My market model

Discussion in 'Strategy Development' started by Lojanica, Feb 25, 2010.

  1. My market model

    Basically I look at the market as a coupled harmonic oscillator. Buying pressure versus selling pressure. Weighting depends on net buying versus selling.

    How I trade is that under my model the market will always oscillate. Edge exists that energy will accumulate based on these oscillations whereby energy will be stored either long or short as a result of the oscillations and net buying or selling.

    So you simply figure out the long term trend---daily, weekly, monthly. Look for overbought and oversold areas on the hourly chart and when you have "spring loaded conditions" in the direction of the long term term establish a swing trade in that direction. I combine that with market profile to find likely important price targets.

    News is the force that "unlatches the spring" releasing the pent-up energy.

    Today for instance Feb. 25th, 2010.

    We are in a Bear market--we have been since the cyclical top in 2000 and again in 2007.

    We were in a medium term bull which began March 2009.

    That medium term trend changed Jan. 19th 2010 back to medium term bearish phase in a long-term bear market.

    So we have a medium term top in at about 1150 in the SP500.

    We have a short daily move UP to the 50d ma.

    We are spring loaded to the DOWNSIDE. Stops risk/reward are favorable for a trade.

    The NEWS is Greece and all the PIGS as well as CCI 2 days ago. The latch is released and move is made.

    Lather, rinse, repeat.

    All comments are welcomed.
  2. Interesting- how long is your average trade? How do you incorporate market profile into the mix?
  3. Length of hold depends. Often times bull markets go on for ages and the best strat is buy and hold. Sell calls against the position to hedge when small corrections occur so that you can collect on the time decay while you wait for the next leg up.

    Bear markets are quicker and wilder. Today's move was typical of a bear market rally. Bull markets require longer holding periods.

    So instance I had a swing trade which was instantly profitable. Took profits half at open then let the other half go for awhile because in bear sell-offs sometimes you'll gap down a range then go another average range straight down. I used market profile,. When support cannot be breached then typically or so they teach : ) it will grind at that level for 2-3 hours which is exactly what it did today. When I figured that out based on MP analysis I covered the other half. Did not take a position long but scalped in the correct direction long for the gap fill.

    So in reality my strategy encompasses all tools (that I have found to work for me) in varying degrees. More weight is given to various tools depending on what I'm doing.

    Fundamentals, technicals, market profile.

    As far as that animated harmonic oscillator is concerned you can use MACD and/or stochastics to model what is happening with that caveat that you understand how to use the oscilator because you understand what it is you're measuring.