Sunday, January 4, 2015

More Downside Ahead For The Markets?


The Market, I believe has a bearish bias starting this new year. I will discuss as to why I believe this using the two charts above, which I explain below.

The 1st chart above is the S&P 500 and the VIX with 50-1 Bollinger Band settings, which was shown to me by Tom McClellan. When the VIX is above it upper Bollinger Band, the Market gets quite ugly. Take note on the chart below, the VIX is currently above its upper Bollinger band (highlighted with black rectangles). Past instances at these VIX levels resulted in massive damage to all Market indexes. At these VIX levels the bears are in charge, despite being slightly over the upper Bollinger band .

The second chart is of the Nasdaq ($QQQ), that shows the last few months of price action has left quite a few gaps. It is of high probability that at least one of these gaps will fill in the short term, and the remaining 75% of the gaps likely to fill in the long term. Two weeks ago the last gap filled(highlighted in the chart), which led to a nice Christmas rally. However, this rally caused a new gap to be formed which looks to be filled any day now. 

If the Markets do turn out to be heavily bearish, look for the gaps below as targets where the Market might bounce (like two weeks ago, where the Market bounced after the last gap filled). 

Sunday, December 21, 2014

Technical Indicators: The Good, the Bad and the Ugly

Intro:
It is a bit overwhelming when being first introduced to technical analysis. It can be quite confusing, as a lot of jargon is thrown around. As the months go by, I find my self focusing less and less on technical indicators (chart patterns are much more useful, and I don't mean patterns like Head and Shoulders patterns). I find the indicators out there to not be that effective, since they are so overused as trading robots to the numerous retail investors use them, and that takes the edge away.

My Thoughts on Indicators:
Early in my trading career, I followed Tom McClellan and he has always emphasized not to use the same tools everyone else does, as it takes away the edge. I have always taken that as motivation to find new/unique ways of interpreting indicators. For example, with the RSI, I don't look at it to tell me whether a stock is overbought or oversold, there is so much to the indicator, that many don't discuss (or maybe notice). In fact, I find trying to use it to tell if a stock is overbought or oversold is inaccurate and hard to profit from it signal. Ever notice that when a stock is more overbought, it just keeps getting more and more overbought? That's not a very useful way way to exit/short a stock However, I rather keep the ways I read them to my self to, and maintain my edge. The point is, try to think outside the box, even when looking at other indicators, don't just go with the way everyone else reads them.

My Top 2 Indicators:

Friday, December 12, 2014

The $VIX Set To Ruin The Christmas Rally?

VIX Christmas Rally Bearish Market

A few weeks ago I discussed reasons as to why the Market needs to pull back. It did not, but I believe the Market is finally ready to give the bears full control.  Today the VIX  just signaled a very reliable bearish signal that I will discuss below.

The chart above is the S&P 500 and the VIX with 50-1 Bollinger Band settings, which was shown to me by Tom McClellan. When the VIX is above it upper Bollinger Band, the Market gets quite ugly. Take note on the chart below, the VIX is currently above its upper Bollinger band (highlighted with black rectangles). Past instances at these VIX levels resulted in massive damage to all Market indexes. At these VIX levels the bears are clearly in charge. For now it looks like the VIX is set to spoil the yearly Christmas Rally. Until the VIX retreats below the middle Bollinger Band, consider this Market in the bears hands.

Tuesday, December 9, 2014

Importance of Win Ratio Metric & Large Samples Of Data In Trading

By Dylan Johnson

Often I hear many traders talk about making gains on certain trades in net profit terms such as "I made $10,000 on a swing long trade on XYZ." or they also will say "Made 5% on XYZ for a day trade." The biggest problem is that average traders lack or do not understand the importance in analyzing performance metrics for your system or means of trading. In Quantitative Systematic trading the most important analysis of your process is the risk and performance metrics. Over the years there has been a range of conflicting opinions on what is most important, I happen to believe the three most important metrics is P-Fac, Win-Ratio & Maximum Draw Down, but for now we will focus on the importance of the Win-Ratio.

The Win-Ratio calculation: #Winning Trades / #Losing Trades

The Win-Ratio only focuses on the probability your signal, system, or processes success after the trade has been executed then closed. If your trade after said signal has a positive return value its considered a win, if negative a loss. Win Ratio basically acts as the method to calculate the positive or negative probability of your trading or system. Probability measures and evaluates the following: Risk, Luck, Likelihood, Chance, Uncertainty & Randomness. If these concepts are important to your trading then you must consider probability, since it is the only way to factor in these concepts and deal with them properly and evaluating your systems performance.