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Monday, July 9, 2018

THE DAY VOLATILITY WENT AWOL

“I found financial market volatility for today … ain’t happenin’ he says!”

“Well, who let the air out of this party balloon”? … markets across the world 
are “dead in the water” today, with the Hang Seng  leading the way, as its day’s 
range is over 40% below its 20 Day Range SMA … intraday volatility not even 
close to where it’s been in the last weeks, and is down significantly. After 
opening with an M1 that saw a range of 81 index points, it’s been pretty much 
 “sleepy time” ever since.

Yesterday, I posted over in “Download Links”, the “Hang Seng Explosion 
Algorithm”, which IMHO, is far superior to the “Force” algo … it’s not price 
based via the usual suspects of support/resistance, but momentum and 
acceleration based, using the all too familiar Welles Wilder indicator of RSI 
[Relative Strength Index]. Now, as I admitted as much in yesterday’s Sunday 
blog post, “you have to ask the math EXACTLY what it is you hope to 
accomplish via the math manipulations, or you end up with total garbage and 
the assumptions that go with it … in an extremely volatile market, like the 
Hang Seng, it’s gonna take you to school quickly and expose any weaknesses in 
your assumptions … it isn’t gonna wait around and be “nice”, cuz that’s not 
what markets do”.

Today’s “Thelma & Louise” for intraday volatility in the Hang Seng, gives me 
a golden opportunity to explain and show why “situational awareness” is 
always an important factor in trading any system or algorithm … in our 
specific circumstance, problems don’t arise through heightened intraday 
volatility, they arise from intraday volatility going “buh bye”; and it’s very 
much a circumstance you can see and feel from the screen as the day 
progresses … sure, you can do sophisticated measurements to quantify it, but 
who cares the number? … it’s observable right in front of your eyes when it 
refuses to move!

Early on, during the opening couple of hours of the day, the market came so 
very close to giving a “buy signal” on a number of occasions, that would have 
been very big winning trades … it doesn’t bother me at all the algorithm 
missed very slightly … why? … “cuz it was POSITIONED CORRECTLY  for 
the bottom of the move … all that was missing was enough intraday volatility to 
push it to the signal, something we can usually count on, but is MIA today … OK, 
I can live with that … what I can’t live with is the buy signal coming 100+ points 
later, and then telling me it’s safe to swim in the water now … that’s bullshit, pure 
and simple, cuz I got eyes and can see the place to be long is “down there” and 
not “up here”! … I can’t control or trade the volatility via the MT4, only position 
the algorithm to do its job on most bottoms, given the fact that this is the world’s 
most volatile market by a margin of at least 2X - 3X over its nearest competitor 
for that title. So, when it misses by a hair, that’s something that is acceptable cuz 
“shit happens”, but always positioning me away from bottoms for buys? … well, 
that’s not acceptable”.

We didn’t get a buy signal until approximately 6 hours into the trading day 
… hell, the day session closes in 90 minutes! By this time, intraday volatility 
has really tapered off, and after the morning session was over, around 7:00 
server time, we get the Aqua RSI line to move below 10. Directly below, the 
chart with commentary.


Let’s cut right to the chase … the move down was bogus cuz it wasn’t big 
enough in point terms, and most of it came on 1 M1, In addition to that, the 
RSI actually increased and went above the red line 10 level, while the M1 was 
closing lower still … with no evidence yet it can go higher, why would you buy 
it before it at least turns green?

The second buy signal for today, came around 10:30 server time. Directly 
below, the chart with commentary.


The early buy signals that missed, saw the market rally substantially over 50+ 
points off the bottoms … these 2 signals after intraday volatility died, barely 
netted 10 points, after waiting much longer than I would have wanted … in 
essence, both were coin flips that worked out, nothing more. However, I want 
readers to understand, that if intraday volatility were more normal than it is 
exhibiting today, which is clearly much, much lower than normal … but if it 
was only somewhat lower, I’d have taken the trades. The danger here, is that 
you trap yourself into thinking you can map volatility and then play it … “uh 
huh, sure you can … me thinks not”! … So, while today is a clear cut case of 
grapes dying on the vine, most of the time that isn’t gonna be the case, and you 
simply have to make the trade. This is important, don’t forget it!

You must understand the importance of what the RSI can do, and what it 
can’t … for our purposes in the Hang Seng, you’ve got to keep your eye on the 
way the M1 levels put in the bottom … “parabolic” is best, “3 steps down, 1 or 2 
steps up” is the worst … you want to see more than one M1 be responsible for 
most of the decline, and ideally the bigger red M1’s come at the end where they 
close at or very near the low, and then the next M1 attempts to open lower and 
then fails and turns green … it is at this point you’ll find your very best buy 
opportunity within the algorithm … it doesn’t always play out like this, of 
course, and doesn’t take away from the effectiveness of other types of bottoms.

I want to also make clear, that since we have a “5 period” indicator, you simply 
must wait until minute 6 after the market opens before any signal has any 
meaning whatsoever, otherwise you have skewed data from the day before. I 
would also not trade or take any signals within 15 minutes of “Lunch” [4:00 
server time], nor any signal until 6 minutes after Lunch [5:06 server time]; no 
trades within 15 minutes of the close of the day session at 08:30 server time; 
no trades until after 6 minutes of the opening of the night session [9:21 server 
time]; and finally, no trades within 15 minutes of the close of the day at 15:45 
server time. Simply put, these trades will only get you into trouble!

There isn’t any question about it; “the math says this is, by far, the most optimal 
profit scenario over any 15 minute period you want to look at in the Hang Seng 
going back forever… if we had the availability of “tick charts” on the MT4, it 
would most likely boost profitability slightly by about 3% - 5% over time … the 
reason it isn’t higher, is that tick data introduces more error, not less, and while 
you get more trades, you also get more losers”.

You also have to be very careful about adjusting the RSI indicator thresholds 
[red lines] of 10 & 5, to higher values for buy signals, to capture those 
opportunities you think you’re missing when it just misses … like today 
“the question isn’t which red lines give you the most trades and the biggest 
wins, the question is which gives OPTIMUM profitability WITH LOWEST RISK 
… the math software will spit out values that go out 10 decimal digits, while we 
are limited by the MT4 to whole numbers and have to either round up or round 
down … but no matter, cuz all that does is split hairs and has no practical 
purpose, simply cuz you’ll have far greater rates of error on fills over time that 
affect profitability than some value 6 decimal places out on a red line”.

It all boils down to mathematical expectations, and I want a highly positive 
“expectation” every time I click the “buy button”. As you’ll see when the 
empirical evidence comes shortly over in “Download Links”, our library of  
“buy signals” in the Hang Seng Index, represented by the CFD H33HKD at 
Turnkey, starting from April 1, 2018 and going forward, will catalogue 
EVERY SINGLE buy signal in the market … and what you’ll find, is that 
95% are profitable to at least 10 points of profit before it can lose 20 points, 
while the vast majority pinpoint the bottom of interim moves better than can 
be expected from casual observation … all we need is the requisite “normal” 
intraday volatility to occur, and we’re “home free” … sure, that’s a big “if”  
some days, but overall I like the statistical probabilities that the world’s most 
volatile market by a factor of 3X, stays that way, cuz it always has over these 
last years!

If every trader netted exactly 10 points on 95% of his/her trades, and lost 20 
points on 5% of his/her trades, E(X) = (0.95 * 10) - (0.05 * 20) = 9.5 - 1.0 = 8.5. 
Since each 1 lot in H33HKD is worth approximately $0.13 per point, 
8.5 * 0.13 = approximately $1.10. And mathematically, what this means is 
simple: “every time you take a buy signal, you can expect a profit of $1.10 per 
1 lot”.

And I said in Sunday’s blog, I had to go take a walk for a few minutes to 
absorb this data, cuz quite frankly it’s not only a complete “wake up call”, it’s 
a repudiation of trader hubris, experience, & trader savy, all rolled into one 
“I’ve poo-pooed RSI for so many years it’s not even funny … but now, used in 
this way, in not just any market, but the world’s most volatile market, it comes out 
like a solid gold brick! … and speaking of poo-poo,where does that leave me”?  
Well, I’ll tell you where that leaves me … it leaves me right smack  
“face-to-face” with the two [2] foundational cornerstones of modern financial 
trading that I’ve laid out; namely, 1) trading is about money transfer from 
small accounts to big accounts, where the small accounts don’t realize or 
understand the manipulation, and 2) you must accept the premise of “buying 
at 1 & selling at 3”, while not caring a wit about price or whatever it is you’re 
trading … and in order to accomplish this, you simply can’t buy rallies or sell 
breaks and expect to make any money. “You have to FADE the manipulation, 
and then make the UNCOMFORTABLE trade … you then dump it back to those 
who provide the “BUY FUEL” on a never ending basis, day after day, without 
end … In other words, you’re playing the game like the damn scumbag LP banks 
[who, by the way, never lose], and it’s nothing but conditioned behavior to get the 
results”!

I ask the “not so rhetorical” question in the “Hang Seng Explosion Algorithm” 
 manual; “if traders are so smart, well educated, & savvy, how come 90% of them 
lose money consistently over time”? 

“IT’S CUZ TRADING IS SIMPLE, BUT NOT EASY”! You have to train 
yourself to buy the break in price at the right moment TO WIN … and then 
you have to be willing to give it back EARLY to somebody else who thinks the 
new bull market has just begun … again, TO WIN! … you wait ‘till it turns 
lower again, and suddenly not only does the “buy fuel” disappear, other sitting 
bids do as well, and as suddenly as it was there, it’s suddenly not there 
anymore, and now you get to sell a break, which won’t be pretty.

I’ve said it before, and I’ll say it again, “nobody likes to be in “uncomfortable” 
trades … subconsciously your head is fighting it, and in reality, what the RSI 
indicator in the algo is doing is putting you into a trade, that on your own, you 
wouldn’t make with somebody else’s money … and that’s why it wins”!

Overall, the RSI in normal FX pairs, or other MT4 markets, I don’t believe 
puts trader into “uncomfortable” winning trades … it acts more like a pacifier, 
giving you the “go ahead” to buy/sell based on the standard 80/20 setting, after 
its moved already … “great, where were you when I needed you”! So, I think this 
is the biggest difference of standard RSI use, versus how the “Hang Seng 
Explosion Algorithm” uses it … I’ve simply flipped it on its head.

Night time session has closed for the day, and unbelievably the opening M1 for 
the day, ended up being about 30% of the entire day’s range … I don’t think 
I’ve seen this before. The day ended about 40% BELOW it’s 20 Day Range 
SMA, and only produced two [2] buy signals … both got the 10 points 
threshold eventually, but you couldn’t say they were good trades to make.

No PAMM trades today, for reasons I’ve already outlined.

Volatility most likely returns tomorrow, but in any event, we’ll be there to 
capture the algo trades when they occur … unless I see some “off the wall” 
massive decline in intraday volatility, I’ll be making the trades when they 
happen … and why not, as price history & market action after a buy signal is 
decidedly on our side? And with that, I’m outta here … until tomorrow mi 
amigos … more than ever before, “the profit future’s so bright in Hong Kong, 
I gotta wear shades at night in the Caribbean to protect my eyes from the glare”! 
Onward & Upward!!

PAMM Spreadsheet directly below.


Have a great day everybody!!

-vegas

OUR TURNKEY FOREX “PAMM/MAM” IS NOW OPEN AND
OPERATIONAL; SEE “PAMM/MAM MONEY PROGRAM” IN
“DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN
FOR DETAILS [VIEW ONLINE AND/OR DOWNLOAD] AND
START YOUR JOURNEY FROM WHERE YOU ARE AT TO
“ESCAPE TO SUCCESS”!



 
 




















 

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