The paradigm shifts we’ve seen in financial markets since the start of 2015,
starting very quickly with the EURCHF debacle that forever changed the FX
market, and which to this day nobody but nobody wants to talk about it cuz of
the massive “Scumbaggery & Fuckery” behind it all, and working its way onward
to major stock indices markets [which I affectionately dub “Stock Bellies” cuz
they trade more like back month Pork Bellies futures than anything equity related],
there is one common denominator that runs through all of it … and that common
denominator is that the paradigm shifts ALWAYS BENEFIT THE SCUMBAG BANKS
TO THE DETRIMENT OF SPEC TRADERS.
It used to be that major banks were simply another player in the futures pits
… you could see who was doing what cuz things were TRANSPARENT … today,
banks stand in the middle of every single trade anybody makes, there’s ZERO
TRANSPARENCY & ACCOUNTABILITY, and in theory act as so called “liquidity
providers” [LP’s] [cough, bullshit, cough], and they set the spreads, they set the
slippage meter, and they set the rules … “Oh, you don’t like the rules? … fine, you
either accept them or you don’t open your trading account, simple as that … limit
orders? … nope, everything is “Market If Touched” [MIT] … stops? … we fill ‘em
where we want, not where you think they should be filled … natch, that means sell
stops get filled at the bottom and buy stops get filled at the top of moves … well,
what’s the point of using a stop then? … market orders? … those get filled
depending on where the bank’s book is and how the bank wants to be positioned
… if you’re buying and they want to buy and don’t really want to sell it to you, your
buy order will get RAPED, cuz as long as you hand them free money, they’ll take it!
… ditto on the sell side only reversed … BANKS ARN’T THERE TO BE YOUR
FRIEND … THEY’RE THERE TO STEAL MONEY FROM YOUR ACCOUNT UNDER
THE GUISE OF PROVIDING “LIQUIDITY” … what utter bullshit.
Banks love to float the propaganda that bid/offer spreads for a market on your
screen are set by “DUH!, market conditions, DUH!” … more bullshit … spreads
are set by the ease or difficulty of picking them off by scalpers [a/k/a “guys like
me who trade professionally”] … cuz if you want to know what pisses off bank
management to no end, it’s getting picked off on scalps all day long by any
scalper that uses market volatility as their friend to the banks detriment … AND
THEY WILL PUT A STOP TO IT BY BLOWING OUT THE SPREAD AND/OR
HANDING OUT HORRIFIC “OFF THE MARKET” FILLS VIA SLIPPAGE, OR BOTH!
For over 2+ decades before internet trading became the norm and sent pit trading
to the graveyard, paradigm shifts were unheard of … market volatility came and
went, but actual changes to the way trading was done were extremely minor in
scope and detail … of course, fast forwarding to the present it’s easy to see the
bastardization of markets by government and the implementation of the central
bank manipulators, whether it’s the “Plunge Protection Team” [PPT] for “Stock
Bellies”, the “”Rally Protection Team” [RPT] against the precious metals markets,
or the POLS & central bank Apparatchiks that “blah blah, yada yada” daily,
attempting to disrupt whatever FX pair that’s in their sights, while at the same
time feeding their own mistress funds … and it ain’t exactly like anybody sent
out emails to warn of the impending changes!
When what should work doesn’t, you don’t just plow forward and say “fuck it!”
… it’s back to the drawing board, and what eventually dawns on you is that the
PREMISE upon which you’re basing predictive behavior is wrong … it’s changed!
… you don’t wanna believe the changes, cuz 1) it involves government
“Scumbaggery & Fuckery”, but there it is, right in front of your eyes … and
2) who benefits? … every single time it’s the fucking banks … “OK then, you
gonna believe your lying eyes, or continue as is and get your ass handed to
you?” … and this process is layered like an onion … every time you think it’s over,
there’s another layer waiting to get peeled and dealt with … Gees, how big is this
onion?!
While there is no “Holy Grail” for algorithmic trading, fact is you don’t need that
anyway … just an extremely high degree of profitable probability factors in your
favor … and quite frankly, I feel that’s been accomplished with the “Alternative
Trading Algorithm”, where I’ve spent hundreds of hours of statistical / computer
related research into its mechanics and implementation … and after all is said
and done, there are 3 market sectors where traders should focus there trading
attention, when THE PROPER TRADING CONDITIONS ARE PRESENT, and leave
the rest alone … 1) crypto, specifically Bitcoin & Ethereum, 2) the 3 major U.S.
“Stock Bellies” [SP500, DOW30, NDX100], and 3) MAJOR FX DOLLAR PAIRS,
and some selected FX non dollar crosses.
What are the proper conditions? … 1) decent VIX during your sessions trading,
2) the LOWEST COST TO TRADE [bid/offer spread + commission if any + very
low slippage on fills], or very close to it, at the house you trade at, and 3) good
trade logistics, meaning fills are very close to quoted bid/offer price when you
push the buy/sell button … Coinexx is “infamous” for variable spread bullshit,
where ALL buys encounter “mystery tick” UP moves in the offer at the
microsecond you place your buy order, and “mystery tick” DOWN moves in the
bid at the microsecond you place your sell order … this process makes the
actual spread much larger than what’s quoted … take any of these 3 criteria
away, and it’s time to walk to another pair!
You never really know if your trading house is good in a pair until you trade live
money … demos are useless for this cuz they simply copy the last trade from the
live server … just cuz you see a very tight spread being quoted, doesn’t mean
any of your fills are gonna be close to those prices … you won’t know ‘til you
actually trade it … once you solve this piece of the puzzle, and it ain’t as easy as
it might appear, you have to set your sights on VIX.
From a ton of statistical work I’ve done, the most important criteria for measuring
VIX is the “Trading Ratio” [TR] I have developed … TR = 60 PERIOD SMA RANGE /
TOTAL COST TO TRADE … in FX, there is absolutely no reason to trade any pair
that has a TOTAL COST TO TRADE > 1 PIP … yea, there are times when spreads
go past 1 PIP, especially on news, and just cuz the spread is 1.1 PIPS doesn’t
exclude some pair … usually, though, spreads come back down quickly … coming
in close second place is the 20 Day Range MA, where each Sunday blog update I
give the values for the current week for selected pairs … directly below, first the
20 Day Range MA’s for selected pairs, and underneath that table, is another table
with the HOURLY TR’S FOR THE LAST WEEK, DURING PREFERRED TRADING
TIMES FOR MAX VOLUME & LIQUIDITY, OF BOTH GBPJPY AND DOW30 … I use 2
index points as the cost to trade DOW30, and 1 PIP for GBPJPY [Note: all FX pairs
under 1 PIP, use 1 PIP as the cost value.].
To keep score at home, you don’t need to create spreadsheet tables and bother
yourself with updating them … there’s a far simpler method at your fingertips to
get this info … on your MT4, create a candlestick chart and put the period at
DAILY [D] … CREATE 2 SETS OF SMA’S [Simple Moving Average] … the first set
is 60 period, high, SMA, color white [or whatever color you want], and 60 period,
low, SMA, color white [or whatever color you want] … the second set is 20 period,
high, SMA, color yellow [or whatever color you want], and 20 period, low, SMA,
color yellow [or whatever color you want] … this chart will prove extremely useful
to you as your trading cuz it will provide both the DAILY 20 Day Range MA
[subtract low from high] from the 2 yellow lines[20], AND the TR [by changing the
time to m1 from daily] from the 2 white lines [60] … so if you’re wondering if the
TR is slipping at any given point in time, simply check the white line values on the
m1 [subtract low from high] … since you’re dividing by 1, cuz by definition the
cost to trade is 1 PIP [regardless if it’s actually 0.5, 0.7, etc.], all you need to do is
simple subtraction and you have the TR for that time on the chart … directly
below, first the DAILY CHART WITH THE 2 SETS OF LINES, and underneath that
the M1 WITH THE 2 SETS OF LINES … the yellow you use with the daily, and the
white you use with the m1.
I post a table of the 20 Day Range MA’s for selected markets each Sunday, cuz it
allows readers to glance and compare across markets where VIX has been, is it
increasing / decreasing / staying the same relative to other markets, either in its
space or in another sector … and it’s easier to do from a table than switching back
& forth from a chart … for the TR, I only created last week’s TR table for GBPJPY &
DOW30 so readers could see what the week looked like from a wider perspective
… WHAT’S IMPORTANT ABOUT THE TR? … with very few exceptions, the line in
the sand determining whether or not to trade [scalp] a market is a TR value of 2.7
… get below that figure, and you have to stop trading the market until the TR value
improves over 2.7
I have always maintained that traders that scalp as their trading style, should stick
to one side of the ledger or the other, and to NOT switch going back & forth from
long to short and back again during a trading day … although anecdotal, I’ve
never known anybody that could CONSISTENTLY do it and make money … and if
you can’t do it from the trading floor, you sure as Hell ain’t gonna do it sitting on
your couch with a computer … having said that, GBPJPY is a pair that has no
inherent bias or trading paradigm over it’s approximate 22 year history … only
dollar pairs traded prior to the internet trading revolution that came about circa
2001 … sure, spreads have come way down over that time, but the pairs bullish /
bearish price action doesn’t show any favoritism to one side or the other … quite
frankly, both countries are financial basket cases, bordering on third world
financials and demographics that don’t favor either country going forward into
the future … so, pick a side to trade from and stick to it … quite frankly, IMHO, the
long side is my preferred choice cuz Japan is a bigger disaster via their central
bank idiocy … that and the fact that, no matter the market, shorts always panic
fastest and first!
“Stock Bellies” are completely different … depending on where you trade, one of
the 3 indices will be the clear winner in terms of spread … in most cases, that’s
the DOW30, with SP500 coming in a close second … most times at most houses,
the NDX100 is not that great in terms of spread and/or slippage, so you have to be
careful … again, you ain’t gonna know until you trade live and find out … “Stock
Bellies” exist in the “88/6/6” trading paradigm and have for decades [88% of the
time the indices go UP, 6% of the time they go sideways, and 6% of the time they
go DOWN] … therefore, why would anybody in their right mind want to make a
living trading these puppies from the short side? … here, I have a definite bias to
trade from the long side only, and only rarely will I ever take a short position.
The entire premise of scalping is the philosophy of “buy at 1, sell at 2” as fast
as possible … rinse and repeat … you never have to worry about all of the things
position traders get clobbered over, whether long or short … you can sleep
nights … it’s NOT the market, IT’S THE PROCESS! … RIGHT NOW, my areas of
focus are 1) Bitcoin, 2) GBPJPY for the PAMM, and 2A) DOW30 / SP500 for “The
Syndicate” at IQCENT … Bitcoin is dead right now, not having good enough
ranges to make trading it worthwhile given the low available leverage of 10:1
… GBPJPY spread is too high at IQCENT … that leaves DOW30 and/or SP500
which have optimal conditions to trade … as bad as Coinexx is in their CFD’s,
they rank in the top 10% of houses when it comes to either FX major dollar pairs,
OR selected FX non dollar crosses, specifically YEN crosses … most days and
most times, the bid/offer spread in GBPJPY is around 0.6 - 0.7 PIPS, making it
about as good as it gets for this highly volatile pair … where you encounter
some problems is when bids/offers start gapping, and algorithm signals can
get blown through rather easily … this isn’t isolated to Coinexx, it happens
everywhere.
I have spent an incredible amount of time researching / in some cases back
testing, GBPJPY … I’ve analyzed it in big up moves, big down moves, normal
moves and VIX, and simply dead … to a point, the 20 Day Range MA will follow
quite closely readings over the course of the day in the TR … THE TR IS THE
MOST IMPORTANT DETERMINANT FACTOR IN WHETHER HIGHLY PROBABLE
TRADES ARE IN FACT PROFITABLE OR BECOME “FALSE POSITIVES” … get the
TR below 2.7 and a lot of bad things start to happen rather quickly, not the least
of which are exponential growth of “false positives” from the algorithm.
As well, the 20 Day Range MA is important as well … when the current 20 DR MA
approaches and/or exceeds 130% of the current value, you have to be extremely
careful of further scalps that require the days range to be extended farther
… probability puts this as a low single digit event … currently, GBPJPY this week
has a 20 DR MA of about 145 PIPS … therefore, anything OVER 188 PIPS for a
range for the day has to be looked upon with caution … I want to see some kind
of corrective break back down before I take an algorithm buy signal … buy signals
too close to the high are risky cuz the probability the range gets extended further
is low … very low … sure, there are blowout days and anything can happen, but
for a trading professional the reward / risk ratio sucks, even for a scalp.
For the DOW30, the current 20 DR MA for the NYSE cash session is approximately
314 index points … therefore, a session range that approaches and/or exceeds
408 index points will raise the red flags of warning about further long scalps on
algorithm buy signals up near the high … I’m not saying it can’t happen, cuz
sometimes it does and the DOW30 goes 1,000 points … but this ain’t a craps table
either, and the low probability prop bets will send you home “el quicko mucho”!
As I said, you have no idea how many hours I’ve spent researching Cable/Yen
these last weeks … I’m totally familiar with it from the start of the century, and in
one way or another have watched it, tracked it, and traded it over various periods
since about 2001 … going forward for the PAMM, I’m going to be trading Cable/Yen
in a more aggressive manner akin to how I trade my own account … the only thing
I can’t control is market VIX during the busiest time of the trading day for the pair,
which is about 5 AM EST - 1 or 2 PM EST … unless VIX completely collapses and
goes off the cliff, like it did pre FOMC Lounge Lizard day, while the world awaited
an interest rate announcement, which quite frankly was expected, the pair is
about as good as it gets in fulfilling expectations of what I want from a market
… having said that, like everything else, it has its warts and blemishes, and some
days the pig [even with lipstick] is as ugly as ugly can get … ditto with the DOW30
and/or SP500 over at IQCENT … i would simply note, that when Bitcoin is moving,
and has a 20 DR MA in excess of about $1,200, and has many multiple
$200 - $500+ moves during the day, it’s as close to being a perfect market as
you’re ever going to see … with a 1 penny spread and no commissions, it’s a
dream pair when VIX is present … however, we have to deal in reality, and right
now conditions in Bitcoin stink … and they stink cuz we have to deal with very
low leverage that’s available for trading … leverage I might add that isn’t
confined just to IQCENT but is industry wide with few exceptions.
Occasionally, markets get thrown for a loop with shit days … whatever the reason
they come and go, but excluding the obvious, I don’t see GBPJPY [Cable/YEN]
slowing down to a crawl CONSISTENTLY into the future for quite a while
… historically, it’s usually been one or the other [Cable numerator or YEN
denominator that’s going bat shit crazy [BSC] while the other maintains relatively
stable VIX … it appears to me we’re seeing BSC YEN with above average Cable
VIX, and given the totally divergent monetary policy being pursued by each
central bank, that doesn’t translate into boring trading … quite the contrary
… where I’d get concerned, is if Cable/YEN started to see 20 DR MA’s below 90 or
85, something that isn’t anywhere near in sight at the moment … given that
scenario, trading profitability is simply a function of trade “logistics” … i.e.,
1) maintain a decent spread below 1 PIP, 2) don’t get caught on mystery ticks,
and 3) paying close attention to the TR, the higher the value the better, but
leaving it alone when under 2.7 … all of this will translate into returns “The
Syndicate” enjoys, and quite frankly “OK, let it be so!”
Last week provided some important perspective we only get a few times per
year … important econ reports, all major central bank interest rate decisions,
with the BOE coming this week, “oh fun, oh joy!”, on Thursday, June 22 at 7
AM EST … but it was enough to get the entire panorama of market activity
within reason for analysis … onto the week!
… OUTTA HERE … “The future’s so bright I need 2 pairs of sunglasses 😎😎,
and my own Brinks armored truck” 💓!! … Onward & Upward!!
-vegas
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