“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
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
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  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
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  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!!
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”!