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

  #71 (permalink)
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aquarian1 View Post
For sure.

However, I was more trying to highlight that no one wanted to give the kid a "well done!" It costs nothing to support and encourage others.

He is making more than 4pts on average per day and has done it for three months. I would wager that few experienced seasoned traders could make 4 pts consistently every day one one contract, for 3 months even if they traded on their sim account. He always posts his entry and target exit well in advance.

Seasoned investors always know are the mantras:
"The trend is your friend"
"Those who try to pick the top get picked off."
"Never fight the Fed."
Yet in a bear market rally like this we ignore them and try to pick a top.

Yet how many of us have sat on the sidelines "thinking this thing is going to roll over any day now" for months?
Is it our egos that are talking, an attachment to being right?

One day it will top and roll over. And he will be stay long. Maybe he will be wrong for a week, maybe two.
But with 3 months of profits - he'll have to be wrong a long time to eat up his profits. I think for a teenager to stick with just one contract when he's been winning shows good discipline for one so young.

(BTW I'm a bear too!).

That's pretty cool! I always like to see a young trader make his/her mark. The true test will come when we see either a choppy or downtrending market.

In addition to the multiple anecdotes I have from 1999's internet bubble, I knew a young trader that would simply go long (ES) every market open and would buy any sell off with the belief it would rally back up. This worked well for her until it didn't. Meaning, I saw a significant trend change occur one day and she bought the dip eight times over that day. At the end of the day, the market sold off all day with no retracement providing her with a loss that equated to around 10% of her account equity and erasing a large chunk of her trading profits. This was the beginning of the end for her until she stopped trading. My point here is simply, an unexperienced individual may experience beginners luck but at some point, they will either give it all back and then some or realize they need to learn more and stop trading until they know how to do it correctly.

Please update the progress of this guy as his trading moves forward. Who knows, maybe he'll be a lucky one and cash out at the right time.

BTW, I'm not a Bear investor. I'm completely unbiased in my trading and just trade the trend. I guess you could say that I'm a realist. But I must admit that I'm absolutely amazed of what the Fed has accomplished again. All they've ever done is create and pop asset bubbles. It's amazing that the general public hasn't realized this.

Cheers,
PB

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  #72 (permalink)
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Let me ask you a question. Based on your experience in trading the markets. Usually, when a top occurs, is it a process in which you see lower highs, and massive volume, expanded volatility and range; or is it a huge run up, and then it suddenly tanks out of nowhere without any reason or warning signs?

I also think its funny how so many people have been calling the top in this market. Every time i go on stocktwits, i hear some clown who is short and they're holding their position overnight because the market is gonna tank in their opinion. That was 4 weeks ago, and i no longer see those people on there anymore( could be they're on vacation, i don't know). They have so many reasons predicting a recession because they BELIEVE that the economy is toast, and it doesn't deserve to go higher. One of them cited exactly what you said, put/call ratio, bullish sentiment was at record highs.

But the fact remains:

- Zero interest rates( this alone creates very low odds of another recession). The FED has clearly suggested that they would err on keeping interest rates lower longer, than to risk another recession by raising it too early. There's alot of statistical data backing this proving the odds of a recession are extremely low.
- the FED openly suggesting that they will do anything they can( even POMO part III) to make sure the market stays afloat
- Most company's are much healthier and less leveraged than the last recession. Better balance sheets. Leaner. Alot have massive amounts of cash sitting in their balance sheets because they are being defensive.
- Yes, the economy sucks here (slow), yet china and other countries have GDP's of 6%+, and if you listen to any of the earning calls, you'll notice that they are well diversified, and profits are still coming in from over seas since growth is slow here. We truly live in a global economy. When something bad happens overseas, it affects us. When other countries do well overseas, it helps us.
- Unemployment has never been a predictor of a recession
- The market can remain complacent longer than you can remain solvent. Divergences mean absolutely nothing when a trend is this strong. Linda Raschke taught me that a long time ago.

Off all the reasons you suggested,( im sorry but you thinking the economy sucks is not a valid reason to go short), complacent reading in the put call ratio, and overly bullish sentiment is the only valid argument you have.

I have 6 valid reasons why we can go higher. Could this be the top, absolutely, but doesn't mean you have to bet money trying to figure that out. When the trend changes, you can get in. You won't pick the absolute high and boast about it, but you can save yourself from massive losses trying to predict it, and still make money when it heads south.

I want to note that i love when the market goes down, since I hit my targets fairly quickly( market takes the stairs up, elevator down)..... Yet i still am not picking a top.

Im not bashing on anyone here( I only bash the people on stocktwits since i know for a fact that most are on sim, so they're not losing anything but their time playing video games with the market), but you have to be unbiased, and not just say your unbiased. Those complacent readings can come down as the market goes sideways and digests its gains, and easily continue on higher.

To address the breadth issue you brought up, alot of people are saying that it fits the Hindenburg Omen, but that has a fairly low success rate. Alot of changes have been made as to what qualifies for that because of its high failure rate. So far, this doesn't qualify.
The reason you brought up are reasons to take some profits off or not initiate new longs, but not go short in this market.

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  #73 (permalink)
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As to my question, ill answer it myself. Here's the SPY, first picture is before the crash. Blue circles on the price show huge expansion in range, and circles on bottom show huge expansion in volume.

This is both for market top and bottom......

Attached Thumbnails
ES and the Great POMO Rally-top.png   ES and the Great POMO Rally-bottom.png  
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  #74 (permalink)
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Michael.H View Post
Let me ask you a question. Based on your experience in trading the markets. Usually, when a top occurs, is it a process in which you see lower highs, and massive volume, expanded volatility and range; or is it a huge run up, and then it suddenly tanks out of nowhere without any reason or warning signs?

I also think its funny how so many people have been calling the top in this market. Every time i go on stocktwits, i hear some clown who is short and they're holding their position overnight because the market is gonna tank in their opinion. That was 4 weeks ago, and i no longer see those people on there anymore( could be they're on vacation, i don't know). They have so many reasons predicting a recession because they BELIEVE that the economy is toast, and it doesn't deserve to go higher. One of them cited exactly what you said, put/call ratio, bullish sentiment was at record highs.

But the fact remains:

- Zero interest rates( this alone creates very low odds of another recession). The FED has clearly suggested that they would err on keeping interest rates lower longer, than to risk another recession by raising it too early. There's alot of statistical data backing this.
- the FED openly suggesting that they will do anything they can( even POMO part III) to make sure the market stays afloat
- Most company's are much healthier and less leveraged than the last recession. Better balance sheets. Leaner. Alot have massive amounts of cash sitting in their balance sheets because they are being defensive.
- Yes, the economy sucks here (slow), yet china and other countries have GDP's of 6%+, and if you listen to any of the earning calls, you'll notice that they are well diversified, and profits are still coming in from over seas since growth is slow here.
- Unemployment has never been a predictor of a recession
- The market can remain complacent longer than you can remain solvent. Divergences mean absolutely nothing when a trend is this strong. Linda Raschke taught me that a long time ago.

Off all the reasons you suggested,( im sorry but you thinking the economy sucks is not a valid reason to go short), complacent reading in the put call ratio, and overly bullish sentiment is the only valid argument you have.

I have 6 valid reasons why we can go higher. Could this be the top, absolutely, but doesn't mean you have to bet money trying to figure that out. When the trend changes, you can get in. You won't pick the absolute high and boast about it, but you can save yourself from massive losses trying to predict it, and still make money when it heads south.

I want to note that i love when the market goes down, since I hit my targets fairly quickly( market takes the stairs up, elevator down)..... Yet i still am not picking a top.

Im not bashing on anyone here( I only bash the people on stocktwits since i know for a fact that most are on sim, so they're not losing anything but their time playing video games with the market), but you have to be unbiased, and not just say your unbiased. Those complacent readings can come down as the market goes sideways and digests its gains, and easily continue on higher.

To address the breadth issue you brought up, alot of people are saying that it fits the Hindenburg Omen, but that has a fairly low success rate. Alot of changes have been made as to what qualifies for that because of its high failure rate. So far, this doesn't qualify.
The reason you brought up are reasons to take some profits off, but not go short in this market.

I assume you're directing this at TigerTrader? So, I'll let him respond directly. But I agree with your description of a top. We would need to see a big unforeseen move to the down side coupled with a big increase in volume. By pointing out potential divergences, there's definitely no claim for a top in fact, one should never act upon anything without price/volume confirmation. It's simply a warning that we could see a change. I've seen people get destroyed picking tops and bottoms too many times.

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  #75 (permalink)
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Yea, but i wanted to point out the facts. There's no reason, either from a fundamental standpoint, nor a technical standpoint to go short.

Those are the only two things that really move the markets. If your going short, its based on a hunch, not based on what you see. I took the time on writing all that so people don't get caught up on the wrong side.

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  #76 (permalink)
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Here's wikipedia on the conclusion of the study...

From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77% [The Wall Street Journal 8/23/2010 article cited below states that accuracy is 25%, looking at period from 1985], and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines.
Because of the specific and seemingly random nature of the Hindenburg Omen criteria, the phenomenon may be simply a case of overfitting. That is, by backtesting through a large data set with many different variables, correlations can be found that do not really have predictive significance. The Omen is at best an imperfect technical indicator that is a work in progress.

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  #77 (permalink)
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Michael.H View Post
Yea, but i wanted to point out the facts. There's no reason, either from a fundamental standpoint, nor a technical standpoint to go short.

Those are the only two things that really move the markets. If your going short, its based on a hunch, not based on what you see. I took the time on writing all that so people don't get caught up on the wrong side.

Michael, thank you for taking the time to write that up. I always welcome other people's opinions. You seem determined to prove your point which I can greatly appreciate. Please feel free to further contribute your insight to this thread on the markets, etc.

Cheers,
PB

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  #78 (permalink)
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Private Banker View Post
I assume you're directing this at TigerTrader? So, I'll let him respond directly. But I agree with your description of a top. We would need to see a big unforeseen move to the down side coupled with a big increase in volume. By pointing out potential divergences, there's definitely no claim for a top in fact, one should never act upon anything without price/volume confirmation. It's simply a warning that we could see a change. I've seen people get destroyed picking tops and bottoms too many times.


I touched upon this reasoning in another post in reference to another topic of discussion, but it is equally relevant in this thread. Steenbarger talks about" conceptual integration" and it's importance in the acquisition of expertise in any field. The longer the time-frame, the more important the role of explicit deliberation and reasoning. The shorter the time-frame, the greater the need for rapid perceptual processing based upon pattern recognition.


The fund of knowledge that I brought to bear in this situation formed the rationale for my decision. In my mind, the 10 reasons I enumerated made for a compelling argument to get short. My bear argument was not any more an example of "curve fitting" than was Michael .H's counterpart bull argument. I was well aware that I was fighting the trend, seasonality, and the machinations of the Fed.

However, when making a long term cyclical or secular play, I almost always put my core position on in the options market. Taking into consideration where the VIX is trading, I not only wanted to be short the SPX, but long volatility. Obviously, options allows me the luxury of being early when initiating the trade, and it limits my risk. I can now move down the trade duration curve and scalp or swing trade ES and ZB futures around my core position like an options trader adjusting his delta. While the various positions have a synergistic connection, the information that is being processed, and the way the trades are managed is contingent upon the time-frame of the position.

I like being in the market, not only because of the "ADD"* thing, but because it gives me a better feel for price action. There is a big difference in analyzing the market when you are flat the market compared to having a position on.

Michel.H stated,
When the trend changes, you can get in. You won't pick the absolute high and boast about it, but you can save yourself from massive losses trying to predict it, and still make money when it heads south." How many times does the market give you a head fake, appearing to make a bottom or top, only to hitch and go back in the original direction. Are the odds of picking a top any better this way, than an intuitive assessment of early price exhaustion?

Still short, basis my options position, but flat futures.


* ADD = Attention deficit disorder



Last edited by tigertrader; December 24th, 2010 at 11:49 AM. Reason: typo, content
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  #79 (permalink)
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It can give you as many head fakes as you want, at least your risk is defined. Its better than adding as price keeps making new highs so you can improve your cost basis trying to determine the top, and it keeps you on the right side of the market. You have to agree, this whole time, you would have made more money, and it would have been much easier maintaining a long position than trying to short. As far as the amount of false signals, you would have gotten one, which you could have easily managed( talking about the flash crash). Price bounced which gave you a good entry, it eventually went back down and bottomed before moving higher.
I've seen at least 3 webinars(both bill from ioamt and Alexander from trading clinic) both predicting a market crash about 2 months ago. with Alexander talking about the end of the world, saying he's heavily net short in the market because of the crisis in Ireland. You guys can Google it if you want, it should be around somewhere. Well, i hope they didn't blow up their sim accounts.

To just be clear, i agree that i think all these things that are going on could create another huge bubble, but that probably won't happen for many years to come. Many news networks were talking about how its wrong that people are using their homes as ATMS, since housing prices were being inflated. But we didn't see that crash a year later, when everyone just forgot since the market was relentless in its move higher.

Im not trying to argue with you,and i don't consider myself a bull. But your free to do what you want with your money. We have 2 opposing views and trading methodologies.... and we will leave it at that.
I wish you the best of luck in your trading.


Last edited by Michael.H; December 23rd, 2010 at 04:52 PM.
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  #80 (permalink)
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Both TT and MW make solid points.

I would like to contribute that I do appreciate when people make calls ("stick they neck on the line" so to speak). It is useful and helpful when they offer the reasoning behind their opinions. It doesn't matter if we have come to the same conclusion. That is what makes a market a market.

By sharing their thoughts we can ask ourselves:
"I hadn't noticed that perhaps I should take a look."

We may examine and conclude that for us that reason is not inline with our experience/knowledge/thinking/beliefs/preconceptions. The important point is that someone has shared and we are given the opportunity to review that aspects and double check our analysis.

After watching the TA video clip (see below) I made some retracement calculations:
1576-666=910
  • 50%= 1121
  • 61.8% = 1228
  • 5/8 = 1235
  • 2/3 = 1273
----------------------------------
Normally I don't visit forums, however I had had a problem with IB forcing me to upgrade my software (once per year) and the new software would close itself down in the middle of my trading session, so I had search for someone who might have an older version though not 1 year old. In the process of that search I went to another forum and came here futures.io (formerly BMT). As it was the dog days of December I thought I would take a break and review the ES threads.

On Big Mikes intro he writes

Big Mike View Post
...
There are other sites out there but I never really felt at home with many of them, their userbase is too focused on proving someone wrong instead of trying to help.

This statement, I feel, is very true.

I always find it more useful if one's "case" is presented in a neutral non-directed format.
For some reason the internet lends itself to miscommunication. The "tone" the a reader "hears" in a writers message can easily incorrect or exaggerated in our minds.

-----------------a case of synchronicity ------------
In any case I find it interesting that in a short period of time I:
  • watched "Buy the dip" video cartoon,
  • read the thread with the teenager making 4-8 points a day for 3 months on 1 contract by "buying the dip",
  • then here at futures.io (formerly BMT) read of the POMO operations,
  • last evening watching some watching a video clips one of which was a technical analyst speaking of the 1235 key level and being breached opens the possiblity of a full retracement and 1315 as the next important resistance,
Talking Numbers ? Yahoo! Finance about 5 clips in.
-------------------------------------------------------
I now longer try to predict the longer term direction of the market, though from my many years of longer period swing trading, at another level I guess I do (old habits die hard level). (Hence my saying I was a bear PB). Of course, I'm not a bear, nor a bull. As I day trade (RTH only) I am indifferent to the overall trend or the level next month.

I am interested in:
  • "Will today have a trend?"
  • "If so, will today be an uptrending, downtrending day, or a day with an intraday trend change?"
  • "What is the likely range today?"
  • "What will direction will the first leg be in?"

(Yes I do look to see if we are at breakdown or breakout levels (on a multiday level 3 to 14 days usually), and are we approaching key S/R levels.)

-------
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New year of
great health,
abundant prosperity
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