PositiveDev's trading journey

[Perishabull]

No trades today, a shame since there were some huge swings today;

 

E-Mini NASDAQ futures;

[drbubb]

No trades today, a shame since there were some huge swings today;

Take a look at TNA and TZA as trading instruments

 

For shortdated maturities, in-the-money options can be acquired for little time value.

And they MOVE!

 

I bought TZA-Aug.$16 calls a few days ago at $2.20-2.25, and yesterday they traded as high as $4.10.

 

TZA itself is a 3X Bear etf on IWM, and yesterday we saw this:

 

SPY : 136.64 - $0.95 / -0.69% / H:137.57 - L:135.58

IWM: $76.78 - $0.28 / H: 77.31 - L: 76.25

TZA : $19.78 +$0.20 / H: 19.38 - L: 20.19

Ratio: 25.8% : R-71% = (25.8 x 3= 77%)

 

So you get something like 77% of the Inverse of the Move in IWM,

for an investment of: $3.85/76.78 = 5.01%, with virtually no time value to pay.

5.01% / 77% = 6.51%, that seems attractive Risk/Reward to me.

 

If IWM moves down by 6.5%, I will double my money, and if it goes further,

then my return goes on increasing. But in the opposite direction, I have limited risk.

 

To put it another way, there's an Asymmetrical Risk/Reward here,

and that can be a very good thing, when you put it to work in your favor.

 

Also, you could buy a Higher strike, such as $17: $2.97/($76.78 x77%) = 3.62%

(IVal.: Intrinsic Value at TZA-$19.78 / IWM-$76.78

=======

Aug-Calls Mid-pr : IValue : Mpr/% : x77% : TValue : Mapr/% :

$16-call : $ 3.85 : $ 3.78 : 5.01 % : 6.15% : $0.07 : 0.12 %

$17-call : $ 2.97 : $ 2.78 : 3.87 % : 5.02% : $0.19 : 0.32 %

$18-call : $ 2.14 : $ 1.78 : 2.79 % : 3.62% : $0.36 : 0.61%

$19-call : $ 1.55 : $ 0.78 : 2.02 % : 2.62% : $0.77 : 1.31%

$20-call : $ 0.96 : $ 0.00 : 1.25 % : 1.62% : $0.96 : 1.63%

[Perishabull]

Take a look at TNA and TZA as trading instruments

 

For shortdated maturities, in-the-money options can be acquired for little time value.

And they MOVE!

 

I bought TZA-Aug.$16 calls a few days ago at $2.20-2.25, and yesterday they traded as high as $4.10.

 

TZA itself is a 3X Bear etf on IWM, and yesterday we saw this:

 

SPY : 136.64 - $0.95 / -0.69% / H:137.57 - L:135.58

IWM: $76.78 - $0.28 / H: 77.31 - L: 76.25

TZA : $19.78 +$0.20 / H: 19.38 - L: 20.19

Ratio: 25.8% : R-71% = (25.8 x 3= 77%)

 

So you get something like 77% of the Inverse of the Move in IWM,

for an investment of: $3.85/76.78 = 5.01%, with virtually no time value to pay.

5.01% / 77% = 6.51%, that seems attractive Risk/Reward to me.

 

If IWM moves down by 6.5%, I will double my money, and if it goes further,

then my return goes on increasing. But in the opposite direction, I have limited risk.

 

To put it another way, there's an Asymmetrical Risk/Reward here,

and that can be a very good thing, when you put it to work in your favor.

 

Also, you could buy a Higher strike, such as $17: $2.97/($76.78 x77%) = 3.62%

(IVal.: Intrinsic Value at TZA-$19.78 / IWM-$76.78

=======

Aug-Calls Mid-pr : IValue : Mpr/% : x77% : TValue : Mapr/% :

$16-call : $ 3.85 : $ 3.78 : 5.01 % : 6.15% : $0.07 : 0.12 %

$17-call : $ 2.97 : $ 2.78 : 3.87 % : 5.02% : $0.19 : 0.32 %

$18-call : $ 2.14 : $ 1.78 : 2.79 % : 3.62% : $0.36 : 0.61%

$19-call : $ 1.55 : $ 0.78 : 2.02 % : 2.62% : $0.77 : 1.31%

$20-call : $ 0.96 : $ 0.00 : 1.25 % : 1.62% : $0.96 : 1.63%

 

Thanks for your post.

 

Presumably the limited risk/asymmetry you refer to is the fact that you are long TZA therefore it cannot go below or to 0, and the more right you are the higher the delta, so you become more leveraged to the underlying the more the trade goes in your favour. I can see that if you go for the 1 delta TZA options the spreads are horrific but in fairness in terms of strike the closer to the underlying price you get, the better spread you get (as a % of underlying).

 

I opened an account with Zecco (they offer decent commissions) but haven't funded it as of yet.

 

And how do you factor implied volatility into your calculations Bubb, since they can have a dramatic effect on option premiums?

[Perishabull]

Short at 13:15, filled at 2645.50.

 

This was just prior to positive nonfarm payrolls coming in at 167K against expectations of 100K, at 13:30.

 

If I'd taken a position 180° to that which I did perhaps I would be more enamoured with the day.

[Perishabull]

One of the things I like about this blog and in fact futures trading is that it forces you to confront reality, the truth. Of course I could come out with some bullsh*t here that each and every trade I make is buying every low or selling every high however the only person I would happen to be bullsh*tting would be myself. There's no point in doing that.

 

 

But regards my strategy, perhaps it's time I woke up and smelt this;

 

 

 

 

 

The fact is I am not making much money here, as painful as that is to admit, its the truth. I'm going to need to change something...

[drbubb]

Thanks for your post.

 

Presumably the limited risk/asymmetry you refer to is the fact that you are long TZA therefore it cannot go below or to 0, and the more right you are the higher the delta, so you become more leveraged to the underlying the more the trade goes in your favour. I can see that if you go for the 1 delta TZA options the spreads are horrific but in fairness in terms of strike the closer to the underlying price you get, the better spread you get (as a % of underlying).

 

I opened an account with Zecco (they offer decent commissions) but haven't funded it as of yet.

 

And how do you factor implied volatility into your calculations Bubb, since they can have a dramatic effect on option premiums?

 

I am talking about going Long CALLS on TZA.

This way, you get:

+ The limited risk of Options, and

+ The gearing of the 3X etf

+ By purchasing deep in-the-money calls, there is little Time Value exposure

 

Both in a single instrument

 

I will give an example later, of what happens when it goes wrong

[Perishabull]

4 trades today , a short at 10:06, longs at 13:16 and 13:58 and a short at 17:12;

 

 

These were stopped out, each for a 2 point loss. I was a bit cheesed off on friday, namely due to there being 3 good signals last week but they were all in last 90 minutes of the trading session, which is a period that I don't trade. Nevertheless I have created a winning trading strategy but it only works if all the signals can be traded, I'm not able to do that due to work commitments, which is a bit ironic really. It stands to reason that if you are looking to trade counter-trend as I have been with this strategy then if you can't trade all the signals then less of the winning trades will be taken and the power of the strategy is not taken advantage of. Counter-trend trading is a challenging exercise indeed and it's frustrating to have come up with something quite promising that I cannot take full advantage of due to time constraints. I've decided to stop trading this strategy and create and test a new one.

 

 

This time it will be a strategy based on going with the flow of the market, (not looking for tops and bottoms to trade). It took some work and development to create that last strategy so this means it's not possible to say exactly when I might be trading the new strategy, but I'll be outlining my work as I go along here to find out what works, and what doesn't.

 

There are a lot of positives here, I have a greater understanding of what is required to create a winning trading strategy and my risk control has protected me very well indeed. Whilst there may have been some emotion present when I first started out, some trepidation about trading and initial hesitancy about taking trades, I see it now just as it is, a business.

 

 

 

I've spent a long time looking for turns in the market when all along perhaps the turn I have been looking for is inside my mind.

[drbubb]

It looks to me that US stocks are trying to rollover after some low volume highs

[Perishabull]

I have been generally quite bullish on stocks recently in terms of being the better looking ugly sister, although this has been mainly based on the fact that I believe the bullish sentiment on the US Dollar, and conversely the bearish sentiment on the Euro, is overdone.

 

 

It's been a while since I've looked at the following, I've now added TRAN - the NASDAQ TRANSPORTATION INDEX, mainly because it seems to be a perennial topic of discussion among the (principally) day traders chatting about the RANSQUAWK live global news feed. The general consensus is that it can be seen as a leading indicator, over and above the Dow Jones Transportation Index, although as mentioned this is a group whose main focus is an intraday term.

Ignore the values on the right hand scale (I've multiplied some of the underlyings so they all fit on the above chart)

 

 

 

The next chart shows the divergences in a different way;

 

At first glance it seems bearish that, both transportation indexes are diverging lower, however since TRAN appears to be close towards confirming a clear break above the downward sloping trend line (Chart 1), I personally am looking for $DJT to perform the same clear break above the downward sloping trendline to confirm my tentative bullish posture.

 

 

 

Euro sentiment from www.sentimentrader.com;

[Perishabull]

The majority lose at futures trading I think because they approach what is a business environment with a gambler's mindset (Think working man going into a bookmakers = fatal outcome). The amateurs provide the profits for the professionals.

 

Think about who you are aiming to take money from in the market. For me it's these people with the gambling mindset, that are unlikely to consider such things as correlations with other markets. These are the people that are the last into a trend you know, that sort of thing, the people that get caught long just as the market turns.

 

------------------------------------------------------------------------

 

The following is "borrowed" from a thread on the aforementioned website, interesting reading...;

 

"Top 50 Reasons Why Futures Traders Lose Money

A list of the fifty most common reasons why most futures traders lose money.

We surveyed more than a thousand experienced futures brokers and asked what, in their experience, caused most futures traders to lose money. These account executives represent the trading experience of more than 20,000 futures traders. In addition, most of these Account Executives (AEs) have also traded or are currently trading for themselves. Their answers are not summarized because different traders make (and lose) money for different reasons. Perhaps you may recognize some of your strengths and weaknesses. Yet, many of the reasons given are very similar from broker to broker and client to client. The repetitions stand to demonstrate that, alas, many futures traders lose money for many of the same reasons. Perhaps these statements from experienced brokers can make a contribution to you, who make this sometimes fickle, often intricate, always interesting marketplace of futures trading possible. Here is what they said:

 

Many futures traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they "second guess" it and don't stick to it, particularly if the trade is a loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions.

Usually they liquidate the good trades and keep the bad ones. Many traders don't realize the news they hear and read has, in many cases, already been discounted by the market.

After several profitable trades, many speculators become wild and unconservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that "can't fail."

Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.

Some traders try to "beat the market" by day-trading, nervous scalping, and getting greedy.

They fail to pre-define risk, add to a losing position, and fail to use stops.

They frequently have a directional bias; for example, always wanting to be long.*¹

Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market in too short a timeframe.

They overtrade.

Many traders can't (or don't) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach...a trader needs to develop and stick with a system.

Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.

Many traders break a cardinal rule: "Cut losses short. Let profits run."

Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That's why they should have a plan first, and stick to it.

Often traders have bad timing, and not enough capital to survive the shake out.

Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations which reflect a fundamental change and those which represent an interim change often causes losses.

Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.

Emotion makes many traders hold a loser too long. Many traders don't discipline themselves to take small losses and big gains.

Too many traders are underfinanced, and get washed out at the extremes.

Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits. This is really lack of discipline. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.

Trying to trade inactive markets is dangerous.

Taking too big a risk with too little profit potential is a sure way to losses.

Many traders lose by not taking losses in proportion to the size of their accounts.

Often, traders do not recognize the difference between trading markets and trending markets.

 

Lack of discipline is a major shortcoming.

 

Lack of discipline includes several lesser items; i.e., impatience, need for action, etc. Also, many traders are unable to take a loss and do it quickly.

Trading against the trend, especially without reasonable stops, and insufficient capital to trade with and/or improper money management are major causes of large losses in the futures markets; however, a large capital base alone does not guarantee success.

Overtrading is dangerous, and often stems from lack of planning.

Trading very speculative commodities is a frequent mistake.

There is a striking inability to stay with winners.*² Most traders are too willing to take small profits and, therefore, miss out on big profits. Another problem is undercapitalization; small accounts can't diversify, and can't use valid stops.

Some traders are on an ego trip and won't take advice from another person; any trade must be their idea.

Many traders have the habit of not cutting losses fast, and getting out of winners too soon. It sounds simple, but it takes discipline to trade correctly. This is hard whether you're losing or winning.

 

Many traders overtrade their accounts.

 

Futures traders tend to have no discipline, no plan, and no patience. They overtrade and can't wait for the right opportunity. Instead, they seem compelled to trade every rumor.

Staying with a losing position, because a trader's information (or worse yet, intuition) indicates the deteriorating market is only a temporary situation, can lead to large losses.

Lack of risk capital in the market means inadequate capital for diversification and staying power in the market.

Some speculators don't have the temperament to accept small losses in a trade, or the patience to let winners ride.

Greed, as evidenced by trying to pick tops or bottoms, is a frequent error.

Not having a trading plan results in a lack of money management. Then, when too much ego gets involved, the result is emotional trading.

Frequently, traders judge markets on the local situation only, rather than taking the worldwide situation into account.

Speculators allow emotions to overcome intelligence when markets are going for them or against them. They do not have a plan and follow it. A good plan must include defense points (stops).

Some traders are not willing to believe price action, and thus trade contrary to the trend.

Many speculators trade only one commodity.

Getting out of a rallying commodity too quickly, or holding losers too long results in losses.

Trading against the trend is a common mistake. This may result from overtrading, too many day-trades, and undercapitalization, accentuated by failure to use a money management approach to trading futures.

Often, traders jump into a market based on a story in the morning paper; the market many times has already discounted the information.

Lack of self-discipline on the part of the trader and/or broker creates losses.

Futures traders tend to do inadequate research. ^*3

 

Traders don't clearly identify and then adhere to risk parameters; i.e., stops.

Most traders overtrade without doing enough research. They take too many positions with too little information. They do a lot of day-trading for which they are undermargined; thus, they are unable to accept small losses.

Many speculators use "conventional wisdom" which is either "local," or "old news" to the market. They take small profits, not riding gains as they should, and tend to stay with losing positions. Most traders do not spend enough time and effort analyzing the market, and/or analyzing their own emotional make-up.

Too many traders do not apply money management techniques. They have no discipline, no plan. Many also overstay when the market goes against them, and won't limit their losses.

Many traders are undercapitalized. They trade positions too large, relative to their available capital. They are not flexible enough to change their minds or opinions when the trend is clearly against them. They don't have a good battle plan and the courage to stick to it.

Don't make trading decisions based on inside information. It's illegal, and besides, it's usually wrong.

 

There you have them, fifty rules from more than a thousand brokers who have handled more than 20,000 accounts. They've seen what worked, what didn't, and why. Following these rules will not necessarily lead to success. Breaking them could increase your chances of failure. Futures trading is not for everyone. Futures trading involves the risk of loss."

 

 

 

The areas I need to focus on are in bold.

 

*¹ Up to this point I have a bias for short trades with a ratio of around 5:7 (Long:Short)

 

*² Although not staying with trades > 10 points was part of my previous trading plan.

 

*³ I need to properly research and try to quantify the risks that may limit or diminish an edge identified in any given trading strategy.

 

 

 

Actually given the rather large list, I'm quite pleased that there are relatively few lines in bold. (I'm trying to be as objective as possible here)

[Perishabull]

VIX is at a 4 year low (according to Zerohedge);

 

 

 

 

VXN made a 6 year low today, it hasn't been this low since 1st May 2006;

 

 

 

 

 

 

Chart from www.sentimentrader.com

 

 

Record short position for commercials.

[Perishabull]

Jason Goepfert of www.sentimentrader .com this morning;

 

"The VIX "fear gauge" dropped below 14% on Monday for the first time in more than a year.  This has occurred twice before in the indicator's 25-year history, on 11/13/91 and 6/23/04.  The S&P 500 peaked almost immediately both times, declining just more than -5% during the next 10 and 30 days, respectively.  The index then bottomed and went on to new highs over the ensuing months."

 

I'm still bullish.

[Perishabull]

 

At first glance it seems bearish that, both transportation indexes are diverging lower, however since TRAN appears to be close towards confirming a clear break above the downward sloping trend line (Chart 1), I personally am looking for $DJT to perform the same clear break above the downward sloping trendline to confirm my tentative bullish posture.

 

 

 

$DJT has broken above now as well, suggesting a move higher for equity markets from here. SPX looks poised to breakout higher. SPX looks poised to break higher. If we add in NDX we see it has already broken higher.

 

[drbubb]

Jason Goepfert of www.sentimentrader .com this morning;

 

"The VIX "fear gauge" dropped below 14% on Monday for the first time in more than a year.  This has occurred twice before in the indicator's 25-year history, on 11/13/91 and 6/23/04.  The S&P 500 peaked almost immediately both times, declining just more than -5% during the next 10 and 30 days, respectively.  The index then bottomed and went on to new highs over the ensuing months."

Yep.

VIX doesnt hit bottom AT THE HIGH< but before hand... usually.

Will it follow the historic pattern this time (again) ?

[Perishabull]

I feel that I'm at bit of an impasse with trading at the moment, I had intended to just take quite a short break from it after seeing the previous trading strategy wasn't suited to part-time trading. The plan was to have explored some new ideas by now, the break has turned out to be longer than I'd thought, I've had a few other things happening meantime, including a promotion.

 

Mrs PositiveDeviant goes to a guided meditation class and I went along on sunday out of curiosity and we were taught a visualisation technique to use to find an answer, so my question was concerning what I needed to do next regarding trading and during the visualisation the word "Apply" appeared inside a book on a table in front of me, we were told someone may appear sitting next to us at the table and speak or help in some way, and whilst someone appeared they didn't do or say anything at all. Afterwards this made sense since it's not someone else that needs to "apply". I took the lack of action by the person that appeared, combined with the word in front of me to be an implied message from them - Apply yourself.

I'll have a brainstorming session at some point soon, I'm sure that will give me some new directions for my trading.

 

I've also just recently started using something called Brain Workshop, a game based on scientific research. Recent scientific studies show that improvements can be made in fluid intelligence - the ability to creatively solve new problems. This is something quite new in science since it's been a long established "fact" that fluid intelligence is a fixed parameter that cannot be altered via training. The original study by Suzanne M Jaeggi - ;

 

(Here's a short extract)

 

 

"Improving fluid intelligence with training on working memory

• Susanne M. Jaeggi*,^†,^‡,
• Martin Buschkuehl*,^†,^‡,
• John Jonides*, and
• Walter J. Perrig^†

Abstract

Fluid intelligence (Gf) refers to the ability to reason and to solve new problems independently of previously acquired knowledge. Gf is critical for a wide variety of cognitive tasks, and it is considered one of the most important factors in learning. Moreover, Gf is closely related to professional and educational success, especially in complex and demanding environments. Although performance on tests of Gf can be improved through direct practice on the tests themselves, there is no evidence that training on any other regimen yields increased Gf in adults. Furthermore, there is a long history of research into cognitive training showing that, although performance on trained tasks can increase dramatically, transfer of this learning to other tasks remains poor. Here, we present evidence for transfer from training on a demanding working memory task to measures of Gf. This transfer results even though the trained task is entirely different from the intelligence test itself. Furthermore, we demonstrate that the extent of gain in intelligence critically depends on the amount of training: the more training, the more improvement in Gf. That is, the training effect is dosage-dependent. Thus, in contrast to many previous studies, we conclude that it is possible to improveGf without practicing the testing tasks themselves, opening a wide range of applications.

 

Fluid intelligence (Gf) is a complex human ability that allows us to adapt our thinking to a new cognitive problem or situation (1). Gf is critical for a wide variety of cognitive tasks (2), and it is considered one of the most important factors in learning. Moreover, Gf is closely related to professional and educational success (3–6), especially in complex and demanding environments (7). There is considerable agreement that Gf is robust against influences of education and socialization, and it is commonly seen as having a strong hereditary component (2, 8, 9). Gf can be compromised as seen in the effects of certain manipulations that threaten one's group membership (10). But can Gf be improved by any means?""

Further info on dual n back training here http://www.gwern.net/DNB%20FAQ

[halight]

Some Good info there PD in your last post.

Thanks

[Perishabull]

Some Good info there PD in your last post.

Thanks

 

Cheers H, what's this bookstore link? A list of what you recommend?

[Perishabull]

[Perishabull]

[halight]

 

 

I like that

[Perishabull]

[Perishabull]

Just a quick apology to my regular readers, I know I haven't been posting so much recently, this is down to a lack of time. I got a promotion at work recently (different work entirely) so my focus is mainly that way inclined at present. I fully intend to get back to my analysis and trading (I really miss it), but will only trade once I am confident I have a new edge to play with, and I fully intend to create one.

[drbubb]

Just a quick apology to my regular readers...

Perfectly understood.

Thanks for your work on the Soros thread.

 

I want to suggest you look at channels and maybe moving averages, to help identify when stocks are moving from one Valuation basis to another. Personally, I find them very useful.

 

Identifying when and why a stock or commodity is "at an excess" : Overvalued or Undervalued - is very useful.

And, as you know, volume can be used to help identify if a new valuation is "accepted" or not.

 

Example: If only Speculative buyers are on board, their buying will fade fast when the price stops rising

[Perishabull]

The den of tranquility

 

 

I spotted this in an art shop recently and had to buy it as soon as I laid eyes on it;

 

 

Fittingly it's called Tranquility

 

It's by David Lee (A Chinese-American artist), and fits well in my "Den"

[drbubb]

Den of Tranquility - it DOES look peaceful.

 

Have you tried listening to White Noise while trading?

 

I am experimenting with it on the R-Viewing the Future thread

 

 

*VIEWING for Next Week (ended Sept.14th)

 

Weekly : S // Daily : L, S, W, T, A

 

Modifying my technique, I played

,

while doing the exercise. After a "reset" exercise for each day,

I tried to imagine a thin white bar levitating between my palms,

which gradually morphs into a shape, as the heat of a green fires

melts and changes it.

/Fringe:

 

Yeah, a bit strange - I know !

Suitable for "Fringe" research. But if my "hit" rate goes back up...

 

There are Fractal Patterns in Nature