SUNDAY UPDATE: DO YOU REALLY UNDERSTAND?

 

“And suddenly, the trading landscape says we ain’t in Kansas anymore!”

I’m gonna start today’s blog update with the 20 Day Range MA’s of selected

pairs, directly below.

click on table to enlarge

Over in the right hand column, under “Download Links”, there is an Adobe pdf

that is a table of the second half of 2021, with each week’s 20 Day Range MA of

selected pairs … if you take any pair and map it’s changes, you can clearly see

the ebb & flow of changes in its VIX … since the end of 2021, these flows are

calculated and posted each week on the Sunday update.

Over the years and decades I’ve been a professional trader, people always ask

me how I made millions of dollars trading from the floor … what was my

“secret”? … quite frankly, there wasn’t then, nor any time before and after, any

“secret” … the crucial key was / is / always WILL BE VOLATILITY … from the

birth of modern day financial derivatives trading, which was the mid to late

1970’s [major FX dollar pairs, and the SP500 futures started trading in April 1982],

up to the financial crisis of 2008, the dirty little secret was VOLATILITY [VIX] WAS

FAIRLY CONSISTENT! … granted there were days and maybe some weeks where

shit got out of hand [1987 crash], or markets died [around major Holidays], but

on the whole VIX was fairly consistent at “bat shit crazy” [BSC] in the Swiss

Franc, British Pound, & Japanese Yen, and then when it got rolling the SP500

futures … and since it was CONSISTENT, you could count on it about 99%+ of

the time to make you money, cuz no matter the market, during the day when

trading was over, you’re gonna have a “high” and a “low” for the day, and that

difference would match up very closely with the 20 Day Range MA … “count on

it, it’s gonna happen!” … as we all know, a lot can happen between the high & low,

and there are a million stories in the “Naked City” in that daily candlestick on

the chart, so you can never do “stupid shit” and expect to get away with it … but

what you could do in spades was scalp / day trade the shit out of it knowing

what the CONSISTENT VIX was gonna be … so, if you want the “secret”,

THAT WAS IT!

Then everything changed in the financial crisis of 2008 … governments got

involved in trading, interest rates went NIRP [negative interest rate policy]

almost everywhere, and to be truthful, the entire landscape of trading changed

suddenly and violently … 14 years latter, it’s gotten worse, not better, and it is

now a “given”, that the “Plunge Protection Team” [PPT] protects “Stonks” in

the “88/6/6” trading paradigm set up by the FED … the only thing they care

about now, no matter what the PIE HOLES say, is the price level of the SP500,

based entirely on the premise of people thinking, “well Hell, it can’t be that bad,

“Stonks” are rising, so maybe the country isn’t going into a depression”, and

just like very good propaganda, attitudes are changed for no discernible reason

other than Apparatchik bullshit! … and those “glory days” of FX? … where the

Hell are they now? … into the dustbin of history is where, as central banks

learned from “Peter Pan” Kuroda of the BOJ, how to effectively manipulate

EVERYTHING FINANCIAL BY PRINTING MONEY.

I’m gonna highlight the problems traders face, by using an example that every

trader should be familiar with, from rank Newbie to “you’ve been around a while

and gotten burned” … there are plenty of others to be sure, but let’s simply look

at MOVING AVERAGES [MA’s] … pick your poison as to the MA method [Simple,

Exponential, etc.], it doesn’t make any difference … pick any market, but I’m

gonna pick FX, for example EURUSD … directly below in succession, are 2

monthly charts of EURUSD, the first from 2000 - 2012, and the second from

2013 - 2021 … the plum lines are 2 simple 12 period MA’s for calculating the

yearly average range of PIPS “rate of change” per month over the year.

click on any chart to enlarge

Notice the difference in the “grid” of the charts … quite a comedown from

2000 - 2012, before governments got actively involved in MANIPULATING VIX

… directly below that shows the table results of the plum lines from 2001 - 2021.

click on table to enlarge

Quite a change over different periods isn’t it? … my point here, though, is to

highlight the fallibility & limitations of MA’s … quite frankly, any MA crossover

you use is gonna get slaughtered when VIX slows down [it’s called “chop”]

… and when VIX goes up significantly, you miss quite a few tops & bottoms cuz

your signal crossover is to “Hoover Dam” SLOW! … now, I can do the above

analysis for any market, and what you’re gonna find is the same no matter where

you go or what you trade … even now, crypto is going through its own “nuclear

winter” … if you look at the 20 Day Range MA of your favorite market(s) from

H2 2021 to now, you can see the very big differences some markets have had

… so if you use “conventional methods” [those found in the library of the MT4]

to model your trading decisions, my question to you is simple.

“When and under what level of circumstance was the “VIX structure” of your

market when you created your model [algorithm]”? … cuz unless the

“VIX structure” stays relatively stable [good luck with that], you’re gonna get

toasted by either rising or slowing VIX and not know WTF happened! … and

quite frankly mi amigos, this is the central issue of our time now in markets

… so what to do?

For many months, I have traversed many blind alleys to find the answer … cuz

what is needed is AN AUTOMATIC ANALYSIS IN REAL TIME OF CHANGES IN VIX

THAT SHOW UP ON THE M1 FOR ANY MARKET … I have written at length of the

limitations of the trading algorithm I use … briefly, they are 1) completely dead

markets, 2) wildly inconsistent VIX on the M1, where one day an FX pair [or other

market] has a 150 PIP range, and the next day it’s 55 PIPS, and 3) “V” bottoms

out of nowhere that scream higher, cuz of increased VIX [e.g., “Spoos”], and the

buy signal is simply too “Hoover Dam” slow!

Now, having said this, there isn’t any point in any of you believing there is some

“Holy Grail” out there that can solve 100% of these problems … that’s not what I

research for … what I want is for limitations in an algorithm [a/k/a losing trades]

to be sharply REDUCED, understanding they can never be totally solved … dead

markets there isn’t anything anybody can do about it … move onto another

market … if you persist in trading a dead market, what’s gonna happen is a day

shows up and the VIX Genie is “let out of the bottle”, and you get carried out toes

up … not an “IF” scenario, but a “WHEN”! … that leads to simply VIX, and

understanding how it affects the market you’re trading … and over the last

several weeks, from months of research & development, I’ve put the puzzle

together mathematically and coded it into the current trading algorithm for even

better responsiveness on signals IN ANY KIND OF MARKET THE SCUMBAG

LP’S WANT TO THROW AT ME.

I want to be clear here … this algo is NOT IN ANY WAY a model for what goes on

over in crypto … crypto is its own separate deal, and quite frankly, if crypto

trading only gets you what traditional markets return, what’s the point of trading

it? … cuz “Stock Belies”, especially the major U.S. indices, operate under the

“88/6/6” trading paradigm, there is an inherent edge here not found in other

markets by simply concentrating on LONG POSITIONED TRADES … YOU GOT A

15 - 1 EDGE, WHAT THE HELL DO YOU WANT? … to a lesser extent, the DAX40

and the FTSE100 fall under this umbrella as well … in other words, as long as

the spread holds in “Spoos” at Turnkey, look for the PAMM to be trading it … as

I said, it doesn’t matter the market, as I’ve designed and implemented it into the

trading algorithm for anything / everything from a VIX perspective, EXCEPT THE

DEADEST OF MARKETS … so if you’re a EURUSD and/or USDJPY trader, and

the range for the day is 28 PIPS, there isn’t anything I can do via the algo to help

you … simply move on Skippy!

Moving specifically over to the “Spoos”, lately the biggest problem has been the

sharp “V” bottoms, and the algo being too “Hoover Dam” slow to get to the buy

signal before a signal is given … what good does it do us if the “Spoos” go up 12

index points in 1 - 3 minutes, burning buy fuel, and then give us a signal?

… right, it doesn’t … and if VIX slows down in the “Spoos”? … no problem cuz

the algo adjusts AUTOMATICALLY TO CHANGES IN VIX IN REAL TIME, WITH

ALMOST ZERO LAG! … what that means for us, is that we get closer to bottoms

than ever before under all VIX scenarios except the truy dead … IMHO, we’d need

to see the 20 Day Range MA in the “Spoos” go under about 35 index points, and

currently we’re right around 100 … we ain’t gonna get all of the bottoms of

course, but we’ll get our healthy share, way above and beyond what we’re getting

now which ain’t much.

Tomorrow, which is Monday, is the last day of February … I’ve already

incorporated the new metrics & parameters into the trading algorithm … my list

of markets for PAMM trading are prioritized as follows … 1) “Spoos” currently at

the top of the list … 2) DAX40 if the spread at Turnkey is acceptable … here lately

it hasn’t been, and quite frankly it’s been a total shitshow circus with a very

inconsistent spread … 3) EURUSD, GBPUSD, & USDJPY, whichever looks the

most interesting from day to day if the “Stock Bellies” go “sleepytime” … 4) gold,

where I’d be shocked if this market picks up and moves significantly over the

next 3 - 6 months … maybe but I doubt it.

So why am I laying out all of this for my readers? … I’ll have the results of trading

for March + the last day of February, and I’ll post the results weekly on the blog

update starting next Sunday … at the end of March, in some way, shape, and/or

form, I’ll be making this “traditional market MT4” algorithm PUBLIC here on the

website … with all of the available markets on the MT4 [could be used for futures

as well], in all of the groups, that means there are many dozens of potential

markets, including the FX non dollar crosses, plenty of indices, energy, precious

metals, you name it for people to trade their favorite market(s) … the algorithm is

flexible enough for both scalping & day trading on the M1 … I’ll leave it up to

readers to play with different time periods for position trading … right now, I’d

recommend Turnkey only for FX, and “Simple FX” for CFD’s [not much difference

in “Spoos” trading between the two, but other indices there is a big difference

with Simple FX better [lower spread + no commissions]]

From my perspective, these changes to the trading algorithm are a “game

changer” … you’ll see the difference at the end of March … I’m not at all worried

about other traders front running or crowding out trades with heavy participation,

simply cuz of the depth of markets and the flexibility the algorithm offers to

either scalpers / day traders / or anywhere in between the two … add to that the

depth of volume & liquidity in futures that dwarfs CFD’s, and it ain’t gonna happen

… the very best scenario is to utilize the micro emini futures at a brokerage house

outside of the U.S. … but as “Simple FX” proves, and there are plenty of others

out there as well, paying a fraction of a futures tick above a futures spread, in

order to have a NO KYC account via crypto, gives better privacy, security, and

anonymity for a very small, and in most cases, meaningless cost to trade … again,

I want to point out before I go, what has now changed is having the ability to NOT

WORRY HOW VIX AFFECTS BUY SIGNALS IN THE “SPOOS” … cuz whatever it is

[other than completely dead], it’s dealt with in REAL TIME AND GIVES ME THE

VERY BEST OPPORTUNITY TO GET BUY SIGNALS AS CLOSE TO THE BOTTOM

OF A MOVE, WITHOUT A SIGNIFICANT INCREASE IN “FALSE POSITIVES” … and

this has been bugging the shit out of me for months & months … finally I got a

handle on it and the math “works” … nobody need worry how it works cuz

it's visual in scope … a retarded kitten could trade this … do you know the

quantum mechanics of how your smart phone works? … I rest my case.

Onto another what looks to be “blistering week” in terms of movement … outta

here … “The future’s so bright I need sunglasses”!! 😎😎… Onward & Upward!!

-vegas

ENTER THE DRAGON

“Oh look! … say hello to GBPJPY, the “Dragon Trade”!”

I / we need proper IVIX [intraday volatility] in market(s) I / we trade … not the kind

that is too low to matter most of the time, like IN EURGBP OR straight up USDJPY

trading, nor do we want the bat shit crazy “Stock Bellies” where there is no limit

to risk on a trade … the former bores you to death, the latter kills you instantly

… instead, in the FX universe we have got to get a handle on FX pairs that 1) have

LOWEST BID/OFFER SPREAD POSSIBLE, and 2) have better than average VIX 20

Day Range MA’s, with excellent IVIX through at least 2 of the  3 world sessions of

trading.

Quite frankly, we need something better than EURJPY, cuz too often EURJPY

disappoints with lackluster ranges … and increasingly, we are running into days

where even Cable [GBPUSD] is a basket of shit … today being a perfect example,

where halfway through the European session, the range is a paltry 30 PIPS …

granted, on Thursday we have a BOE interest rate meeting, and that has got

people headed for the sidelines until that’s over & done with … but still, at that

level of trading, there’s no way the trading algorithm can generate extremely

profitable trading signals without tons of “false positives”, simply cuz algorithm

parameters are literally laying on top of each other, and all it takes is a few PIPS

and it can send buys or sells in error.

Ok, since I’m back in Cable, what are the alternatives here? … looking at ALL OF

THE CABLE CROSSES AMONG THE MAJORS, we get the following:

It literally costs almost nothing … maybe 0.1 or 0.2 PIPS tops, to trade GBPJPY

over GBPUSD … and for that minuscule difference in the spread, we get

approximately 50 PIPS MOAR! In terms of IVIX … looking at the other Cable

crosses, they are more costly while not having that much more in terms of what

they deliver to IVIX … is it worth it to pay a spread of 4.5 PIPS to trade GBPAUD

and get 27 more PIPS, but pay 400% more for trading costs? … no, IMHO it

doesn’t make any sense … clearly, GBPJPY is the clear winner here.

And while the dollar pair of Cable may be called “The Widow Maker”, GBPJPY is

known as the “Dragon Trade”, or sometimes the “Tiger Trade” … it gets that

moniker for a reason … cuz like the others, do “stupid shit”, and they carry you

out! … but, as long as Turnkey can keep the spread fractionally above Cable,

there is no question you get much more IVIX for almost no corresponding cost

to trade … and if you haven’t watched or followed it yet, yes Skippy it moves!

… bottom line is, time to trade GBPJPY for the PAMM / MAM and get more IVIX,

while at the same time staying in the Cable space.

Directly below, the monthly candlestick chart of GBPJPY, going back 26 years

… the big drop circa 1998 is the LTCM crisis, the big drop circa 2008 is the great

financial crisis, and the 2016 drop was USDJPY skyrocketing on the reflation

trade with Trump’s election as president … this so called “debacle” seen in

March 2020 in FX, isn’t even a "blimp” on the monthly charts … as I say, “if you

think this thing can’t or won’t move, guess again Skippy”!

click on chart to enlarge

And while this puppy can put in horrendous “chop” at times, it also can and does

have some of the purest runs a market will ever see … especially when Cable

goes one direction, and Yen goes the other direction … I don’t have any problem

with someone trading GBPJPY from either the long or short side, but I would

caution to predominantly stick to one side the vast majority of the time … if you

go back & forth, there will be a day you get crushed in the chop, and it will be

brutal for your account … the “Dragon”, like EURJPY and all other non dollar

crosses, were not around to trade pre-internet electronic trading, simply cuz the

banks either didn’t want to, or couldn’t deal with daily interest “vig” payable daily

on long & short positions carried overnight … that’s why futures are all dollar

dominated, cuz the interest “vig” is reflected in the price and carried to

expiration … and just for the record, in 2006 I was trading this animal at

Saxo Bank with a 6 ½ PIP spread, the best available at that time … now the spread

is around 1 PIP, with about HALF the VIX from back then … today, it’s very much

a “MOMO” trade, and a favorite of traders in the Pacific Rim & Eastern Europe.

What should be of particular interest to traders with this pair, is the Yen’s affinity

to rally “bigly & yuge” on “risk off” [USDJPY goes LOWER], meaning the SP500

futures or CFD goes South … conversely, when the markets are in “risk on”

mode, Yen goes LOWER [USDJPY GOES HIGHER], and SP500 FUTURES OR

CFD’S GO HIGHER AS WELL … now, this doesn’t mean this is the only thing that

moves USDJPY, but it’s “Hoover Dam” close, cuz economic stats out of Japan are

worthless … so, if you trade GBPJPY, you absolutely must keep one eye on the

level of the SP500, as a proxy for risk.

Moves lower now in SP500, as well as Cable & GBPJPY, after Florida reports big

increases in the CHICOM WUHAN KUNG FU FLU cases … and “whoosh” there it

goes”!

I simply must say, extremely terrible bottoming action in both Cable & GBPJPY,

after that Florida report … this type of “distribution” bottom is NOT what you

want to see, with multiple tests of the low and some pretty wicked M1’s thrown

into the mix for good measure to screw the specs … especially going into the

European close … by contrast, a much better bottom in AUDJPY … the down

red M1’s simply wicked action, and if you’re hitting the sell button after it turns

red, you ain’t gonna like what happens next with the fill … I keep telling people

this, but they don’t listen and instead get greedy … you sell on the spike “UP”

and you don't worry what happens next … book the profit, move on to the next

trade, and if it so happens it goes higher, so what? … you wanna be a trader and

make bucks, or do you wanna be an analyst and be poor?

One algorithm buy signal today in GBPJPY … TURNKEY PAMM / MAM UP

SLIGHTLY.

I turned my attention to Cable/Yen about NYSE open time … from there, the

market almost had a couple of other buy signals “IF” the market had turned

around to the upside … it didn’t, so price “momo” stayed on the downside

… after the Florida report, the “Spoos” went “Thelma & Louise” & dropping

Cable & Cable/Yen … that subsequent bottom never showed any “bounce” that

lasted for more than 1 or 2 M1’s before getting “monkey hammered” again

… that short covering, simply not enough to sustain anything on the upside for

a buy signal, and here an hour or so later, price for GBPJPY is where it was right

after the initial bottom … a slightly higher bounce in Cable, but again, action at

the low very wicked, with any and all bounces quickly “smacked” lower again

within seconds … given slippage with these scumbag LP’s, I don’t think the fills

would have been good at all.

There is always the argument between market adherents, of which is better

… IMHO, that wholly depends on what it is you’re attempting to do … as a

professional trader, I don’t care what it does, does it trade well or not? … and if

not, it’s adios time … the “Dragon” trade is pure “trader” action, and if the spread

is excellent, the RT commissions meaningless, and the slippage not too bad

[knock on wood], then it’s a good market to trade … would I “position” it? … hell

no I wouldn’t, unless you like surprises that can run 100 - 200+ PIPS against you

… it’s a traders market … as far as I’m concerned, it might as well be “widgets”.

Tonight sees me turn my attention to Cable/Yen, and it actually does have a

pretty good range in most Asian sessions … once we get to Europe, though, it

means we’re one day from an interest rate meeting, so I would expect things to

get rather slow until Thursday morning at 7 AM EST, when all hell will likely break

loose, for another “rob ‘em blind” bank “slippagefest”, as the U.K. tells us how

much QE they’re gonna do … it’s always entertaining, isn't it?

Now into the New York afternoon, where we start the 8 hour period each day,

between Noon EST - 8 PM EST, where a lot can go horribly wrong if you trade FX

… and it didn’t take them too long to squeeze the shit out of shorts, as about 19

minutes into the afternoon, here comes the panic short covering attack, led by

who else?… do yourself a favor and leave this 8 hour period alone … outta here

… until tomorrow mi amigos … Onward & Upward!! 

Have a great day everybody!

-vegas