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March 21, 2017

Crude Update

A few days ago I stated that it was extremely stinky that in context crude could not even break it’s daily low. This lessened the odds of a bearish resolution.

Today we have price action which changes from a lessening of the bearish advantage to a bullish advantage.

The gold standard of trading is holding onto your opinions so weakly that you don’t hesitate to change them when the facts change. Which is why (with the exception of our gracious host and a few lonely others) mostly bloggers and prediction monkeys suck at trading.

Once you put your ideas out into the ether it becomes very tempting to hold on to them, which is one of the many ways [...]

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March 20, 2017

System Building Lessons continued

I keep getting distracted, but I’d like to move ahead quite rapidly now since Mole will be back on deck soon enough. Today’s post has enough information for you to go ahead and build working mean reversion trading systems right now, with not that much work involved.

I think we’ve covered in enough detail the idea that the best systems are based around a simple and clearly articulated idea, which can be tested for veracity.

The problem with complicated ideas is that our brains are built to believe all kinds of bullshit that isn’t true. Look at the recent election for a perfect example, we are a walking stew of cognitive biases that fuck with us [...]

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March 17, 2017

Lessons in Price Action – One shot, one kill

I had planned to make todays post a continuation of the system building, but we have an excellent risk/reward opportunity in Crude today, and there are some subtle clues it is worth investigating.

What story is the tape telling us?

Once upon a time, there was an epic battle, my institutional trader friend Jehan calls it the “Battle of the shales and sheiks”.

Like we were talking about yesterday, trading ranges end when participants are so exhausted or bored they give up. A useful proxy for “we are in a trading range” for system building is 20 bars or more of inconclusive bullshit.

This is very handy shorthand. 20 bars from [...]

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March 16, 2017

Market Update Post Fed – Lessons in Price action

I see an uptrend like the recent one in the indexes and expect to see the reverse happen. This is because recency bias conditions our primitive DNA to expect everything in context with what came just before.

But that doesn’t work with markets. Like with so many things, our hunter gatherer DNA is ill equipped to deal with the modern world.

Burn this into your brains.

The highest probability following any period of smooth, easy to trade, single direction price movement is a period of choppy, two sided, difficult to trade price action. We call this easytime-hardtime, and it is a very good paradigm for viewing the markets.

So we look and see a reversal [...]

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Cognitive Bias Carousel
  • Loss AversionLoss Aversion
    The tendency to treat money that has already been committed or spent as more valuable than money that may be spent or acquired. Imagine two … more
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