SPY Update

Last update we were at a turning point where the SPX was indicating a large scale move was about to happen and boy did it happen! As I indicated in the post, my algos had taken positions but I was still waiting for a confirmation (break of 2640). The break came that same day when SPX plummeted into the end of session, closing below the 2640 support. All told, that post was good for a 300pt trade!

The following week, the same free RSI Trend Cycle indicator I give away on TradingView indicated a rebound on 26 Dec 18. The trade was good for another 300 pts back up. And so now we’ve returned to the trading range.

The question on everyone’s mind is, are we here to stay? Thus far, there’s not enough info. RSIT algo says “good for now”. Looking at price action, we’ve been building a base for a week now. I’m looking to see some forward price momentum, otherwise there’s serious risk of falling back out of the range. Yesterdays trading was a good start.

This is once again (last week and this week) a great mid risk trade. There’s 200 potential points on the upside while a cross and close below support could spell disaster and 200+ points to the downside. Pattern-wise, a stable consolidation that doesn’t breach its lowest low (~2613) is usually a sign of trend continuation. The last possibility to enter low risk would have been on the yesterday. With Stockbot in active dev, I’ve unfortunately been posting far less frequently. That’ll change soon. (more on that later)

If you entered with RSIT, you’re 300+ pts up (15k per contract) and this is an easy hold for now. If you just entered on the 2640 cross, then it’s still a good long (risk reward wise). If you’re considering entering now, it’s a technically good trade but now has a moderate risk so you might find yourself searching for a good entry.

The free Wave Momentum Indicator algo I also provided on TradingView helps in this area. Being able to see micro-pullbacks, gives you better visibility when it comes to long/short entries.
That’s all for now.

Stockbot Update

We continue working on Stockbot and are edging ever so close to release. We decided to push the alpha release back for a few weeks while we perform a redesign which I think will make it easier to digest the information. Once we get the alpha out there, I won’t feel so bad about my post being a day early/short due to not having the time to set aside to write them up. We’ll be back on a normal posting cycle and making money together.

Thanks and trade safe

JMX

SPX and Crypto Fun!

Hello everyone! I have a few updates. As many of you know, I’ve been working on Stockbot over the past few months trying to get a system out that will allow you all to easily follow along with the same trades and strategies. That’s been going great. Things have picked up steam over the past 2 months. I took on another developer and we’re on track for a late January release. If all goes well, I’ll be putting a ‘beta’ invite message out here.

Now to market stuff..

As I said last update, my target for the SPX was 2500s. I continue to hold that view, though I am keeping a watchful eye ever since we tagged 2580s on 12/10. I don’t believe that was the final decline but smart trading is not about beliefs. 

SPX has clearly been trading within a roughly 200pt range and the price is threatening to fall out of that range. I’m watching for a follow through in either direction. The expected price action can be as much as 200pts+-. For me, this is a fine place to take a position (bull or bear) with an appropriate stop. As long as we’re in this chop zone, it’ll be difficult planning longer-term moves. 

Speaking plainly, we know we’re in the era of Quantitative Tightening. I spoke about this in a Jan/Feb post. As a result, we know that the Fed is now extracting from the market and unless companies are posting strong numbers, the momentum will continue to be towards the downside. We can’t discount a bounce with a short squeeze, but at the time, the longer term factors favor a bearish outlook. 

My “Volatility Monster” and Wave M strategies each took shorts positions yesterday and this evening but they are trading relatively short-term (hourly strategies). Both have done well during that past choppy months but each are.. choppy by design, so I hesitate to post their entries and exits here. When stockbot goes live, you can simply subscribe to either algo, look at the trade history and max drawdown, and decide if you want to take the trade. 

Which brings me to Crypto…

Yesterday I was looking at whether some of my older, unpublished strategies from TradingView could be migrated to Stockbot. In the past, I had abandoned these for one reason or another mostly because they did not work in certain asset classes or time-frames. I started testing my old Wave Momentum strategy (invite-only https://www.tradingview.com/script/qKrwwX4L-Wave-Momentum-Strategy/)  and by chance looked at Bitcoin. The results were nothing short of astonishing. 

Across nearly every time-frame, the strategy does fantastic on Crypto currency. In the image below, the chart in blue is the profit over the year, the average trade bringing in 600 bucks for a total of 163k profit. 

Over the next few weeks I’ll be doing some analysis on exactly _why_ it’s performing well. I have always had the suspicion that my volatility and momentum algorithms would work particularly well in crypto-markets because they’re not as heavily influenced by algorithmic trading systems. 

Anyway, I’ll be talking to readers and others to determine if crypto is something we support at launch, soon after, or not at all. As always, feel free to drop me a message.

-JMX

S&P Playing With Fire again

A picture is worth a thousand words…

As mentioned in the last update, our reversion to the mean of volatility was implying to me that a volatility spike was on the horizon and man-oh-man did we get one (the ATR graph near the bottom). The high volatility environment that the Wave Momentum indicator was predicting (bottom) also played out. Lastly, my free RSI Trend Cycle indicator noted that we should step out of the market on the 26th of September at the latest.

It’s funny how statistics and risk management act to protect you. On the 21st of September, I was stopped out of my main trade algo and quite annoyed. I thought perhaps my bot had a bug that I’d have to debug, the market seemed poised to reverse a little before moving forward to even greater heights (SPX3000!). Sure enough, the exit seems downright prophetic in hindsight, being only a few points from the peak.

Ironically enough, it was one of my simpler trading rules which triggered a stop and ultimately got me out of the market at near the peak.  I have a simple rule I call “long bar” protection. It’s a simple rule where I check whether a “very long bar” or major move (as measured by standard deviation) is detected. If so, my algo moves my stop up to a percentage of that last bar (in this case it was around 20%). This is a rule that I primarily have active when markets are in a volatile phase and interestingly enough it tends to average out to the equivalent of the normal exit rules but with lower volatility. It’s a “take your money and run” type of tiny improvement that works because in general I trade momentum strategies that don’t revert midstream unless something has gone wrong. If they do revert midstream, often times the exit signal given by a strategy (when momentum has decreased) coincides with the same price level, a few days/weeks later.

Anyway, the major, eye-popping take away is that we not only blasted through the support line I drew last update, but we have continued on. This was a textbook sell on break of the support line (marked as 2877 on the last update) which is of course a support-resistance line created by the previous all-time high. This is an important psychological event. I can’t predict what will happen but I suspect many traders will look to the February decline and wonder if they’re once again going to see a year of trades/investments go down the drain.

The lower target for this decline would be in the 2500s. If you’re a trader, you should have been stopped or exited long ago. If you’re still in, you’re literally halfway between max pain and breaking even – not a great place for anyone (or their 401k) to be (not trading advice).

I am also kicking myself for not shorting the market. An old trading rule is if your trade fails to perform as expected, then it can be a powerful sign of the reverse happening.

Lastly, my Heaven and Hell indicator which fires red during every major decline has gone red. Typically that means at least a week of red if we’re lucky and up to several months of red + volatility if not.

Weekly RSI declining under 40 has historically been a market slowdown event preceding an acceleration and then a spectacular drop. While the future doesn’t mimic the past, it often rhymes with it. The market may ultimately resolve higher but there’s a lot of potential for serious decline given the number of concurrent long-term and short-term signals aligning for Bears.

I like to explain it like this — technical indicators are just that, indicators. Your car may blink “tire pressure low” and often times it can be ignored as being just due to weather changes but that one time it’s not, your tire will blow out. Similarly, market technical indicators don’t predict the future but they tell us there’s a chance of a certain condition or event occurring.

Trade Safe

-JMX

 

*** a note on trading the simple RSI Trend Strategy system shown above

1: RSIT moves from 0 upward are a BUY  (first indicator shown above)

2: Use a volume trend to signal early exit. I prefer Weiss Wave (second indicator shown above). Optionally, exit on RSIT decline.

3. ATR or other volatility approximations can give you early warning of conditions  (third indicator shown above)

4. The Wave Momentum Indicator I also gave away for free is most generally useful by simply looking at the background color. Green means you can be more risky on the long side, the bias is long, though beware of the internal green/red swaps (lines) – particularly as a green section gets longer and longer. Yellow means price action is choppy and may be signally a change in trend. Red indicates it will be hard to trade long – the bias is short.

I use simple rules like these to write automated trading strategies. I prefer automation because it takes the trader emotions out of the equation. You can find these simple free indicators below which might help improve your trading.

RSI Trend Cycle indicator – Free on TradingView

https://www.tradingview.com/script/NTqY27y5-RSI-Trend-Cycle-JMX/

Wave momentum indicator – Free on TradingView

https://www.tradingview.com/script/5AHA6u5V-Wave-Momentum-Indicator/

New Highs!

So it’s been a while since my last posting but my view of the market hasn’t changed. The market will do what it wants with a current preference to the Long side. That’s true until it’s not. In the meantime, all we can do is pick great entries, manage our risk and keep an eye out for any fundamental shift in market direction.

As you can see, performance of my free RSI Trend Cycle powered algorithm continues to do great capturing 80% or greater of each market wave. While this is the simplest of the algorithms that I use, it’s flat-out the easiest and most consistent over the large scale in particular when you’d prefer to trade trends and not have to worry about entering and exiting everyday.

Below the chart I’ve also plotted the ATR which I track on occasion as one possible measure of volatility. In this case, the reversion of the ATR to the 20 range could lead us to believe that out-sized market moves may be on the horizon.

Below that is the free Wave Momentum Indicator which I posted last year. The backdrop of that indicator (going from yellow to red to green) uses a variation of the Hilbert Sine signal processing algorithm. In general, it yields a measure of the relative fluctuations within a market and can warn when volatility is on the horizon. Green indicates bullish movement without much variation, red indicates bearish movement without much variation, and finally yellow means competing cyclic forces.

In the context of price movements, I tend to keep an eye out during yellow periods as they can represent the end of “sleep easy at night” money and a turn to “omg should I hold or sell” type of market movements. Of course, as you can see, these movements oscillate back end forth with enough frequency that a few yellow days isn’t anything to panic about.

The combination of breaking above all time highs, retesting the high once, hitting new all-time highs, hitting a trigger, and having a low (for the period) ATR means that I’m playing it slightly more carefully though not anything I wouldn’t normally do. Careful does not mean ‘tight stops’ or even ‘small lots’. Careful means considering all the data and selecting your stops/etc based on the data at the present moment (today).

There aren’t any indicators that can tell you the future, but we CAN use indicators to give us high probability entries and exits. The high probabilities only work in our favor if we’re diligent about taking each signal as soon as it activates (provided we don’t have an abundance of contrary info).

Trade Safe

-JMX

SPX Captures 2800 Target – Risk Reward in Focus

SPX captured our previous posted target of 2800 in a slow but steady grind over the past few weeks. At this point, our easy chart, using the free RSI Trend Indicator I posted here in the past, is telling us that we’re approaching our max reward. If you entered during our last posting, now is a time to begin to count your winnings and stay nimble.

I am in no way calling this a top but we should definitely be taking account of the diminishing volume.

On the whole, we are still months into this slow sideways range-bound grind.

Looking at the trend lines we can see that the price action is taking us near relative highs for the period.

This isn’t rocket science. We are at a point where there is slightly more risk than reward. While I would expect that the price would try another short-term rally to further shake out bears, the trend looks to be slowing down pending any news or events.

While there isn’t anything concrete or actionable at the moment, I’ll be keeping a close eye. A breakdown from here would target 2730-ish initially, while the upside is still possibly 2840-2850. So as you can see, we are right in the zone where at least some profits should be protected.

Looking at the chart above you can also see the LAZY yet profitable trades which are flagged with the RSI Trend Cycle. This indicator _happens_ to work great in sideways markets. Use it and profit.

As for my lethargic posting as of late – I’m finally settled into a new home with the new wife and busy setting up new trading boxes and algorithms. StockBot 1.0 has been trading the long swings generated by the RSI Trend Cycle while we’ve been busy exploring, and being newly weds. I’ve also been taking the time to root out bugs. If I’m being completely honest, I had web development ( I’m a hardcore coder), so I’ve been putting off the development of the GUI front-end for Stockbot for a while now. It’s gone through several iterations and restarts. Now that the back-end work is wrapping up though, I guess I’ll have no choice but to slap a web front-end on it 😀

All that said, I’m looking to get back into the thick of things here soon. I appreciate the kind words from those of you who have reach out to me and wish everyone all the best.

Cheers and Trade Safe.

-JMX

Stockbot Market Update

Last update I talked about the S&P hitting a support level and bouncing off and favoring a bullish outcome. I’ve also discussed the 2800 price target for a few updates.

Thus far, the 2800 price target is still on board as the market consolidates upward (wedge) towards 2800. If today ends up closing green (likely) then the markets will have terminated the negative momentum that had been rolling up over the last week of chop. This further lends itself to a bullish interpretation.

As you can see below, the SPX retested the trendline I drew last week and bounced off strongly.

Being that the market is still in a chop-zone from the perspective of price movement, we can still expect some fluctuations before a direction is resolved. Curiously, the RSI Trend Cycle indicator points to this being a “step aside” area for the DOW while giving an early bullish indication for the S&P. Of course, moments like these are where risk/reward comes into play. If today closes with an RSI signal up then it would statistically be a high probability bullish confirmation. Of course it would be _BETTER_ if our momentum indicators also pointed to the chop zone ending, otherwise we are looking at another week of sideways action. As stated earlier, I’m favoring a bullish outcome until the price-action tells me otherwise. Do note that we are in an area of faster and faster bullish to bearish cycles which is another time-based indicator of consolidation towards a larger move.

In other news:

Some people have asked me what happened to the detailed updates that I used to post, and why I only post daily charts. The answer is that I am in the process of relocating (I’m posting this from a coffee shop). Last month I posted about my upcoming wedding/etc. The time has come at last and I’ve been mostly consumed by planning as well as a big move to a new house.

Once that’s all settled, I’ll return to more frequent updates that are useful for day-trading. In the meantime, I’ll try to post the daily updates whenever I can.

Trade safe.

JMX

Stockbot update 5-16-18

Yesterday’s market action signaled the end of the ‘easy money’ portion of this recent bullish run-up. While there may still be more to go (or another stage), at this point, the bullish momentum was solidly crushed/reset.

Using a few of the simple tools I’ve presented on this blog, namely the RSI Trend Indicator, the Momentum Indicator and the Weiss Wave, we can draw a few conclusions here.

First, we are still in a bullish RSI cycle that may be reaching a temporary or a cyclic top. Second, our Weiss Wave read which helps judge the relative velocity of a momentum move has been reset from a growing build up of bullish momentum. Lastly, the market remains in a chop zone with price action occurring within a historically narrow range.

With this information in hand, it makes the intra-day trading strategy a little safer. We know that we should be prepared for a potential mean reversion this week. If that happens, we should be prepared to trade put, trade short, or step aside for a period of time. This being a price action chop zone (yellow area), we can reason that intra-day moves may contain fake-outs and the overall cylic trend (from May 1st or so) may continue until we get an RSI firmly falling.

Lastly, I should note that the price action crossed above the 2720 line I had indicated in the last update. This gives a slight preference to the overall price movement being bullish and perhaps a temporary retracement occurring prior to a run higher.

To put in into perspective, the chart below shows the market action based on classic support/resistance levels. As you can see, the price has broken above the normal consolidation zone and may potentially be forming a support level before jumping higher. It may also fail at this point. That is what makes this a tricky zone to trade at a longer time-frame.

 

Momentum moves are based on price trends. If we see the market reversing yesterday’s decline then it’s further evidence of price continuing on the existing (favored) bullish trajectory. If we instead see continued volume selling, we can be reasonably comfortable with the assessment that prices will decline over the near term.

From a systematic trading perspective, you’d typically only want to enter your trades at signal high/low. This wouldn’t be a good time to enter long/short. Sure, the market can rocket up/down today but from a probability perspective, if you’re entering trades between your signals, you’re not actually utilizing the model that you’ve calculated.

The same indicators above can be used on a 15minute time scale (and perhaps a little lower) for those that prefer day-trading.

At this time, one of Stockbots Momentum Trader algorithms trades the 15 minute time-frame 24/7 using a variation of the data above as its entry/exit data.

On another note, I continue work on the Stockbot website which has been slowed somewhat by the wedding plans. I was in talks with a brokerage last week, discussing ways in which the ‘bot’ algorithms could be automated and perhaps auto-executed on your trading platform. Of course this is very specific to each brokerage.

Until Next Time, Trade Safe.

-JMX

 

 

Stockbot Update and Analysis- Welcome back!

First things first..

The past few weeks I’ve been hard at work both refining a series of algorithms for the forthcoming Stockbot release (as well as negotiating for the domain/etc) and handling the surprisingly much more time consuming process of preparing to get married in a month, haha.

I took the time this week to loop back to the Benchmark S&P 500 strategy I posted here a few weeks ago. This strategy was the first in a series of new simple strategies I developed for Day-Trading the E-Mini Contract. I posted the initial algo to TradingView and I’ve since migrated the more performant version to my futures trading platform of choice, NinjaTrader. Being that I’ve primarily used C#/C++ as my strategy development language in the past, NinjaTrader was an easy choice.

Below is the performance of the S&P 500 Benchmark strategy since the initial posting (on a single contract basis).

As you can see, after a brief downturn in mid March, it has once again continued its profitable march. It’s definitely choppier than I would like but this strategy is designed to follow near-term momentum and makes its biggest profits (and largest drawdowns) during peak volatility and chop zones. Bear in mind that this strategy is primarily FOR choppy and high volatility sessions. Once the market returns to ‘normal’ it’ll be much better to simply stay long or adapt a long-and-out strategy where you move in and out of the market but rarely short.

You can find this strategy on TradingView here: https://www.tradingview.com/script/3QiQZx1p-S-P-500-Benchmark-Strategy/  — it is primarily a day-trading strategy, performing most optimally in the 15m range (though I’ve used it in 5/30/60 as well).

Analysis

The past few weeks have certainly been quite a ride. My analysis last month pointed towards a potential for a trip north if the SPX could hold the mid-term support at around 2613. That has indeed held but the outlook is beginning to look sketchier and sketchier from a long-term perspective.

My Long-Term Heaven and Hell warning chart has been warning that the SPX is playing with fire. RSI on a weekly basis continues to barely tread water, keeping above my line in the sand 47. If we were to look at the price action historically, then I’d say that moves like this have typically bottomed in 0-2 more weeks, otherwise turning catastrophically south. While still playing with fire, as long as the SPX can hold that line, the longer-term momentum is still bullish.

I’d be watching the 2700-2720 area. A rally over the down-channel of 2715 could signal the beginning of that march towards 2800+.

Near-term, I’d favor the bearish outcome which is a trip to 2570 or lower over the next couple of weeks. In some ways, that lines up with the Heaven and Hell indicator of mine which points towards a few more weeks of lower lows.

All that being said, it’s much easier to either trade the larger moves or nimbly trade the day moves (as I do).

Below is the simple trading that can be done with my RSI Trend Cycle indicator (which I typically show to close friends of mine). As you can see, trading at these time-frames allows you to avoid the pain of day-to-day chop. (see my post on my free RSI Trend Cycle indicator and Moment Trader Indicator shown below).

Something else you’ll find interesting is the clear consolidation pattern emerging. We are clearly gearing up for a potentially large move!

 

As always, trade safe.

Stockbot Update

I haven’t disappeared. After resolving some issues with my hosting provider I decided to change how certain information is hosted online. I probably won’t have everything resolved for a few more days. In the meantime, I wanted to post a quick analysis and a very useful indicator I created for choppy session trading.

Markets captured our downside target of 2650 and look to be consolidating a bit. There still remains at lease 40pts of potential downside that can unfold from here if negative momentum continues. Below 2570 and we could be looking at a larger bearish movement. If price holds above 2570 and bulls are able to force a consolidation zone, then a trip back beyond 2800 is in the cards.

At this point we’re in a near-term chop zone with negative bias. This is a crucial decision point (today/tomorrow).

In order to help with navigating these periods I present the Wave Momentum Indicator:

https://www.tradingview.com/script/5AHA6u5V-Wave-Momentum-Indicator/

Below I’ve combined it with my RSI Trend Cycle indicator in order to provide a great system for timing bullish and bearish entries as well as determining optimal risk/reward.

The Chart above shows the S&P E-Mini Futures price candles along with the new Wave Momentum indicator below it, followed by the RSI Trend Cycle indicator below that.

Wave Momentum Indicator Explanation:

At a glance, the green background indicates bullish periods. The yellow background indicates chop zones and the red background indicates bearish zones.

The horizontal red and green lines which swap are the volume momentum. Green periods indicator consecutive growth or continuation of bullish volume, while red periods indicate the reverse.

The vertical lines (in this case blue) indicate places where a bullish entry was aligned on that day (occurred after 10am to avoid the opening chop and aligned momentum, trend, and period). These are meant as helpful ways to point out obvious entry points.

This indicator works at every time period but of course you’ll have to adjust your trading horizon from a few days to few minutes. During choppy periods, I trade it as close as 5m intervals for capturing of small daily trends.

Trade-Safe

-JMX

Stockbot Market Update 3-19

SPX hit our overnight support level of 2730 (2732) from the previous update before bouncing. This is an important zone as now the market has to decide whether the uptrend from February 9th will hold or breakdown.

There seems to be some issue with my webhost this morning slowing down updates and preventing image uploads. Hopefully it resolves soon. I wanted to have some stuff posted before market.

For now, the trading range I’m looking at is from 2736 to 2762 (yes, a 30pt range) which would indicate either a slow rise or some volatility on the horizon.

The lower number is most important. If we can’t hold above that, then we may see the current momentum (modestly bearish) continue and break that all important recovery trend. That could very quickly lead to 20-40pts to the downside. The current trend, is still bullish (but choppy/negative near-term) as long as the price remains above the trend support from Feb 9th.

Update 1136: As I said above, if 2736 broke, look for a very quick drop. Bulls are holding at ma support levels right now but momentum and overall price action is bearish. This is one of the last few places the bulls can attempt to save things and recover the uptrend. If not, further lows are on-deck. This is a good area for assessing your risk. I will probably take some profits here in a few minutes if price action doesn’t indicate further weakening.

Updates will be few, still having troubles with my hosting provider and still unable to upload images…

Update 1200: Pretty solid sell-off thus far. I’ve been watching 5minute momentum and technicals for signs of a bottom. None yet, though bulls have tried (unsuccessfully) to form support levels 3 times already.

Update 1315: 2700 has a potential to be the bottom of this downturn. for now though, despite a very slight 5m bump, overall momentum is solidly bearish.

Update 1345: Looks like 2700 may hold as I stated above. We hit the 40pt decline that I mentioned in the beginning of the posting so this is as good a time as any to secure profits. While there can be a case made for 2695 and below, greed is where you lose your gains. For the first time today, 5m Momentum is building Bullishly. It has a long way to turn the near-term trend bullish.

Over the longer-term, if the bulls don’t form a solid support level then we’re on track to revisit the February lows..

I’ll post something with pictures as soon as my provider get’s off their behind and fixes this massive latency issue…

Final Update of the day 1544: Bulls look to be stabilizing the price somewhat but there’s still a long way to go. My near-term cyclic indicator points to a Chop zone which started at 1400 and is continuing until now.

While this may turn into an ending diagonal (pointing downward), it’s rather unclear at the moment and the fact that we’re in a chop zone means that it’ll be even trickier to anticipate. If bulls can hold above 2710, they may be able to springboard up 10+ pts. Failure of this 5 minute uptrend would point towards 2700  and 2695.

Trade Safe

-JMX