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Volatility Musings
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Volatility Musings

by The MoleApril 6, 2016

Frankly I have very little worth sharing today, and it’s not for a lack of trying. Having scanned through my entire charting universe over the past two hours I found very little worth consideration. Clearly equities are stumbling as we’re running a bit out of participation, which by the way has been pretty thin for the past few weeks, only emerging in sudden surges when necessary.

2016-04-06_zero

The Zero indicator has provided us with a lot of valuable context via the absence of a credible trending signal. If you direct your attention to the left panel, which shows the hourly candles, you would agree that the signal has been spotty at best. The only participation that produces strong buying pressure are quick ‘stick save spikes’ banging the tape higher.

Yesterday there was quite a bit of talk in the comment section about bearishness among market participants. Word also has it that some fellow bloggers have been switching into bear mode. Well, given the thin participation on the way up I think that’s absolutely justifiable, but I still have issues finding a good technical entry.

2016-04-06_spoos_LT

In terms of technical context the E-Mini triggered a Net-Line Sell Level breach yesterday. That’s fine but usually not enough for me to get involved. At minimum I would like to see one more attempt to pump it higher which is met at rejection at the NLSL. The weekly panel on the right suggests pretty heavy support near the 1990 mark. We have a NLSL at 1995 and both SMAs (25/100) near 1990. So that limits our profit potential as of right now. Which doesn’t mean snagging an entry here would be useless, sometimes we get lucky.

But what I don’t want to do right now is to chase consensus and grab short positions right here when we already are working off bullish momentum. I want to be teased, wined and dined, and maybe if you rub me right I may put out 😉

2016-04-06_spoos_vol

When in doubt I usually take a peek at my volatility roadmap in search of valuable clues regarding entry viability and the risk of whipsaw. The yellow candles mark times when volatility is expected to have bottomed out and the blue candles periods in which volatility is expected to kick into high gear. The latter is useful as we quite often see those at the onset of a little fake shake out that draws participants into the wrong direction. There are exceptions of course but in general yellow tells me that volatility is about to expand and that I need to watch my six.

What’s interesting is what happens right after those yellow candles. A quick big move to me suggests that we may be painting a trap and I’m usually on the lookout for evidence supporting the idea that monkey business is afoot. If the tape has been trending hard (high signal on the trend panel) then that increases the odds of shake out tape, which includes quick whipsaws, stop runs, gapping action, etc.

When I see a yellow candle after the tape has been already stuck in whipsaw tape for a while, as evidenced by a very low trend signal (i.e. -3 or -4) then it’s more likely that we’ll get a more smooth resolution and that a trend may lie ahead. A good example of that is the tape near the 29th of March. We still produced a fake out but even if you took a short position there you probably got away with 1R in your pocket.

The situation right now has us post two relatively extreme low readings on the trend panel. Now we’re screwing around a little and may soon see trending tape. Whether or not that will be to the downside remains to be seen – realized volatility is agnostic to direction (down or up produce high readings which can be plotted), contrary to implied volatility (IV) which is an unsigned number.

I have only one setup today and it’s a good one, but will need to keep that one for my intrepid subs:

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Time Bandit

    Mornin Folks,

    Been busy as a bee this AM. Re-shorted /ZL shortly after this morning’s spike . I also opened a marginal short in ZC and closed it quickly for a -.5R Loss. I’m still short Integrated Oil Companies, Long Basic Materials and Short GBP/JPY. However, I closed my short in Crude Oil (SCO) for a +.6R Gain.

    I believe on my next Crude Trade I’ll be using either /CL or /QM Futures. I’ve got some charting work to do because trading Crude from a Daily would make /CL’s stop at a higher R level that I would be comfortable with.

  • Time Bandit

    “But what I don’t want to do right now is to chase consensus and grab short positions right here when we already are working off bullish momentum.”

    Amen Brotha Mole. The only consensus that matters is the consensus of what price says. All the rest is opinions and assumptions and you know what they say about assumptions. 🙂

  • BKXtoZERO

    Nice post Mole. “Participation only when necessary” LOL = Participation only after Mole complains.

  • Time Bandit

    Sold Integrated Company Oil Short (ERY) for +.15 R Gain. Just barely above BE on this one but it looks like Crude Price is on its way back up again.

  • Ronebadger

    NLSL coming up now

  • mugabe

    Mole,
    You mentioned you were a trend follower/trader before, which I interpret as meaning a longer term trader. any particular reason you decided to go shorter term?

  • Time Bandit

    For entertainment value only:

    There was a 4.9 Million Barrel Drawdown in Crude Oil Supply this week. Of course this barely puts a dent in the 80 Killgillian Barrel over supply we have.

    http://www.bloomberg.com/markets/economic-calendar/

    It also appears that last night’s strong rise in crude price in After Hours is evidence that the “Boyz” get a preliminary report similar to the EIA Report on late Tuesday Afternoons. This way, the masses are left sucking hind teat as usual.

    It is what it is.

  • Time Bandit

    Stopped /ZL -1R Loss

  • ZigZag

    You know there’s an API report published Tuesday afternoons? Wednesday’s report is given more credence but the API moves the market also.

  • CandleStickEmUpper

    Shorted NQ 4503

  • Time Bandit

    About a year ago, I was reading one of the oil websites and I read about this preliminary report that is issued to big players on Tuesday Afternoons. I’ve not see anything written about this report since.

    However after reading about this report, I’ve seen evidence of strong price action in After Hours on Tuesdays when there has been a signifcant change in supply – especially when the change is in the opposite direction of the current trend. This is only my personal anecdotal evidence so take it for what it’s worth. But just for the hell of it try watching Crude Price in After Hours on Tuesday afternoons and then see how it matches up with Weds Mornings Report.

  • http://greenlander1.blogspot.com/ Greenlander

    Nothing exciting and playing small positions for now. NUGT short stopped out for -1R and waiting for more clues.

  • ZigZag
  • Time Bandit

    OK this might be it but I’m curious as to how much this report costs?

  • http://greenlander1.blogspot.com/ Greenlander

    GLD/ GDX might be consolidating for a move up.

  • http://greenlander1.blogspot.com/ Greenlander

    GLD might be forming a wedge here but isn’t clear

  • Time Bandit

    I see where Market Watch published this report at 5 PM yesterday. I’ll have to look into this further. Perhaps I just “couldn’t see the forest for the trees”. 🙂

  • Time Bandit

    I had two quick in and out losses today and 2 losses is my daily limit for new entries. I’ve cleaned out some older trades as well. Still hanging on to XLB and holding on to my GBP/JPY short which is currently up over +3R. All in all, it’s been kind of a shitty day but shit happens. Current Price is very close to my adding a Long on OIH at the COB otherwise I’m sitting on my hands for the rest of the day.

  • almez

    The zero has had an interesting pattern occur in the past couple of weeks. Whenever there is lots of selling in the morning (very negative daily zero) that dries up in the middle of the day (neutral/slightly positive zero), confirmed by price action moving sideways/up, the second half of the day trends up. This happened yesterday (but note that price did go up, but ended up shaking people out in the last hour). I recall that this also happened last week during that giant reversal candle (april 1 i believe). Can anyone corroborate my use of the zero?

  • http://evilspeculator.com Sir Mole III

    Could be signs of distribution – yes.

  • Billabong

    I closed SCO after it failed to hold 134.46 this morning. I also closed three other different positions for a net +0.54R. Almost a waste of my time. The crude draw down and estimate are off by 7.5M barrels, the equivalent of almost 4 super tankers … that’s a lot of mistake for guys whose business is calculations.

  • Billabong

    Hard to believe with ES up 15 points, but my system gave me a sell signal only on ES. It could be underlying selling while climbing. If it holds through EOD, it would be only the second time in three months I’ve had a sell signal. The previous one (on 11 Feb) ended up being a failed sell signal the next day.

  • http://evilspeculator.com Sir Mole III

    How’s my crew? Guess I wasn’t completely off my rocker regarding the possibility of another little fake out 😉

  • newbfxtrader

    Get short already 🙂

  • newbfxtrader

    FOMC day. Gotta stay sharp…

  • Ronebadger
  • Time Bandit

    This kind of stuff is what has me seriously thinking about my next Crude Trade being a /CL Future. Only need $3850 in margin to cover 1 Contract. I’ll have to get used to one penny Tick in /CL being worth $10.00 but all and all it’s a fairer deal than SCO because look at the movement in SCO on a Big Gap.

    I’ve just back tested the last two weeks on a 30 Minute Chart. I would use a 30 minute chart because I don’t want a $1,000 or Greater R value which is what I would have to use with my Daily Lens trading the actual Futures. Anything faster than 30 Minutes and I would be in and out too many times for my liking. The 30 Minute shows some excellent promise with a 5:1 ratio in winning dollars vs. losing dollars. Entries would be taking at the earliest of the close of the 9:00 AM Candle and no later than the close of the 11:30 Candle. Winners would be allowed to run and Stops would be based on a multiple of ATR and Max R. Of course my back test also shows perfect execution which is suspect but all in all it might be a way out of dealing with these @#$$%%ing Gaps.

    I’m now going to run a test with /QM that is slower moving in terms of $12.50 per .025 Tick but I think I would have to use a wider stop because this thing has a lot less volume and can have as much as a 5 Cent Spread between Bid and Ask. I’ll see how the numbers compare to /CL.

  • Mark Shinnick

    Yeah… I re-positioned some TVIX size in the 4.30’s. I don’t really believe it will breakout before reaching the objective in the high 3 handles, but gotta go with the system…

  • Time Bandit

    Not today. Gots to follow my rules or I turn into a toad. 🙂

  • newbfxtrader

    lol yeah. Rules are rules. Look on the short side for the next few weeks. Or get short put wide stop like me and check in after a few weeks…

  • newbfxtrader

    Also CAD, lumber , silver…

  • http://evilspeculator.com Sir Mole III

    Same old same old – Fed pretends they will hike – and of course never will, not this decade.

  • Time Bandit

    Absolutely. I’ll be back in one way or another. I’m using tighter stops for now while I’m trying to get a “feel” for this thing.

  • Time Bandit

    Trying to work /CL in first but I’ll probably be open to just about everything.

  • Time Bandit

    I believe it’s only the “Minutes” today. Which will be a blow by blow description of yada, yada, yada. . . and we have decided to remain on hold for the time being.

  • BKXtoZERO

    workin’ on lasers………

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    working on Office bullshit training. Can’t offend anyone now-days. No sir.

    http://beforeitsnews.com/contributor/upload/243676/images/money-trap.jpg

    It’s most always, undeniably, a trap.
    😉

  • BKXtoZERO

    moving to the big pond now. Congrats!

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    or the QQQ’s gap needs to close.

    http://stockcharts.com/h-sc/ui?s=QQQ&p=D&yr=0&mn=6&dy=0&id=p84664537485

    *no position in QQQ’s.

  • Billabong

    I’ll be interested to hear how it goes with CL. Your thoughts above on SCO is the reason I go with very small positions.

  • Time Bandit

    Thanks BKX.

    I just finished my back test on /QM and that’s the one I’m going to begin with. What I found was astonishing. My R levels in terms of dollars trading /QM using a 30 Minute chart is very close to the same as it is Charting /CL and trading UCO/SCO. However the returns on /QM are massively better than the Proshares. Winners are allowed to run like hell and Stops happen when they are supposed to and not after a massive overnight gap. My next trade in Crude will be in a /QM Future.

  • BKXtoZERO

    where do I sign up?

  • http://evilspeculator.com Sir Mole III

    Seriously? They made you do this? Sexual harassment education included? I think those are key – how else are you supposed to learn how to do it right?

  • Time Bandit

    I just replied to BKX regarding /QM. There is more money to be made with /CL over /QM but the R levels are higher because of the proportional Tick Size. /QM works at aproximately half the pace of /CL and is a psychologically better crude future for me to begin with.

  • Time Bandit

    Open a Futures Account at the Brokerage of your choice. 🙂

  • Time Bandit

    Edd,

    Many thanks for your support on the last Thread. I have deleted KK’s Comments.

  • Billabong

    There’s the psychological trade off. I take on an SCO position with super high volatility (1X ATR $11) with a very small position. For me, it balances out a small ATR and a larger position. The other one is a confirmed trend and adding to an existing position when you have some distance from the original entry giving the trader a cushion for a trend failure.

  • Billabong

    Go through the whole list similar to UCO/SCO …. DUG, DIG, ERY, etc.

  • Billabong

    Here is another area you have demonstrated, you haven’t over committed to any one sector (excluding size). Over commitment is another big problem for traders…

  • ridingwaves

    weird action as health/bio sector via my lens historically sells off before overall index (risk algos are tight this sector)and XBI-IBB have been making their way up to 100sma which should be a good test

    58.26 for XBI and 291.20 IBB, decent short if rejected up there with stop behind it nearby…

  • Edd

    Welcome Bobby,

  • BKXtoZERO

    violence in the workplace, sexual harassment, drugs, ethics situations, insider trading LOL. lots of fun.

  • http://evilspeculator.com Sir Mole III

    @mugabe – yes, I shifted into more shorter term ‘trends’ when I started working with volatility measures. Trend trading has not worked very well over the past few years, which is maybe a good reason to pick it up again. I think we are going to see great trending action after all this sideways tape which started early last year.

  • Yoda
  • phylum

    Has anyone heard from Ivan lately?

  • http://evilspeculator.com Sir Mole III

    LMAO

  • CandleStickEmUpper

    LOL

  • Ronebadger

    I’ve done this with phone solicitor trying to sell me toner at a very high price. He gave me a price for 1 case, so I asked for a quantity discount for 10 cases…he checked with his manager and came back and said “no discount”. HUH?!?!?

    Another time, a guy called up and very excitedly said, “Hi! This is Bill, on your copier!”. I said, “You’re…ON my copier???”. He said, “Yeah, right on your f—ing copier!!!”, and hung up.

  • Darkthirty

    Every other market open has been buy/sell program, today should be a sell

  • captainboom

    Yep. Chatted yesterday.

  • captainboom

    Back in the day when I’d get sales calls for long distance phone service, they’d be really confused when I told them I wasn’t interested because I didn’t have a phone. Great fun.

  • ridingwaves

    I lived in Newport Beach next to some “Toner Boner” folks, they partied like rock stars considering all the drugs, alcohol, partying etc they did…whole bunch of them that migrated out of Boston…numbers game just counting yes’s per day…

  • Yoda

    Still in GDX Gerb?
    Haven’t touched any of my long PM positions, and I am glad I didn’t.
    NEM is breaking out nicely and GDX is following suit 🙂
    http://stockcharts.com/h-sc/ui?s=NEM&p=D&b=6&g=0&id=p54988885739

  • ridingwaves

    ok, xbi hit and backed off…

    all pull backs in metals and miners are being bought heavy

  • ridingwaves

    gold is very bullish…earnings are going to be bad and fed won’t raise, feels like a moonshot to 1400 with healthy pullbacks is near…eventually the gap in 13 daily filled from April to 1550

  • http://evilspeculator.com Sir Mole III
  • Yoda

    sweet music to my ears