or automated system you want to develop over the next 3-6 months. For example, you might have a goal to develop two trading strategies over the next 6 months. One strategy for uptrends and the other for downtrends.
Making money in both market conditions is crucial for long term success and these two strategies you should be focus. All your strategy development should be focused on reaching these two primary goals.
This master plan does not*necessarily*need to be detailed. It is simply your reminder*to keep you focused and on the right path. You should probably review your master plan on a*weekly bases. For more information on why having a master plan and treating trading as a business is important see Brian’s course which I took myself also…
Trading As Your Business.
The Trading System Development Step-By-Step Process
If you’re like most people you are developing your trading strategies and automated trading systems without following a well-defined process and understand the steps and order things need to be executed for trading system mastery. If this is you, then you need to focus and figure this process out before doing anything else. You are probably missing*trading opportunities, wasting time and spinning your wheels wondering*why you are not seeing progress. I’m going to give you a recommendation that can really boost your effectiveness as a strategy or automated system developer.
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You must create a process on how you build and test your trading strategy. Your system development process should explain how to test and what to test. It should describe the order and flow of your development process along with check-lists on what types of orders should be used for stops, targets and exits.
Using a documented system development process will provide structure and discipline so you can get your trading system built, tested and making your money in a much shorter period with less frustration.
In short, it will do wonders for your system development process. “Trading System Mastery – by Brian McAboy” is a fantastic starting point on building your own trading strategies and automated trading systems. I took his course a few years ago to help refine my trading goals, rules, and automated trading system blue prints for my programmers. Brian and I now talk weekly and are good friends.
I’m also working on explaining this development process in more detail. When I finish I will send you an update.
Don’t Get Distracted, Have Laser Beam Focus
Distractions and procrastination is a big problem for many of us. We get*distracted*from what we are doing very easily. Anytime you find yourself starting to wander from your task of building, testing and running your first system, ask yourself if what you are doing is getting you closer to your goal.
Don’t start chasing every new trading idea, concept or indicator you read about, I know… It’s easy to do and exciting but DON’T! Do what I do, make a detailed note with all the thoughts you have on that idea so you know that when you finish with your first system, you can go back, review your notes and look deeper into that idea you had. Trust me, this will do wonders to your progress and mind frame.
There is no better feeling than seeing progress on a trading system and knowing you have 5 -10 other great ideas on paper to work on next… The sky is the limit, but focus on one idea/strategy at a time.
There Is No Get Rich Quick Trading System – Not many…
We all know there is no consistent get rich quick trading system, but there are some that can make you wealthy within a year if the stars align and you are extremely aggressive. What I am referring to are the futures compounding strategies some of the lucky traders were blessed with.
Yes there are some traders out there who actually turned $10K or $50K into $1, $2, or $4,000,000 within a 12 or 18 months. But they are few and far between. This type of trading requires 100% risk capital and you more or less win huge or lose it all, although I am working on a very exciting project now on how to do this with very little downside risk using one of my intraday futures trading systems. I will update on this in a few weeks once I have more solid numbers.
Anyway, back to NOT getting rich quick…
You need to expect the journey to financial freedom to be painful at times but if you follow your proven systems your success can be consistent and that is what is important. You will make mistakes and the markets will humble you at times. There are no free lunches and you will work for a strong return on your investment.
Money Management – Manage it or Lose
Once you have a solid performing trading system, you will need to start learning and testing out the best way to manage positions. This is also known as money management. Doing so can really leverage your system or simply be the difference between it making money or not. I recommend read a book or watching videos on money management on how to scale in and out of positions as that is the key to success I think.
Don’t Wait Until It’s Perfect
Perfection does not exist with any trading system. The financial markets are always evolving and you will have losing streaks and winning streaks. Just make sure the system is working correctly. Test it in simulation mode and start trading it with small amounts of money. You are system will never be perfect and it does not need to be perfect in order to make money.
Do Not Ever Fool Yourself – Fudging the Numbers is a NO NO
Do not attempt to fudge numbers while testing your trading system. Be honest in your backtesting reports and manually review all backtested trades for completeness and accuracy. General rule of thumb… double your commission costs, and factor in 25% slippage. This may sound crazy but you will be amazed at just how accurate these numbers will be with your real-time results with real money.
If your automated trading system does not post gains with commission fees and a 25% slippage, then continue to improve your trading strategies. Set Goals, Reach, Repeat… and nothing less…
Talk soon,
Chris Vermeulen
See more here.
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Christmas Rally Starts Monday! – My ETF Trading Strategies
Tis the Season for the most powerful seasonality trade of the year!
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With the stock market up big in 2013 and most participants are speculating on a pullback in the next week or two, I have to say I am on the other side of that bet. Being a technical trader I focus on patterns, statistics and probabilities to power my ETF trading strategies. So with 37 years of stats the seasonality chart of the S&P 500 index paints a clear picture of what is likely to happen in December.
If you do not know how to read a seasonality chart, I will explain as its very simple. The simply shows what the index has done on average through each month over the past 37 years. December typically has the strongest up trend and probability of happening any other time of the year.
The Big Board – NYSE
The NYSE also referred to as the Big Board, is an index with the largest brand name companies. Most individuals do not follow this, but to me its as close to the holy grail of trading than anything else I know. I use many different data points from this index (momentum, order flow, trend) for my ETF trading strategies.
You must follow the trend of this index if you want to be on the right side of the market. While I follow and track the New York Stock Exchange closely and it has its own fund NYC but it’s an ETF trade I do not use. These big stocks are what really move the market (S&P 500) I think so I always trade with this index trend in mind.
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S&P 500 Weekly ETF Trading Strategy – Bullish
The chart below is self-explanatory I think… But let me recap.
The overall trend is up, so your ETF trades should be to the long side buying on the dips. The chart below goes back three years so the candles are a little condensed and small, but what you need to know are these two points:
1. After a correction within a trend, probability says that price is more likely to continue rising than it is to reverse. Notice the market just had a running correction through the summer months.
2. A reversal candle on the weekly chart (bullish reversal candle) generally indicates a 2-3 week rally is likely to happen.
Conclusion: Seasonality says higher prices, weekly chart below shows bullish reversal candle… Oya!
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The Bigger Picture: 3 -6 Months Out…
This is a quarterly chart and BIG picture outlook. Over the next 3-6 months we could see the stock market start to become choppy and rollover into a minor bear market for a couple years. That is the best case scenario I think… The other scenario is a major crash back down to the 700-1000 level on the SP500 which would cripple the baby boomer’s from retiring and getting a job would be impossible for almost everyone – full blown recession way worse that what everyone is saying we are in now.
Things are going to be really interesting over the next few years and things for south you better be prepared to make a killing during the next bear market or life will not be fun. The nice thing is that you can take advantage of these moves without ever having to lift a finger with my automated trading system.
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ETF Trading Strategies Holiday Conclusion:
In short, I think we have a couple good weeks ahead of us. Holiday season, quality family time and a rising stock market paints a nice picture in my mind.
Anyway, I hope this report was helpful and somewhat educational. I always appreciate feedback and things you would like me to write about how I interpret, trade or analyze things. I am here to help and new topics to write about are always welcome!
Cheers,
Chris Vermeulen
See more here.
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How Algorithmic Trading Became My Focus, Passion & Income
Algorithmic trading is not something I ever thought I would be doing and it did not really exist 15+ years ago with I started investing. Fast forwarding to today all we seem to hear about is “HFT” high frequency trading, automated, black box trading, and algorithmic trading and how they are making people a boat load of money or almost bankrupting companies overnight like Knight Capital…
Since 2001 I have been sharing my technical analysis, knowledge, and trades with fellow traders online. And over the years through one-on-one coaching, or through financial newsletter it became very clear that emotions and human tendencies will never change when it comes to emotions (fear & greed) along with ones commitment to stick with a plan/strategy without deviating off course no matter how boring or slow it may be.
“The financial industry wants you to think investing is complex,
but the truth is: investing is and must be kept simple
and the best way is through algorithmic trading!”
After five years of personal coaching and newsletter writing for swing and day traders trying to help with their habits, techniques of what I knew worked very well for me, was not something most clients could not succeed at even when they had every step/rule identical to what I was doing to make money. This problem led to me thinking outside the box to figure out why and how I could get others to mimic what I do best so they too could enjoy the freedom and peace of mind knowing they are in control of their life.
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After several few months communicating with clients, professional traders and educators across the globe and covering many different topics on education I found what I was looking for. The problem lies with us being human. You see, people are very emotional and during heightened times of excitement or fear they tend to react from instinct rather than to follow a set of rules.
People have the tendency to stop doing a task over time that is repetitive in nature, even if it’s making money for them. And it was this conclusion that triggered my thinking to build a system that will trade my strategies using my rules and execute trades automatically without myself or clients having to do anything. This is when my focus on algorithmic trading became my new passion and the driving force of my automatic investing system for individuals.
What is My Simple Automated Algorithmic Trading System?
In short, an algorithmic Trading System is a set of rules and formulas programmed into a trading platform. The algorithmic system places trades automatically according to the sets of rules we create. These rules are built to allow investors to have increased income potential that a properly traded strategy can provide without the need to watch the computer screen all day and manually enter and exit positions when you think the time is correct.
With the use of technology we can now benefit from our strategies by converting them into computer formulas and optimize them for specific investments and make complete automated algorithms. My S&P 500 algorithms were designed and built so I could have more free time while still making the same amount of money if not more and to trade without my emotions getting in the way. This strategy has worked extremely well over the year and I now want to make it available to a select group of individual investors to get the full benefits of what my system provides me with.
Investors BIGGEST Problem and How to Avoid It With Algorithmic Trading
In short, the problem we all have as traders is the fact that we are human. Riddled with bad investing habits, and responding to market fluctuations emotionally rather than logically is why we have trouble making money consistently over the long run.
Here is a recent screen shot of my trading systems intraday algorithmic trading strategy used during an uptrend. Trading the ES mini futures this algorithm pulled $3,425 in two weeks when most traders were getting shaken out of trades. No keep in mind this is one strategy out of the twelve that are traded with my complete algorithmic trading system. Other strategies are based on the various time frames, trends and volatility to be sure we have all types of market fluctuations covered.
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The rich do what’s hard;
that’s why their life is easy.
The poor do what’s easy;
that’s why their life is hard.
Next I want to show you how to trade like an emotionless robot, how it works, why, what to trade, and how much capital is required to have this algorithmic trading automatically traded in your brokerage account to make a decent living trading the S&P 500 index which is the least volatile and most liquid investment available to traders and investors. A really exciting part about it is that you do not need to learn or installed anything. It is a truly 100% hands free investing system that provides annual results that will make your financial advisor envious!
Stay Tuned For Part II Of How & Why You Should Be Algo Trading…
Chris Vermeulen
See more here.