Exploiting Your Edge In The Market

As a purely technical trader, I have to constantly ask my self "Do I have honestly have an edge"? Assuming the answer is yes, the next step I take is to breakdown my edge in as much detail as possible, and trade strictly based on it. This requires the utmost in discipline and constant back checking of my edge. Requiring I review my trades making sure I am continually profitable.

I do not like to disclose the edge I have, and rather keep it proprietary (for fear it will no longer be profitable if public). I do, however, like to give out some hints on how to create a profitable edge. The key that many miss when it comes to their edge is it must be greater than the fees you pay to trade. One interesting consideration many don't take into account is , if your edge is break even, you will end up losing, as the fees it cost to trade will make you negative (possibly by a large margin). However if you are breakeven including those fees, there is another way to make money.

That way is through bonuses of opening an account in the form of a stock trading bonus, or a forex trading bonus. This is much like the way online poker players make money. They are often are charged a rake (i.e. stock trading fees), were they are break-even poker players (including house/rake fees). Where they make their money is made through the bonuses of paying so much rake.

The Stock To Watch: iRobot

On our last stock to watch, I covered Nvidia($NVDA), where I wrote on any market pull back this stock is a buy. Six month later, it is up 40%, the only downside to our coverage was we were hoping for more of a pullback, which did not occur (the article was posted at Nvidia's lows).

Fortunately another stock has fit my proprietary trading algorithm, as you may of guessed from the title it is $IRBT (iRobot Corporation). It is rare in the last few years that a stock would fit my proprietary trading algorithm so perfectly as $IRBT. At the moment the stock is currently pulling back.

Once the stock stops pulling back, it will receive a significant bounce. For me to safely purchase this stock I would like to see it around the $60-65 price range. As seen with my call on $NVDA, I don't always nail the buy price of where to buy, but one thing is for sure, once this stock stops bleeding it will bounce hard.

The Stock Market Is Not Well

In my last post in April I discussed a potential top in the Stock Market. As of early June 2017, this Market has not topped out. I am here to remind my fellow readers, do not let complacency get the best of you. If anything in the last 2 months Market conditions have gotten worse.

The stock chart above is the McClellan Oscillator, which is used to determine the overall strength and liquidity for the Stock Market within a medium term time frame (months). As the Market continues to go tread higher, this indicator has not confirmed these "highs". Meaning, there is a high chance the market will be susceptible to a significant correction. 

What would one expect from this indicator is for readings above 150 to hit at least for a few days. The issue is, this indicator has not shown strength for a very long as shown in the chart above. The last time this indicator confirmed true strength of the Market was back in December 2016 (by which the Market proceeded to go on a bullish tear in 2017).  

In short, until this chart shows bullish confirmation (hitting readings above +150 comfortably), I would be very hesitant of investing in the long/medium term when it comes to this Market.