And there you have it – the type of session both Scott and I predicted over the weekend:
Pretty solid positive Zero signal all day – one dip which was as weak as American draft beer and thus did not manage to take out VWAP. The subs seemed to be happy today, so all was well in the evil lair.
Geronimo did its thing and entered at the very low of the day – that’s the way we like it. Unfortunately the first candle moved so fast that I’m sure most subs missed that 1279.25 entry. For the record – this is not the norm and in most cases there’s plenty of time to take the entry near the alert’s entry price. However, if you think that you may be missing out altogether I recommend you take the price you can get and not shift the target. However, you should retain a 12 tick stop as you don’t want to assume more than the default risk. FWIW – sometimes we get an alert and are able to get an even a better entry – so, over time it all evens out.
BTW, today concludes the January monthly candle and in the past 30 days the SPX was able to eek out a whopping 9.78 handles, which is 0.77 percent.
Okay, here’s Scott’s take on today’s session:
[sorry Scott - I could not ignore your complete disdain for punctuation]
Today was kind of painful for me, I got stopped out of 2 positions and my stop in AUD looks to be hit (Yen, GBP, and AUD for a combined 1R loss).
It happens. We move on.
If you read my weekend post about what was the highest probability outcome, its playing out EXACTLY LIKE DAT. A small range day painting a floor.
Today was an inside day, and a FAKEOUT INSIDE PERIOD SETUP long.
And its also a RETEST VARIATION SELL setup. What this tells me is that bulls are painting a floor, and gathering forces for another assault on 1300. If the bears want to seize the day, they have to do something, right now. A break of the daily low here is a short, but its the lower probability outcome.
So we have both long and short setups, bullish and bearish evidence. My plan is to be unbiased and go with whatever price sends us here. Make no mistake the highest probability here is a nice deep retrace of the highs (see my weekend post). If you are short on a small timeframe, consider jumping from your short positions on a break of the daily high. My concern for the long signal is that there isnt really much room before it runs into old resistance, which makes this a marginal trade IMO.
And we have a bullish non-confirmation es futures and $spx.
Moving on we have an OUTSTANDING setup in euro. Remember how I told you to wait for the retest of the high? This is why. There is still potential for another round of short squeezing until we break that daily low.
In GBP I got stopped out of my short setup and into the long setup I posted yesterday. I will be jumping out at the trendline posted and looking for another short.
See how lowering the stop and taking the long setup eases the pain? Instead of taking a full loss we took a .8R loss and are now in profit on the long, with every likelihood of evening out the earlier loss. Unbiased trading!
While Scott is all about price patterns I’m more of an indicator guy. It’s just the way my brain is wired and instead of counting candles I prefer to sit down and simply write an indicator that actually takes candle patterns into consideration and produces trading signals (and stops) automatically. Yes, I’m lazy – I rather spend a weekend coding but then crack open a cold one and get an automated alert when a pattern I am interested in pops up. The other advantage of doing this is that I can also back test and optimize various settings in NinjaTrader, which often reveals rather surprising results.
Obviously I wouldn’t be the first to try something like this – a good example, and one I follow myself, are Net-Lines which designate reversals. What I like most about Net-Lines is that they help me with one of my favorite trading paradigms – which is that of snapping rubber bands.
The trick of course is to know when the tape is in the process of snapping back, and Net-Lines are a simple way to get positioned quite optimally – not too early and not too late. I have to be honest here and point out that I stole this concept from Chris Carolan who uses them heavily. Doesn’t mean he owns them though, so let’s dive in:
I would have loved to present you a coded TOS or NinjaTrader indicator and started putting one together this afternoon. However, I have been slammed this weekend and simply didn’t have the time to finish it sorry – so the manually drawn example of Net-Lines on the spoos will have to do for now.
As I pointed out Net-Lines are reversal patterns and they are a whole lot easier to use than all that convoluted DeMark stuff – which again I’m too lazy (and probably too stupid) to even ever attempt. In essence Net Lines are being produced when there are three consecutive bars either up or down. Once you got three consecutive bars up you set the line at the low of the first bar, which when closed below results in a sell signal. Inversely three consecutive bars down produces a Net-Line buy at the high of the first bar, and again a close above the first bar down results in a buy signal.
Now, a buy signal indicates that the rubber band has been stretched to its current limit and may now be in the process of snapping back to the downside – a sell signal means the very same just that odds support a snap back of momentum to the upside. Another underlying idea here is that the longer the rubber band has been stretched the more violent the snap back or counter move.
Well, and snap it did last Friday! Unfortunately without us – just as Scott suspected a week ago. As you can see we sliced right through the last sell signal at 1277.75, which is the low of the 1/24 candle. That was officially our sell signal – per the Net-Lines sell rule. Unfortunately we however kept moving a lot further down the very same day, and in terms of a good setup that is suboptimal. We prefer to see a close near our current Net-Line sell level as that is where we want to get positioned. Or in other words – this move down is done and chasing it is very bad medicine. And that’s another very important piece of information Net-Lines can tell us.
I am also not sure that it’s straight down from here – yes, we may get some follow through for another day or so but before you get heavily positioned to the downside I have some exhibits you may want to see:
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We move to the endgame for equities. About fucking time if you ask me, over recent months I’ve abandoned my favorite market (spx and es futures) for the greener pastures of metals and currencies, and if you follow the setups I have been posting here, you have been killing it just like me In fact killing it, burying it in a shallow grave, digging it up, and killing it again and again.
A few weeks ago I posted what would make me get interested in this market again. “A massive drop, that made ME WISH I WAS SHORT, then a sharp retrace to retest that high”
Do you think Friday counts as a “massive drop, that made me wish I was short”? Now I noted the sell setup on the blog, but didnt take it, saying I wouldnt touch it with a stick. Now I was a little biased in this, in retrospect the evidence is clear that that short signal was a good un. Mea clupa.
Now most of you are aware I dont use indicators (except for zero) because for me, it detracts from listening to the story that price is trying to tell us.
Here is the story, as price has told us over the last few weeks
Starting on 20/1 we have a hammer candle pullback to moving average support. This will always attract dip buyers, and it did. But the dip buyers werent even able to push it up for a high close.
At that point I posted “The evidence is clear. We may make one more high, but thats it. The last buyer has bought”
Now over the next 2 days top picking shorts would have accumulated (including myself, I took a loss on a small top picking exercise at this point), and then price rose to new highs, stopping them out in the process. Now the price action of this short squeeze was NOTHING LIKE SHORT SQUEEZES IN THE PAST. 2 days of small range, weakening to the upside. This is further evidence that the uptrend is over.
The last day was a gap up which did not follow through. What this indicates is that the gap up on open which would have panicked bulls on the sidelines into getting long (because of the fear of missing out) had minimal effect. What that tells us is that price is TEMPORARILY VULNERABLE because if the buyers on the sidelines have all bought, for a short time there was no buyers to support the drop if price starts falling.
Thats exactly what happened. A SAVAGE POSITIVE FEEDBACK LOOP of weak hand longs selling their positions, with shorts piling in for the gangfuck, driving price further, stopping out dip buying longs all day long. We call this a TYPE III TREND DAY.
Now tell me, can you really read that much info from “XYZ momo indicator is overbought”? Indicators are fine, but we have to remember they are derivatives of price, and are only useful if you LISTEN TO WHAT PRICE IS TELLING YOU.
Now, lets move on to TYPE III TREND DAYS.
An easy way to tell. For the first hour or so of trade if the $tick remains nearly totally below zero (like 85-90% or so, i eyeball it but working on exact parameters) then odds are its a TREND DAY. In any case long trades come off the table (works in reverse for longs too). Mole and I have been conversing about automating this into an SMS signal and altering Geronimo to take into account this behaviour, and this is very promising research from the evil.lab.
Take a look at the 1 tick chart of $tick (the cleanest data there is, the actual raw data)
Now I calculated it manually since I dont program. 353 seconds out of 3600 seconds in the first hour below zero is 90.19% of the time. Bingo! So we go to ALTERNATE TREND DAY TACTICS.
What I would personally like, and would like rats to push for, is for Mole to automate this as an SMS based signal. Trend days are the easiest money there is, and they occur on average once every 9 trading days. An SMS alert telling me to drop everything and get in front of the screen (and exit trades in the opposite direction) would be extremely useful. I would pay for it.
Now moving on to trend day tactics. Early identification is key. Another key indicator is open gaps that do not attempt to fill within the first hour. Now there are many ways to trade this. I’ll go through some of them, then I’ll show you the way I do it.
Easiest way. Get short. Trail a stop at 50 EMA on 5 min chart. Exit on close.
Or Get short when you identify it. Place stop at intraday high. Exit on close.
Or get short, and use Moles BPC calculator to mechanically pyramid. (probably optimal)
For me this works best.
What I am looking for is to take EVERY 5 MIN SELL SETUP. Definition is fakeout sell (there are none today), Inside bars, or shooting star candles. When I see one I place a sell stop to get short IF AND ONLY IF the low is broken. If I am filled I place a stop at the 5 min candle high. Usually I’m risking only 1 handle to make MANY ES HANDLES.
Today we had 5/6 winning trades, and they were all BIG WINNERS, the biggest one was a 10R winner.
Now there are a couple of ways to do this. I stop doing it after the first losing trade, exiting all positions, but usually I like to swing some of my first winning trade for exit on close. The odds favour an ATTEMPTED rounded reversal late in the day, and that can either work, or fail. The rationale for stopping at the first failed trade is that usually indicates the start of the rounded reversal process, which is by definition non trending choppy price action that we dont want any part of.
OK Great enough about the past what about the future? My crystal ball is broken, so I’m afraid all I have are probabilities
Let me show you this chart of the April 10 Highs.
Now its nothing short of CREEPY how close this is to the action right now. We have the very convincing looking retest which failed, but couldnt trigger another move up, just 2 days of weakening price action, then a massive fall.
What came next is the same as my HIGHEST PROBABILITY OUTCOME. Which is a retest of the highs. Then the fall.
Now if you are a bear what you want to see is a floor painted RIGHT THE FUCK HERE. It sounds counter-intuitive, that if you are a bear you want it to go up. But the bulls have shown they are weak right now. The last thing bears want is to give them the time to gather forces for a serious assault from support lower down. If we fall hard from here IMO all we do is set up for another 3 weeks of painful, corrective, waiting for godot type action while we retest the highs in slow motion. Far better for the bearish case for bulls to take their best shot right here and now, and prove beyond any doubt at all that they cant get it to new highs. At that point gravity has to take over.
The essence of the situation.
If the bulls can paint a floor on Monday, push it up, and FAIL TO MAKE NEW HIGHS – The fix is in, and we can go short with confidence.
The highest probability after any trend day is a small range range traded day. I use alternate tactics, the Mole VWAP scalp on zero is the one to use IMO, or bollinger band reversal plays on the 5 min charts. Its pretty borderline stuff to do, and if you arent expert I’d sit Monday out and wait for clearer direction on Tuesday. Certainly I’m not planning on giving up a nights sleep for it.
So what we are looking at Monday is either an inside day or a day that initially breaks the low of Friday and has a small range (either up close or downclose doesnt really matter) – non trending price action.
So where does that leave us? This is my 2 highest probability options. If we fall a bit from here I wouldnt hesitate to take a long signal, (unbiased), but the juicy one is waiting at the retest of these highs. At this point I would be extremely surprised if we make new highs, but that being said, I’ve been surprised by this tape before
Also of note, Dr Copper isnt buying the fall, the fakeout inside period long setup I posted continues to work Thats really stinky for further downside, which leads me to say, if you got short on Friday, bank some profits.
One thing I’d like you all to note is that the sell setup was cleanest and worked best in the WEAKEST INDEX, NQ. At this point I will be taking sell setups in NQ rather than ES, and I urge you to consider that as well. The race isnt always to the swift, nor the battle to the strong, but thats the way to bet
In other news, PLEASE tell me someone took the AAPL setup I posted ?
OK looking at the currencies. Euro is a VERY COMPELLING SHORT ON A RETRACE.
Cable, I posted a sell setup, which is working, we should be short and I am. At this point there is a potential RETEST VARIATION BUY SETUP, so I lower my stop and prepare to reverse long if its hit
AUD I am short per last weeks setup, its at roughly breakeven and it painted an INSIDE DAY. At this point it could go either way, its a long setup on break of the highs and a short on break of the lows. A conservative trader would exit at this point and reenter on a break either way, giving up some profit for certaintly.
Yen I am long from the daily setup, my stop is not hit, but I’m still quite hopeful about this trade. There was a blatant bit of manipulation in the final minute to attempt to alter the final shape of the daily candle. I wouldnt take it short because of the closeness of the spike low.
I think its a complelling long on the 360 min inside period setup on Sunday night for you Norteamericanos, Monday morning for me.
For something a little different!
Monday has a sweet fakeout sell in NZDUSD, or 6N futures.
Also an INSIDE BAR and RETEST VARIATION SELL on the monthly chart
AUDJPY has very interesting price action, the 20 EMA has acted as strong resistance, and it looks ready to fall away
But the setup I REALLY LIKE is on the monthly chart. Nice tight range, potential to be a wave 3 to the downside. Ties in with equities, its lined up perfectly.
This is a MONEY setup
Now for metals
Now Prechter thinks we have completed wave 1 but as we all know thats bull-plop, and demonstrably so. What we have now is a short squeeze, caused entirely by technical factors that have nothing to do with waves. Like we noted last week, each successive downleg in metals was weakening, not strengthening, and we had a BULLISH NON-CONFIRMATION between silver and gold at the lows. Odds are this has a little more upside in it, it *SHOULD* get some resistance at the moving average resistance and fib levels, but if it gets past that we could have a further squeeze on top.
My advice at this point is that its probably too cute to start getting long at this point, but you shouldnt preempt getting short. Metals have given us 5 CONSECUTIVE WINNING TRADES lately in both directions, which to me is an indication that this market is behaving in a predictable orderly fashion. A sell setup will present itself soon, and we can get short again.
Today was a pretty rough session – if you look at the chart it looks pretty clear in hindsight but the tape is changing and thus we need to also alter our outlook on how to use the signal in our trading.
The Zero dropped like a rock right after the open and the spoos right with it. As you can see prices started to pull away from VWAP (i.e. expanding their distance) which is usually a pretty bad sign and points towards a down trending day.
Two hours into the session I pointed out a divergence on the Zero Lite – see the light green support line I drew on the chart. In the past two years a setup like this has resolved over 80% of the time but today we weren’t that lucky and my stop placed at 1283 was touched at 11:30am EST. From then on we started to zigzag lower and completed the day at a the daily low.
Now, sometimes the most valuable lessons are learned in defeat and this is one of those occasions. What did we learn today? First up I can assure you that the buy bots got crushed today – I know this as Geronimo stroke out twice today as well (more about that below). I wound up putting a comment on the chart which stated that it felt like the HFT bots had switched into reverse. As I do not even read news during the trading session it’s clear that I refuse to chalk this day off to anything that may have happened in Egypt. That’s complete horsewash and has nothing to do with what happened today.
Rather this felt like big players taking profits and handing the bag to retail pigs dumb enough to chase the tape up (which btw, I cautioned you guys last week to not chase this thing higher). Look, the spoos never even as much as touched VWAP today, and that in itself means that any efforts to buy the tape higher were either squashed or were in fact nonexistent.
So, what happens next is of course what’s really interesting- forget about today. A day like this cannot be predicted and once it happens the follow through is what is on top of my mind. Because a trend change if often reflected by the type of follow through it evokes. If we see the spoos hold their ground and even gap higher tomorrow then we know that this was nothing but a shake out – otherwise something more substantial may be in the works.
For us Zero traders this day means that we need to be more cautious when it comes to trading bullish divergences. And by cautious I mean is to wait that extra bit longer before taking a long trade and to also wait for a more solid bottoming pattern. When I went long right at the second red-dashed vertical line prices had not produced a convincing bottoming pattern and although this risk was acceptable while the tape was melting up it lead to my stop being touched today. Of course I didn’t incur a big loss – I lost eight ticks – but it should have been avoided as the distance to VWAP had not diminished yet and prices had not produced sufficient evidence that even a temporary low was in place.
Geronimo did not fare very well today – two trades were taken and almost immediately stopped out. Not much coin lost thanks to the 12 tick stop loss but frustrating nevertheless. I spoke to Scott after the close who actually has an idea on how we may prevent Geronimo from taking trades on down trending days. Will look at that over the weekend and once it’s implemented I will test the heck out of it. As I’m also working on ZeroFX (which is a very tough nut to crack btw) it seems that I won’t get much of a break.
All in all an exhausting day for me and it’s time for me to crack open a cold one – have a great weekend, everyone!
There were some posts on Tom DeMark Sequential counts on the blog today, I thought I’d do a quick tutorial, since his book is nearly impenetrable. I spent the time, and found it useful and valid, though I dont use it since it gives a signal every 6 months or so and I have ADHD
Its the Rube Goldberg machine of Technical Analysis
It has 4 stages, I’ll go through it for sells.
1) We need a TDST price flip, which is a close LOWER than the close 4 bars ago (for sells), its called a BULLISH PRICE FLIP for sells, because this is the pullback that brings in dip buyers for the trending action.
2) Once we have the TDST price flip, we commence 9 COUNT SEQUENTIAL. 9 CONSECUTIVE (one after the other) bars where CLOSE IS HIGHER THAN THE CLOSE 4 BARS EARLIER (one rolling trading week)
3) Once this 9 count is complete we start the 13 COUNTDOWN (which doesnt have to be sequential). Note the 9 count of the sequential can also be the “1″ of the 13 countdown.
13 bars where the CLOSE IS HIGHER THAN THE HIGH OF 2 BARS AGO.
When this count is complete take the lowest low of the last 5 bars (including last bar, a rolling trading week) and that point is your entry point for a sell. Price MUST DECLINE TO THAT POINT TO GET SHORT.
Look at the following example
OK From the start, we have a price flip starting the process, then the first few bars of a 9 count. One missing bar in the sequence and we have to start again from 1 further up. Once the 9 is competed, we start the 13 countdown. We actually get to 13, but the sell point is never actually triggered.
The interesting thing here is that that old 13 count would have been a good place for price to turn down. But it didnt, and we wait for another price flip, and 9 count sequential. Then we count down to 13 all the way to the completed 13 count. Its got a sell trigger if price declines to 1260.
If I’ve made mistakes, forgive me, I’m at my girlfriends house and havent got the book on the shelf here, its from memory a LONG time ago.
Yesterday I told you to take the day off. Of course, you didnt, and got to witness the most boring price action ever.
The battle for 1300 rages unabated. Lets go looking for clues eh?
If you went into today with a plan you could trade it, but I didnt bother, and I doubt many of you did either. Knowing what we know about what was always going to happen today (trench warfare at 1300) its a reasonable assumption that any pullback was going to be bought. It was also a reasonable assumption that we arent going to crack 1300 first time, there is a slugfest going on and it continues until one side is exhausted.
So we have the zero telling us there is low participation. In that situation the VWAP scalp is always going to be our best friend.
And lets zoom in. The Mole-O vwap scalp worked perfectly, or for more confirmation, you could have waited for the wyckoff sign of strength and retest of the lows.
Riveting stuff! So where does that leave us? Todays action will start to make bears think that 1300 is the THOU SHALL NOT PASS LINE, which as we all know is bullshit. If price is going to go past the line in the sand highest probability is an attempt at the downside to suck in the bears.
So what we have is failed attempt number 1 by the bulls to pass the 1300 line. Bears go tomorrow. Highest probability is an ATTEMPT , which we know NOTHING ABOUT to the downside. We learn a lot more from the price action of the attempt. I still wouldnt be touching this short or long for anything other than intraday trades.
In other news gold and silver turned down but silver has NOT confirmed the lows, which is stinky for further downside. The potential for a short squeeze exists. AUD and JPY triggered their buy and sell signals respectively (posted yesterday) and both are working perfectly.
I have two great setups today, thanks to Ultra for pointing this out
Who doesnt want to short AAPL. But we dont short strength, right? Not usually, but price is telling a compelling story here
What we have is a fast movement down and a weakening drive back up, FAILING TO RETEST THE HIGHS. Particularly compelling is that each successive days range is weakening, and today couldnt even break yesterdays highs, painting an inside bar. This is a great short. I know you want to !
Next one. GBP is also a great short on break of the daily low when we read what price is telling us. We have a retest variation sell, which has not been stopped out yet. Yesterday we had a long setup (fakeout inside period) which has not worked. In addition to todays short setup, we have the situation where getting short would trap dip buying longs the wrong way.