THE TUNNEL METHOD ANATOMY LESSON

“I looked up “Liquidity Provider” in the Dictionary!”

I think it’s a good day to do an anatomy class on “The Tunnel Method”; specifically, what is it we’re looking for, I can sum it up visually with 2 charts directly below in USDJPY. First, the short side, and then the long side.

Granted, these are near perfect examples, and in real trading they don’t have to be nearly as perfect as depicted above; the slopes could be a little flatter, or the moves not as strong … but generally speaking, something along the lines of what you see above. I ask the question in the charts, and the answers are pretty simple; “not very long”, maybe on the order of 1 minute to maybe 3 – 4 to be ideal. Cuz if the market stays in the tunnel [or slightly above/below it] too long, 1) it works off the momentum in the market we want to take advantage of and capture for profit, and 2) it allows time to catch up to the market; neither would be helping us in either position.

Turning to today’s market … of course, when the stock indices “get in trouble” look for the rumor mill in Washington to come to the rescue; you think this mornings announced “tax plan” on the open was coincidental or accidental? Sure. Cuz if there’s one thing you can always count in  from indices markets, it’s that the Pols and the faculty lounge Twits who control the CNTRL-P machine, will always have the backs of the TBTF banks and trading firms. So, take the usual suspects of Vampire Squid & assorted other scumbag LP’s, dealers, and extremely influential hedge funds who were buying stocks during the recent decline, and within 30 seconds start the rocket move up on panic short covering aimed solely at allowing the friendly folks at Squid to sell them back to you … for a profit of course. WTF.

And of course, through all of this massive stock panic to the upside, you think USDJPY can do anything? Market was at 109.28 early last night … it was at 28 around midnight … it was at 28 early this morning … it’s at 35 right now as I write, and hasn’t had a 30 PIP range in 16 hours … all the while, the algorithm can’t get out of the way to a market that has no idea what it wants to do … except get you to buy the high and sell the low cuz it’s not reacting today with the stock indices or anything else.

In essence, today has seen a miniature “Flying Wedge of Death” [FWD] in USDJPY, and while price is going back and forth between 109.28-ish to about the mid to upper 108.45-ish area [oh, it just peaked its head above 109.50 … got squished from there], the algorithm lines are flat with almost no tunnel to be seen, and price has been over/under the tunnel dozens of times today. The algorithm by design, at its most optimal use [trades initiated back through the tunnel boundary during a corrective phase], really does an excellent job of defeating the FWD … not entirely, nothing can do that … but very good most of the time. Remember, as long as white is above aqua, you can be long, and as long as white is under aqua you can be short; there isn’t any rule or directive that says you can’t add to a position, make a new one, or wait to liquidate on a spike up or even at the pre-defined “profit areas” … all the algorithm says is that its “optimal & best use” for maximum profit is defined through the 2 examples I gave at the outset.

Late afternoon, and I’m calling the markets bluff … fish or cut bait. The SP500 is up massively, over 25 index points, and USDJY can’t hurdle 109.500 and stay there, let alone take out the high. One trade to see if the market can go higher; and while it did momentarily, it forced me out when it came back .., I had no choice but to liquidate to protect the position from loss. The proposed “tax plan” from Repubs has got the SP500 on fire to the upside … maybe the main reason USDJPY isn’t buying it, is that they know that anything Congressional Repubs have planned on doing, is almost 100% guaranteed to get screwed up and disappoint, given their track record … they’re a bunch of wimps and the other markets know it. This is the main reason I haven’t attempted to buy Dow30 today … I don’t trust the gain, and the market hasn’t backed off since the open. We’ll see what happens, but if you’re counting on Congressional Repubs to “bring home the bacon”, I hope you’re not hungry.

I mean, how high does the SP500 short squeeze have to go to get USDJPY higher? First we’re in the 40’s, then the low 50’s, and so far the high at 2456-ish, and USDJPY can’t move higher … sellers stacked all the way up … and then get the SP500 to back off with a ½ index point downtick, and USDJPY slides 6 PIPS … 37 minutes to get it up, and 3 to bring it down … this is what happens when everybody who is long suddenly realizes it’s not gonna go through the high at 54 and hits the exit gate all at the same time.

An algorithm buy signal, here starting the last hour of trading, but 1) where’s it gonna go on the upside given we haven’t really moved the entire day, and 2) where’s it gonna go to give me profit? … Yea, I dunno either, cuz to me right now, being long looks and feels like a real battle to get it higher, with stacked sellers all the way up.

Here late in the day, they finally take out the stops (mission accomplished!) … big whoop … now it’s right back down to 53 … whatever, a terrible trading day today, a new meaning for the word “slow”; no range, FWD in full effect from European open; vicious spikes to clean out stops on both sides multiple times today, and volume was very thin and lackluster. Tomorrow is another day of opportunity. Onward & Upward!

PAMM spreadsheet directly below.

Time for the beach … dog and I are outta here … until tomorrow.

Have a great day everybody!

-vegas

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