ELIMINATING ALGORITHM “FALSE POSITIVES”

 

“Say, you’re new around here aren’t you? … Let’s be friends, OK!?”

When you trade, nothing is more important than discerning good trades for 

profit versus “false positives” that lead to losses … “assuming of course, the 

major problem aren’t scumbag LP’s who are ripping your account apart through 

blatant thievery via mystery tick fills & slippage” … but once you pass that 

major hurdle, eliminating potential trades that are fraught with probability 

risk, should be your main goal … “hey, any Chimp can manage winners, cuz 

that takes no talent … avoiding the “false positive” trade is where you save 

yourself a lot of money and avoid disappointment”.

The “Hang Seng Explosion Algorithm” is 100% buy side … therefore, at 

bottoms, what clues are there that make one trade better than another?

What you should be looking for, when the aqua RSI line is below the 90 red 

line, and it looks poised to break above that 90 threshold, “is the previous M1 

being red, and CLOSING AT OR VERY NEAR THE LOW of the M1 … the very 

next M1 opens and attempts to go lower, BUT IT FAILS, and when price starts 

to rally and this current M1 goes from red to green, that’s the 

“ignition sequence” for a probable, highly successful trade starting NOW! 

… that’s the identifying sequence pattern we hopefully get on every bottom”.

Directly below, from today, a very good algorithm signal, with commentary.

 

Now, let’s take a look at a potential “false positive” … what are its 

characteristics? … First and foremost, a RED “tail” on the prior red M1 at the 

close. Directly below, from today with commentary.

 

Are there other potential “false positive” setups to avoid? … YES! Two [2] 

others to skip as well … the first is what I call the “one hit wonder … especially 

with a tail on the close”; i.e., most of the decline has come from one M1, and not 

a “series” of M1’s, and in addition, it closes with a “tail” … this setup gives off a 

very high failure rate and is to be avoided. Directly below, an example with 

commentary.

 

The other scenario to avoid are the very small breaks in price that give off a 

buy signal, simply cuz of the math, but in reality are too small to give any 

indication that they are in fact bottoms … again, you’ve entered coin flip 

territory, and I don’t need an algorithm to venture there. Directly below, an 

example with commentary.

 

So, you now know the three [3] types of “false positives” that are likely to trip 

you up and show losses … “I don’t mean to suggest these three [3] are the only 

ones … hell, I could sit around and dream up a lot more, but in reality we’re 

NEVER gonna be able to eliminate every single type of trade that leads to a loss 

… if I did that, I’d have the “Holy Grail” of trading, which as you should know is 

mathematically impossible”. The vast majority, though, will be one or the other 

of one of these three [3] types shown above.

Turning to today’s Hang Seng market … volatility on life support, as the World 

Cup takes center stage, and both Asia & Europe grind to a halt to “eat, sleep, 

dream, wager, swear, cheer, and not do any work whatsoever” in the name of 

SOCCER! … every 4 years the world goes through this stupidity, why should 

this time be any different?

Today’s intraday volatility somewhat better, thanks to some USDCNH buying 

that sees the Reminbi lose about 400 PIPS … that has led at varying times, to 

some Hang Seng selling, and while the market gave us one good trade signal, 

others today have fallen into the “false positive” category and I’ve left them 

alone. It’s important to note, that just cuz I identify a potential trade as a good 

“false positive” candidate, the market doesn’t have to listen to me, and the coin 

flip exists to make these trades winners … that doesn’t mean I should have 

taken them, it means they worked out despite the setups all wrong from the  

“get go” … if you want significantly higher rates of loss, then these trades are 

it, simply cuz they lack significant identifiable “buy fuel” from shorts. Overall, 

though, the lack of good trade signals lies at the feet of the volatility dragon 

… and he isn’t interested in anything at the moment except soccer … it is 

what it is.

One trade today … PAMM up slightly less than halfway to 0.1%.

A good trade, too bad there weren’t more of ‘em … today sees the range so far 

20% lower than the 20 Day Range SMA … although, to be fair, it’s gonna be 

tough for the Hang Seng to keep a 550 point SMA for range, or advance it, 

going forward … this is a very high number, and I expect it to drop down 

below 500 pretty soon. However, what’s needed is more than simply “range”  

… what’s needed is higher “intraday” volatility; the “nuttiness” between the 

edges. Lately this week, it’s fallen off a cliff, and we’ve seen more  

“one & done” moves with zero follow through than in previous weeks … again, 

I blame the World Cup … we’ll see what happens when this is over and the 

world goes back to normal next week. “All we need is “normal” intraday 

volatility in the Hang Seng [which is to say, bat shit crazy versus any other 

market], and the algo will get the profits job done! … so far, so good”!

So far, even with subdued vols, the “Hang Seng Explosion Algorithm” is 

performing on cue, and doing its job of pinpointing bottoms in price … really, 

it’s performing beautifully and I am very pleased with its results … “kudos to 

the math software”! So, on to tomorrow … I’m outta here mi amigos … “and 

yes, I got sunburn on my eyes from the Hong Kong glare”! 

… Onward & Upward!!

PAMM Spreadsheet directly below.

 

Have a great day everybody!!

-vegas

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