Over the past few weeks I have hinted a few times that I was developing a swing trading system based on Darth Mole. Which you may recall is a simple indicator I developed last year with the aim of predicting expansion in price volatility. Quite a good thing to know if you’re about to enter a symbol and over the past few months we’ve been watching it nail one big swing after the other. Some of you are subscribed to the free email alerts or have seen it in the twitter feed. But for the uninitiated here are a few screen grabs:
Here’s DarthMole running against the EURUSD. The blue arrow indicates when you received the alerts.
Here it is killing it on crude.
Here it’s calling out gold.
And here it’s having fun with the 30-year bonds.
I guess you get the idea – it’s bang on when it comes to predicting volatility. Of course the missing piece always has been DIRECTION. Quite frankly DarthMole has been driving me crazy over the past six months or so – I kept watching it nail those volatility swings day after day and became almost obsessed with developing a system that would take advantage of its uncanny abilities.
For months I spent almost entire weekends scrolling through mountains of charts. Just watching and taking notes of anything that stood out to me. Exhausted and desperate I tried to get Scott involved who took a long look at it and pretty much told me he was seeing no edge. There simply seemed no way of making a directional calls and thus building a system around, no matter how tempting, seemed out of reach. After all volatility knows no directional allegiance – it’s great to know when it’s coming but what to do with it?
But persistent (and a bit obsessive) as I am I kept plugging and testing various ideas – correlations, other indicators, Net-Lines, moving averages, heck, everything I could think of. I realized that taking losses would be part of the process and that any successful system would thrive via large outlier winners followed by a succession of small losers. But when exactly to take that entry was the big puzzle I needed to solve. I was laboring for weeks on end until about three weeks ago the light bulb suddenly came on. The result is a fairly trivial and unoptimized swing trading system which is frankly speaking is killing it across the board. I call it (drum rolls) SCALPIUS. Let me show you:
Scalpius vs. the USD/CAD – all stats show the past 19 months (i.e. since early November 2013).
But it really really loves Forex for some reason. Here’s the gofer.
Cable is just a beauty, isn’t it?
EUR/USD – gorgeous…
And finally here’s a graph showing all symbols above combined. I know – 732R – insane. Took over 2700 campaigns to get there – a bit over six to seven campaigns per week day (i.e. about one per symbol). Yes, it loses more than it wins – the ratio is a win rate of about 1: 1.6. But the winners can be huge and it loves to ride the trends.
In case you’re wondering – no this is not something I plan to offer as a service via email/Jabber alerts. It’s way too busy for that and I’ve learned my lesson with CrazyIvan (remember, only 4 subs left). And honestly I’m still pondering whether or not I’ll be accepting LAMM signal subscribers either. Perhaps a small number in a few months from now – if so only the people who already signed up for the LAMM service recently. Frankly it’s probably the best system I’ve ever build plus it very much suits my trading style. A bit busy but it’s manageable as it’s running on a 60 minute chart.
I’ll be leaving for Austria for a few days on Friday morning and will start trading Scalpius after the 25th when I’m scheduled to be back in Valencia. I’ll keep you guys posted on how it’s doing. In the meantime keep watching out for those DarthMole alerts – I always told you guys there is a great system in there!
The future is now – so don’t bring a knife to a raygun fight. If you are interested in becoming a Zero subscriber then don’t waste time and sign up here. A Zero subscription comes with full access to all Gold posts, so you actually get double the bang for your buck.
I’m back from my weekend get-away and much to my shame I was looking forward to getting back to the lair most of the time I was gone. What the hell is wrong with me? Well, we’ve got very interesting tape unfolding this morning which means we’re going to hit the ground running. But first let’s get up to speed on what’s happening on the equities side:
After a rather eventless looking Friday (good timing on taking the day off) we seem to be slowly descending lower. Damn you Skynard!
Anyway, we are looking at soft support here between the weekly NLSL and the 100-day SMA near 2080. I know that’s a 20 handle window but I can’t offer anything that’s not on my chart.
The YM is looking a bit more productive actually. It’s already trading below its 100-day SMA and the next weekly NLSL is at 17690 (typo on chart). Which means I wouldn’t think about long positions before we descend into that range.
Soybeans is looking like it wants to continue higher plus volatility is expected to jump here soon. I’m long with a stop below 937.
AUD/CAD – long here as well with a stop below 0.9460. I would prefer to be below the spike low but that’s a bit too far away, so I’m taking a little chance here.
CAD/CHF – short here with a stop above 0.758. Again I would have preferred to be above the spike high but it’s a bit distant right now.
I have some very nice goodies for you subs – please meet me in the lair:
More charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don't waste time and sign up here. And if you are a Zero subscriber you get free access to all Gold posts, which gives you double the bang for your buck!
In completely unrelated news: The German women team beat Ivory Coast 10:0. What are they feeding those gals?
In one of the pics you actually see one of them floating in the air. My money is on advanced genetic engineering… YOU GO… uuuuhhhh…. gals?
With the exception of the ongoing Euro squeeze (also affecting bonds) the tape continues to run in circles. My appetite for exposure in either direction has been greatly reduced as I’ve been spinning like mad over the past few weeks, extracting a small edge out of each incoming wave of gyrations. There however comes to the point when you must admit to yourself that the input required does no longer justify the return. I’ve been lucky to not having banked any losses but not since my high school days have I worked so hard for so little return.
So why bother? Well, these are the times when you collect evidence, get a feel for the pulse of the market. Right now what I’m seeing is mostly noise, confusion, exhaustion, indirection. Not surprisingly so after almost six months of mostly sideways tape. When I analyze myself I’m pretty much in sync with that range of emotions and I’m not easily crushed by difficult tape.
And those are exactly the times when I visit some of my old friends. If you’ve been coming here for a while then you may have come across this one – the weekly stochastic on the SPX. You all know I only use indicators very sparingly and stochastics – ha, almost never! This is the one exception because rarely has it let me down. I have highlighted the times when we have seen a cross over followed by a dip below the 80 percentile. In almost all cases we saw some degree of correction following it.
What’s interesting right now is that price has not responded yet. This is not completely unprecedented – we saw a similar pattern in late 2013. Then equities punched higher, burning the shorts, only to paint a pretty significant correction shortly thereafter. But what’s different this time is the sideways mess which has preceded this pattern. To me this either means we are correcting sideways or large market participants are distributing. We’ll know more once/if K% line touches the 50 mark – it rarely does without triggering price action. If that happens then we are most likely talking sideways correction.
Either way what follows is likely to be big and therefore my concern is that of getting a seat on the bus. Thus far we have failed in picking a direction. We were extremely fortunate to not get burned on either side (i.e. long/short) but I don’t want to try my luck by forcing the issue. As of right now I don’t see a good entry on the equities side. And yes, it may drop without warning and leave me behind. Which would be frustrating, especially after several attempts. But not as frustrating as damaging one’s account by relenting to guesswork and reactive trading activities.
Another old friend of mine – who of you guys still remembers this chart? And who of you would know what it represents?
The Baltic Dry Index is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) – Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index’s composite measurement.
There you have it – you are basically looking at average container shipping rates across the planet. And clearly the drop over the past year also has a lot to do with lower crude oil prices. But still the question bodes – how many more years will equities be able to bubble higher without the backing of a real economy? After all you can only sell so many yoga apps on iTunes. Meanwhile I’m seeing VC capital being thrown all over the place, just pop by Tech Crunch and look at the recent queue of investments and acquisitions. I just did and only had to scroll down to run into this:
Diabetes Management App One Gets $8 Million In Series A Funding To Build Out The Platform
Scott told me the other day that one of his friends raised a few Million for a meditation iPhone app – no joke. It’s all eerily reminiscent of what I was witnessing up in Silicon Valley during the dotcom bubble.
As you know I don’t trade this stuff and I don’t want it to affect your trading activities either. Remember the old adage: Markets can remain irrational a lot longer than you can remain solvent. I’m not turning into a bear by any definition. However, that said, the long term picture is rather scary and it seems we are approaching a point when this equities bubble fueled by global printing presses may just hit a snag. May hit this year, next year, perhaps in 2020 – who knows. But plan accordingly. Which means:
- Don’t get into any debt.
- Have at least one year in savings.
- Put some of your money in tangibles.
- Take care of your family.
- Don’t get suckered into the hype.
You’ll thank me later.
On the setup front I’ve got copper – tried to get in here before but got kicked out, fortunately at break/even. It’s now pretty much where I see buyers defend the 100-day SMA. Long here with a stop below that big spike low. Let’s see what happens.
It’s not too late – learn how to consistently bank coin without news, drama, and all the misinformation. If you are interested in becoming a subscriber then don’t waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.