Active SPX signal: No active signal.
Hourly trend: Down with resistance at 1099.46
Daily trend: Up since the 20dSMA test succeeded with support at 1080.53.
Profit targets: n/a
Trailing stop: n/a
Last signal: Win. Buy signal at 1088 on 7/13. 1pt drawdown. 1/2 profit taken at a 1% gain at 1099 by rule. Closed on break of hourly support at 1091 by rule. Total gain 0.65%. 15 wins, 1 loss, 3 draws since 4/26.
System Notes: (Please see Terminology and Rules if you don't understand a technical reference)
Today is an example of a difficult system decision where you folks might be able to help improve the system. I leaned on the side of caution. The extreme of 4 hourly candles was broken on the final hour move today at 1095.36 and stoch crossed upward from below 50. That fits system rules and one could have entered a trade at 1096ish. However, I mentioned that I am flexible with hourly/daily resistance by a couple points if pivots/MAs are near since the market treats them with importance. Well, SPX topped at 1099.46 and 1099.08 just a few hours earlier and the hourly uBB20 is also at 1100. Yes, those numbers are 4 points higher, not 2. But, I just don't have a strict rule yet on that. And, subjectively, I understand that the market has traveled far without a large pullback, is at OPEX, is in a strong 1090-1110 resistance zone, is prone to large gaps with VIX holding its 20dSMA and USD forming a bottom. I can also see SPX may have finished an expanding EDT 5th near the close or the 3rd wave of such an EDT. So, risk is high. I'd like to see 1100 pierced by a point and closed above on the 15min chart before entering a trade at 1101ish if possible. But, even then, the upside target would be 1% and the 200dSMA at 1112 which happens to also be 1%. Downside risk would be 1084 (1085-1 flex) on a first hour high tomorrow making risk 17pts and reward 11pts. Hmmm. SPX is at higher risk than normal of topping at least for a couple days and the trade risk/reward is 17/11...very bad especially for a system trying to catch 1-2%+ in the heart of trends, not scalps. So, at some point, I will likely include risk/reward in the system rules in fuzzy situations, but maybe you have other good ideas. Of course, SPX could blast right through the 200dSMA but then I'd guess a much much better risk/reward long-side trade would appear on a backtest.
Interestingly, daily trend support has risen to 1080.53, so there is a 5-6pt (.5%) tradeable window between there and the 20dSMA which becomes the target when the daily trend turns down from above it. If you like to scalp a few pts and SPX drops Fri/Mon, I have backtested that trade on paper and discovered high odds, but the risk/reward probably won't be good especially if there are any long red candles in the 3-4 hours preceding the 1080 break. So, like I said earlier this week, my system will likely remain fairly inactive while SPX is stuck between its 20dSMA and 200dSMA.
BTW, I think my USD count has been dismantled. I'll revisit it soon, but SPX is my real focus and the index my system and rules were built around. I just look to USD, financials, volatility etc for a little more insight into SPX waves but to be honest I think they just get in the way by causing bias most the time. And, it's difficult enough to keep up with SPX. So, I am leaning towards not discussing any non-SPX entity unless it is baked int System rules like I use SPY to measure gap percentages, NYAD (breadth) to call potential reversals that change the daily trend neutral and Dow/Nasdaq for divergences with SPX at pivots/MAs. I mainly want to research things that have a high accuracy of predicting very short-term reversals which helps with profit-taking on trends and decisions on questionable risk/reward trades. That reminds me that NYAD today made a small change which often leads to a big move based on my personal study, but, interestingly, while SPX traded sideways to ever so slightly up the last 2 days, NYAD actually fell...and below 0. The only time I could find the same scenario in the last year was Nov 18, 2009 in which the last 3 days' candles also match very well, and that case led to a 2-day 2.1% pullback followed by 4 weeks of sideways action in a 30pt range. Today, that would only suggest a test of the 20dSMA and then more bouncing between the 20dSMA and 200dSMA. Eyeballing it, a good-sized NYAD drop while SPX trades sideways followed by a small NYAD change is about 60-65% bullish the next day, but almost all examples occur with NYAD>0. Can't rely on one sample of NYAD<0 so everything I look at is indecisive. Better to just not trade until a better setup appears...like the system suggests. Good luck.
Thanks for the excellent post.
ReplyDeleteI actually thought there was a sell signal this morning when SPX traded down below the 20dsma on the hourly chart and stoch dipped below 50, but your post help cleared things up for me. In this type of sideways churning action, I usually try to find and trade relative strength stocks, fertilizers were doing well today. I thought we are in a wave 4 and, maybe, starting to transition into wave 5, but like you said, doing these type of counts is subjective and dangerous.
The one thing I like your analysis is that you have a concrete buy/sell signal generations. Please keep up the good work.
S2, my view of systems is that you use them to avoid bad entries rather than as a black-box where all trades must enter. Having said that, one must have a reason for refusing the entry that is based on technicals and one must always use the system exits unless/until it can be shown that they need to be modified.
ReplyDeleteIf you have a theory that such-and-such a situation would be a reason that your system would not work well, then seek a technical that would identify that situation, and only then back-test it. Other methods tend to lead to false confirmations or things that only work 'for now'. Which for some is good enough, change the system when it stops working. Statistically speaking there are preferred ways to build a system.