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ES and the Great POMO Rally
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ES and the Great POMO Rally

  #731 (permalink)
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The market appeared to run out of steam today, in spite of broad growth in retail sales, as the ES tested the highs of the weekly trading range and the +2 SD on the weekly VWAP. Yet, the market continued to build value above the high volume area from 1117.00-1147.50 and closed well above the weekly VWAP @1145.00. The yen continued it’s comeback and has all but erased the losses it suffered after the BOJ intervened, while the dollar showed further consolidation. Treasuries closed higher today, but still show the potential of having put in a bottom in yields.

The ES recouped the entire 4.4% loss it suffered Wednesday in large part to bullish employment numbers , good corporate earnings, and growth in retail sales, yet market internals are still weak, high yield credit spreads still continue to widen, (when they should be contracting), and (as PB pointed out) financials are under-performing and are under-weighted

So, while the ES is being accepted at these levels and will probably continue to trade higher, it most likely will still fail, from the levels previously discussed.

Attached Thumbnails
ES and the Great POMO Rally-es-09-11-60-min-8_12_2011.jpg   ES and the Great POMO Rally-es-09-11-135-min-8_12_2011.jpg   ES and the Great POMO Rally-es-09-11-30-min-8_12_2011.jpg   ES and the Great POMO Rally-es-09-11-daily-12_28_2010-8_12_2011-d.jpg   ES and the Great POMO Rally-high-yield-spreads-vs-sp-500.png  

Last edited by tigertrader; August 12th, 2011 at 05:43 PM.
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  #732 (permalink)
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Lornz View Post
Really? Americans or Norwegians? Traders?

I am in my late 20s, and trade my own account full-time. I've been trading (in various forms) for 8 years. I also just embarked on a BSc in Mathematical Finance; I have been toying with the idea of doing something more with my trading...

Feel free to send me a PM!

They're norwegian.... They work for a investing firm. We still keep in touch, its amazing how tight the regulations are over there. He wanted to send me some ideas for stocks, and later found out that i can't if i have us citizenship.... Very interesting. Guess thats why your economy has been so stable for so long, and we go through shit like this every 8 years.

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tigertrader View Post
I am really going to miss the volatility when the liquidity returns to the market. Eventually, the market will get thick again, and the HFT's and program's effects will be mitigated by the increased liquidity. For all of us dopamine deprived traders with ADDH, these markets have been a godsend. There have have not been any interminable periods of waiting for trades to materialize, just the rapid succession of protracted moves, as the market decisively metes out it's justice.

It won't last forever, so take advantage of it while you can!!!

Attached is weekly VWAP. ( aka, Red's Ouija board)

Could be it to the upside, for the week.

This is definitely the best week I ever had - in term of profit (I can quit my job if I have the same results every week). I had not been trading for that many years and one of things which I am worried about is that there will come a time when I do not know how to trade the ever changing market anymore.

For you guys who are still trading profitably after decades, you are really great!

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  #734 (permalink)
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jonc View Post
This is definitely the best week I ever had - in term of profit (I can quit my job if I have the same results every week). I had not been trading for that many years and one of things which I am worried about is that there will come a time when I do not know how to trade the ever changing market anymore.

For you guys who are still trading profitably after decades, you are really great!

Let me be the first to congratulate you on your "personal best" week. We are currently blessed with markets which are perfect for building a trader's confidence, and great for building up their accounts, however they must be kept in perspective.

Markets are cyclical in nature, and there are going to be times when market conditions are extremely favorable for making money, but there will be more times when conditions are less than favorable. The volatility we are experiencing can be thought of as being about +2SD away, which means that eventually, the volatility will revert back to it's mean. Simply stated, the markets won't always be this "good" or this "easy" to trade !

A common trait of successful traders is their ability to "stay the course" emotionally. Do not allow your emotions to fluctuate up and down with your P&L. Instead, always maintain an objective perspective of you progress as a trader.

This means that we should take advantage of the situation while it lasts, continuing to work on our skills as a trader, while keeping in mind that trading will inevitably get more difficult in the future.


“In many ways, large profits are even more insidious than large losses in terms of emotional destabilization. I think it’s important not to be emotionally attached to large profits. I’ve certainly made some of my worst trades after long periods of winning. When you’re on a big winning streak, there’s a temptation to think that you’re doing something special, which will allow you to continue to propel yourself upward. You start to think that you can afford to make shoddy decisions. You can imagine what happens next. As a general rule, losses make you strong and profits make you weak.” – William Eckhardt


Last edited by tigertrader; August 14th, 2011 at 08:13 AM.
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jonc View Post
This is definitely the best week I ever had - in term of profit (I can quit my job if I have the same results every week). I had not been trading for that many years and one of things which I am worried about is that there will come a time when I do not know how to trade the ever changing market anymore.

For you guys who are still trading profitably after decades, you are really great!

I second what Tigertrader said on this and would add that one key element to continually stay at the pace of the market is to constantly evaluate how you're doing vs what the market is providing and looking for ways to enhance your trading. For example, when I started trading, my primary screen for trade management was the 5 minute chart. Over time there has been tick, range and renko bar charts invented. So, I was able to take my method from using a 5 minute as a primary screen and enhance it by using a tick bar chart. And then when range bars came out, I was able to use those to even further enhance what I'm doing (range bars get rid of a lot of the noise that tick bars have). I, of course still look at the 5 minute and a few other bigger picture charts in addition to my range charts but the idea is to be constantly enhancing and/or making your trading more efficient. Also, adjusting interval size with the current volatility and adjusting money management, etc. is key in times like these.

Would my original method still work in these markets? Yes however, I've figured out a way to enhance my results by using new, innovative tools that are available to us. Just like any business, we must always look to enhance and grow with the changing times.

Cheers,
PB

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  #736 (permalink)
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volatility vs position size question

I, like jonc, have only been trading a short time - a little more than two years in my case. These markets the last 2 weeks have been seemingly easier to trade - the big moves have made entering easier (because you can make the mistake of entering late and still capture a reasonable move) and the Win sizes more than make up for a few losers (assuming you hold winners).

I'm curious about this question of volatility vs. position size. The question is: are volatile markets actually easier to trade than less volatile markets? If so, what is the reason?

One possible reason is that in volatile markets, the delta between entry and exit in ticks is bigger - the moves are bigger and so there are more ticks available. However, it would seem that if this is the only factor, then the "volatility" in this sense could be artificially reproduced by increasing position size during less volatile markets (thus smaller market moves would generate similar "delta" to large market moves).

The other possible reason is that volatile markets (in the sense of the average size of bars on all timeframes) actually behave differently and more predictably than less volatile markets. In other words, it is not just that the swings are bigger, the market patterns themselves are actually more predictable or repeat with a higher degree of fidelity.

There may be other possible reasons that these volatile markets are "easier to trade" or "easier to make money during" - I'm curious to hear others' opinions about this.

Finally - the interesting (at least to me) conclusion from the two explanations I've offered is that, if you think the reason it is easier to make money during these markets we've had over the last two weeks is reason #2 (that the actual patterns are easier to trade), then it follows that you should be RAISING your position size during these times even though this dramatically skews your risk parameters due to the larger stop sizes (in ticks) necessary. In the book "Pit Bull" Marty Schwartz says this very thing although he does not offer an explanation - he merely states that during volatile markets he feels its important to increase position size; I had never agreed with his statement but I'm starting to think he was right...

(perhaps this should be a new thread but its actually the participants of this thread who's opinions I'm seeking...)

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  #737 (permalink)
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Surly View Post
I, like jonc, have only been trading a short time - a little more than two years in my case. These markets the last 2 weeks have been seemingly easier to trade - the big moves have made entering easier (because you can make the mistake of entering late and still capture a reasonable move) and the Win sizes more than make up for a few losers (assuming you hold winners).

I'm curious about this question of volatility vs. position size. The question is: are volatile markets actually easier to trade than less volatile markets? If so, what is the reason?

One possible reason is that in volatile markets, the delta between entry and exit in ticks is bigger - the moves are bigger and so there are more ticks available. However, it would seem that if this is the only factor, then the "volatility" in this sense could be artificially reproduced by increasing position size during less volatile markets (thus smaller market moves would generate similar "delta" to large market moves).

The other possible reason is that volatile markets (in the sense of the average size of bars on all timeframes) actually behave differently and more predictably than less volatile markets. In other words, it is not just that the swings are bigger, the market patterns themselves are actually more predictable or repeat with a higher degree of fidelity.

There may be other possible reasons that these volatile markets are "easier to trade" or "easier to make money during" - I'm curious to hear others' opinions about this.

Finally - the interesting (at least to me) conclusion from the two explanations I've offered is that, if you think the reason it is easier to make money during these markets we've had over the last two weeks is reason #2 (that the actual patterns are easier to trade), then it follows that you should be RAISING your position size during these times even though this dramatically skews your risk parameters due to the larger stop sizes (in ticks) necessary. In the book "Pit Bull" Marty Schwartz says this very thing although he does not offer an explanation - he merely states that during volatile markets he feels its important to increase position size; I had never agreed with his statement but I'm starting to think he was right...

(perhaps this should be a new thread but its actually the participants of this thread who's opinions I'm seeking...)



Trading boils down to mathematics and patience. It is about the ability to identify and wait for extremely profitable opportunities, and then take maximum advantage of them. It is one of the guiding forces behind my trading, and why I aggressively add to my winners, whenever the opportunity presents itself.

Current volatility is high because the markets are experiencing record low levels of liquidity. Hence, HFT and program-trading induced moves appear as if they are on "steroids". But, it's not just a matter of volatility, but the size and duration of the moves. The moves are much bigger and much faster than "normal", and this very salient fact, is highly correlated to one's opportunity to make money.

The markets moves are happening quicker and may be recurring with a higher degree of fidelity as result of the volatility. And its the technicians that try to attach a logical meaning to these abstract patterns, and the concomitant phenomena of self-fulfilling prophecy, that makes them appear to play out, but it is the bots that are moving this market.

Volatility is up approximately 3X, and in response I've cut my size back 1/3, because I know have to place my stops farther away. It doesn't make sense to start risking 6% on a trade when I normally risk 2%, just because volatility has increased. My size will increase when my account size gets big enough to justify it or volatility decreases, and I can move my stops back in. And believe me, I don't do this because I'm afraid of the volatility, I do it because it's practical and smart.

My focus is always on what can go wrong and what my response will be, but when it goes right I always take advantage of the situation, and aggressively add to my winning trades. My advice is to trade your balls off, aggressively add to your winners, press your trades, and stay out of trouble, as if this could all end tomorrow, because it most certainly will (eventually).



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  #738 (permalink)
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tigertrader View Post
But, it's not just a matter of volatility, but the size and duration of the moves. The moves are much bigger and much faster than "normal", and this very salient fact, is highly correlated to one's opportunity to make money.


The markets moves are happening quicker and may be recurring with a higher degree of fidelity as result of the volatility.


Volatility is up approximately 3X, and in response I've cut my size back 1/3, because I know have to place my stops farther away. It doesn't make sense to start risking 6% on a trade when I normally risk 2%, just because volatility has increased.

OK, I want to challenge some of your statements a bit but definitely in the context of myself being the student and you being the teacher.

Your first two statements above seem to agree with my "reason #2" which was that the increased volatility (low liquidity) does make it easier to trade - in other words, the increased volatility makes one's tradeable patterns more consistent ("higher degree of fidelity" and "highly correlated to one's opportunity to make money").

If this is the case, then it follows that one should be trading with increased risk because expectancy is higher. In drawing this conclusion I am making the assumption that risk:reward is a constant and that the different market conditions simply increase %win. An increase in %win, when coupled with a constant risk:reward, means that your system is just working better and this, to me, means you should be willing to increase your risk per trade because over a series of trades (given a higher %win) your TOTAL RISK will be lower.

To illustrate what I mean, if you normally risk $500 per trade and win 50% of trades then over 20 trades you will lose (statistically speaking) $5000. If your % win goes to 75% then if you want to risk $5000 over 20 trades you can increase your risk per trade to $1000. Thus, if your stops have to grow by 3x (in ticks) your position size does not need to decrease by a factor of 3 but only by a factor of 1.5 to keep the same risk over a group of 20 trades.

I do realize that it is more comfortable to keep the absolute size of your stops (in dollar terms) constant by deceasing position size in direct proportion to the increase in absolute stop size in ticks, but trading rarely rewards the comfortable path.

Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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  #739 (permalink)
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Surly View Post
OK, I want to challenge some of your statements a bit but definitely in the context of myself being the student and you being the teacher.

Your first two statements above seem to agree with my "reason #2" which was that the increased volatility (low liquidity) does make it easier to trade - in other words, the increased volatility makes one's tradeable patterns more consistent ("higher degree of fidelity" and "highly correlated to one's opportunity to make money").

If this is the case, then it follows that one should be trading with increased risk because expectancy is higher. In drawing this conclusion I am making the assumption that risk:reward is a constant and that the different market conditions simply increase %win. An increase in %win, when coupled with a constant risk:reward, means that your system is just working better and this, to me, means you should be willing to increase your risk per trade because over a series of trades (given a higher %win) your TOTAL RISK will be lower.

To illustrate what I mean, if you normally risk $500 per trade and win 50% of trades then over 20 trades you will lose (statistically speaking) $5000. If your % win goes to 75% then if you want to risk $5000 over 20 trades you can increase your risk per trade to $1000. Thus, if your stops have to grow by 3x (in ticks) your position size does not need to decrease by a factor of 3 but only by a factor of 1.5 to keep the same risk over a group of 20 trades.

I do realize that it is more comfortable to keep the absolute size of your stops (in dollar terms) constant by deceasing position size in direct proportion to the increase in absolute stop size in ticks, but trading rarely rewards the comfortable path.


All your math has me confused but You have to keep in mind when you look at a trade it's not "how much can I make" but should be " how much could I lose". My 2 cents

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  #740 (permalink)
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Your logic makes sense, and you are absolutely correct about the comfortable path; what feels good is often the wrong thing to do. I am probably taking an overly reactive view of risk.

Would your maximum daily ruin remain the same, or would you raise that number proportionally?


kbit,

At all times, given the risk you are taking, your account size, and the volatility of the market, you must know the optimal number of contracts to be long or short. Risking too little is bad, because it doesn't give the market the opportunity to allow your profitable trade to take place and grow, and risking too much, you run the risk of ruin. Most traders make the mistake of taking a reactive view of risk, in which their overriding concern is avoiding losses and protecting small profits, in lieu of a more aggressive management of risk which would result in a more efficient use of capital. Proper money management optimizes the use of your capital.


Last edited by tigertrader; August 14th, 2011 at 06:28 PM.
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