The OPEX magnet theory was a bust this week as SPX stayed about 1.5-3% away from max pain rather than 0-1% or 4%+. Due to my cycle and spending work as well as the likely EW patterns, reduced options pressure and the upcoming Fed/job news in the first week of August, I think time has nearly run out for further SPX rally. I still believe an intermediate-term short position in the 1360s-1370s is a good one, and my scenario would still be in tact if SPX makes one final spurt early next week.
Having given my commentary, let me tell you about some work I've been doing with my System. Some of you may have stayed with this blog long enough to witness multiple System iterations. Every iteration had strengths and successes but, due to personal weaknesses and system loopholes, I found myself injecting too much subjectivity and trying to catch too many turns. So, I added cycles with some success but there are still time windows to contend with, occasional failed cycles and they are not very good for finding tops. I struggled earlier this year to combine the best of my technical findings into a mechanical scoring version of my system, but I kept hitting dead-ends and failed backtesting results when subjectivity was removed. Maybe some of you can relate with my journey and maybe some of you can relate to the fact that my analysis is almost always better than my actual trading. But, I am nothing if not persistent. Although I did take a breather and had a couple months of difficult personal circumstances, I never gave up on the idea. After revisiting a scoring system this week, I came up with something I can work with, share and tweak probably until end of year with the goal of winning 60%+ of trades with an average win size bigger than loss size thus allowing for essentially $2 gained for every $1 lost over time. Maybe we can do better, but I think that would be outstanding if it can be achieved since we all know 90% of traders lose over time.
This time around, I will not publicize the exact details of my System, but I will publish my score as regularly as you can expect for free from a busy family man with a full-time job. And, I will track the results publicly for those trades that I spell out in advance or within minutes of execution, and you can judge the results and my trustworthiness for yourself. I have never claimed to be a great trader, only that I am striving to be that, so take all my posts with a grain of salt. I can also tell you that my System uses many of the same technical indicators I've grown fond of discussing including TRIN, TICK, NYAD, VIX and key moving averages. Loose short-term cycles are indirectly incorporated into my scoring as some points are added/subtracted for indicator extremes. That actually allows for the System to catch some but not all SPX price turns because positive technicals can be trumped temporarily by indicator extremes. For now, the scoring scale will be 0-10 on an hourly basis. A score of 0-4 is bearish, 5 is neutral and 6-10 is bullish. My initial intent is to only enter long trades when the score is bullish and only enter short trades when the score is bearish with neutral reserved for cash or 50% positions. Trades are always triggered by a 4-hour candle break although the stop can be pushed up to 1% beyond that (usually only 1pt to 0.5%) if and only if the current System score still matches the position and has not reversed or gone neutral. No more than 25% profit-taking can be taken on any trade until stopped out. Although I don't plan to remove all subjectivity, this scoring system is very objective and I will try to inform you when I've injected more subjectivity into a trade and when I tighten the system. I will try to update posts when the hourly score changes from bullish-to-bearish or vice versa if I haven't already warned of such a possibility with details in advance.
During Thursday, the score fell to 4 which was bearish, but here is the latest...
Current Trade: Short from 1369 with stop at 1370.01 or 1367.08 if SPX closes below 1363.25. This is a reversal trade against the prevailing trend, so stops must be taken seriously since the trend can resume quickly. This trade will count in my results since it was not announced in advance or within minutes afterward, so it is for informational purposes.
Current Score: 8 which is bullish. This could easily turn bearish if SPX continues to drop below 1350 in the current trade but it also means a long trade is recommended if SPX breaks above the current stop early Monday.
Good luck and good weekend.
Certainly an interesting approach but as you say it requires regular posting when the score changes and it seems to change quite a lot from day to day obviously as it moved from 4 on Thursday to 8 on Friday.
ReplyDeleteThat raises two questions:
1. It you went short on Thursday as the score was bearish and now the score has become bullish,why haven't you exited your position ?
2. With a day like today, at some point, the score must have changed from bullish (8) to bearish, yet you didn't post an update.
Do you intend to keep your blog regularly updated or will you simply announce which position you have taken and/or closed after the fact ?
Trigone5,
ReplyDeleteYour name always reminds me of the saying "Let bygones be bygones". Anywho, your questions are good. My explanation for the new scoring system was not great. Buried in that explanation, I did mention that I can only promise as much as you can expect from a busy family man with a full-time job blogging for free. In turn, that means I cannot promise consistently timely updates particularly intraday which likewise means my advice cannot be solely relied upon for others' trading decisions...as if that would be the case even if I could be 100% timely. I merely hope to offer the occasional nugget of technical or analytical wisdom and share my journey to improve us all even if only to commisurate on the difficulties of trading the markets. Also buried in my explanation, I mentioned that I would try to post trade setups/triggers in advance or at least within a few minutes, not well after the fact, and that I would not count trades in the new system trading record for after-the-fact trades to be fair. And, I did vaguely reference the fact that no trade is triggered except by 4-hour candle break which means the short is not closed yet. I'll try to explain a little better in a new post. Good luck.