zander931 

First, good call on today's high @72/73s. I don't know if that call was a function of pure chance, skill or a combination of the two. Nevertheless, I hope you took the trade and profited. That said, I'm still inherently suspicious when I hear market predictions without any meaningful/actionable analysis (not to mention the fact that risk considerations are absent from many of your calls). This is your thread, so I won't pester you much about it, but I think many people would be much more receptive of your posts if your analysis consisted of more than a few arbitrary resistance levels, every time we approach new all-time highs.

I'm not even quite sure why I maintain this thread. I guess I just like to think out loud sometimes.

Trading is a very lonely solo sport.

zander931 

First, good call on today's high @72/73s. I don't know if that call was a function of pure chance, skill or a combination of the two. Nevertheless, I hope you took the trade and profited. That said, I'm still inherently suspicious when I hear market predictions without any meaningful/actionable analysis (not to mention the fact that risk considerations are absent from many of your calls). This is your thread, so I won't pester you much about it, but I think many people would be much more receptive of your posts if your analysis consisted of more than a few arbitrary resistance levels, every time we approach new all-time highs.

*Shrug*, I don't see any big picture high probability trades anywhere at the moment. Probably won't be any setups until mid winter.

The market is a chaotic phenomenon like the weather that is effected by the butterfly effect. The different tools traders and investors are using like retracements/projections have a influence upon market motion. A certain number of people shift positions at certain levels and if the market is set up right, it turns the entire market and inverse elasticity triggers a change in market direction.

The annoying thing about currency is the massive inverse elasticity... If a big player hits the market with a large order, it can trigger a multi-hour trend as people pile in after that. If you have a very large account... Say, half a mil or more, and you play around in small stocks... You will discover your orders can totally change the daytrading pattern in the stocks if there are active traders in them.

That is... If you place large enough orders that traders in the stocks really take notice.

It's kind of annoying to switch between equities and Forex, because currency moves a bit differently...

The stock market has a strong elastic effect that is not very far away from past prices. The inverse elasticity zone is very small. In Forex, elastic effects are minor and inverse elasticity is king.

Elasticity... Eg, how strong prices are pulled back toward mean, and inverse elasticity, prices tendency to self-fuel and continue in a direction for a long time via a feedback loop effect.

Oh, and as for a fundamental explanation for the high elasticity in the stock market...

That is quite simple. A lot of people believe in fundamentals, PE ratios, earnings, dividend yield, etc... These beliefs generate high strength mean return effects.

A market and it's behaviors is tied to the beliefs and behaviors of the participants in that market.


They say... The stock market rises for a long time slowly, then falls suddenly... And that is because fear is a more intense emotion, and greed is slow to take hold. However, I'm not so sure about that...

There are some long-only markets like Bitcoin which demonstrate similar movement structure in both directions. Also, Chinese and European markets are a bit different in behavior than the US market.

As for risk control... Here are my estimates of current risk levels...

Market is averaging about a 14 point range right now... Uptrend strength is 1.0. Maximum daily sustainable uptrend strength after ten bars into trend is generally around there.

So... The market is moving up one range per five days. Or, 2.76 points per day currently.

Meh, so... The 99% probably closing below/resistance line which is currently at 2080 into Monday is moving up under three points a day, and the market is moving up/down 14 points or more. If you time tops well enough, risk for shorting is decent now.


This way of estimating risk based upon time I use on all time-frames. Uptrend strength for each half session is +0.9, with a 9.6 point range average. That means resistance is moving higher by 1.116 points per half session, and 8.64 points per five half sessions.

Ok, so you get it... Time based stops with a Armageddon stop is how to play IMO! Place your trade, place stop outside improbable area, hold your ground!!!

The lighter support and resistance band here has 99% probability containment at it's outer edge, 95% probability mid, and like 80% probability on transition to dark.



Trend is stable at 112 Points/Five months, or 22.49 points per month. You have to be careful with this linear judgement of upside risk, because of white swan potential. Usually toward the end of bull markets there is a mania phase event where everyone who is short capitulates, and everyone else piles into the market creating a sudden upside explosion to end the bull market.

Have to be aware of the remote possibility of that event. It generally only occurs once during a bull market... And there is only a few high risk months at the initial burst.

I was kinda thinking this rally might be one of those events, but so far the S&P has been behaving pretty rationally.

So, that explain everything you want to know about how I judge risk? Any questions?

Hmmm... I was just looking over some stuff, it looks like my mid band is actually much stronger than I thought on US equities. Statistical strength varies depending upon instrument. I have different tools to verify and analyze S/R strength levels. It looks like the only reason it's running less than 99% probability containment mid band on monthly is the 2008 crash and the .com bubble mania top event.

Remember, these are not penetration probabilities, these are probability that price will fall back from resistance on a bar after pushing into resistance.

Hmmm... That is interesting. I just checked the level we reached today on the daily...

That price level has a 97% probability of containment. Eg, price has a 97% probability of falling back under there by close. But, that containment probability isn't perfectly accurate for right now. It's accounting for all candles over the last hundred bars. The days that break and hold above resistance containment levels of that strength are usually right at the start of new moves.

Now, switching down the periods to ten period probability analysis... I can show you where the events that level of support/resistance failed.



The containment failures recently of that level where during corrections, at the initial breaks, and the Ebola panic. The other time was during a extremely strong rally that was pressing up steadily against highs every single day.

So, objectively looking at the different scenarios recently... The level price reached was a 99%+ probability of containment level. Price had a 99%+ probability of falling back from there.

Okay... Now, that is enough talking about damn risk estimation!!! Boringgg...

Everyone, develop your own system to manage risk. Mine works for me! I just memorize the statistics for the instrument and estimate. When the markets are moving you have no time to calculate out exact probabilities.

Most instruments are pretty similar.