I hope this journal brings value to the readers of Elite Trader. I can't promise it will be updated all the time, but I will make the commitment to post when I can. ------------------------------------------------------------ Offshore's trading process: 1) Emotion is the enemy in trading 2) Avoid #1 when possible 3) Find an edge with favorable risk to reward 4) Apply rigid risk management to #3 5) Go back to #1 ------------------------------------------------------------- Please keep comments directly related to my posts. I will try to manage the ebb and flow of the journal. Good Trading.
Expiration brings many trading opportunities. I have read in many columns by writers that the days after expiration seem to reverse the action of the days preceding expiration. Using Friday expiration as the fulcrum day, I tested correlations if X day rallies led to X day selloffs or X day selloffs led to X day rallies. What did I find? When tested on 10 years of S&P 500 continous futures data the opposite occurred. Rallies led to rallies and selloffs led to selloffs. The correlation test is simple: Buy or Sell Monday morning in direction of (Fridays close - x Days close). Liquidate position x Days later. 1 Day continuations led to 1 Day continuations. 7 and 9 Day continuations were the most profitable leading to continuations for 7 and 9 days respectively. Examine file for results. ------------------------------------------------------------ Here is the code: {Expiration Correlation} inputs: timetoexit(2); vars: condition1(false), rally(false),selloff(false); begin {Initialize variables} condition1 = false; rally = false; selloff = false; {Determine Setup} if next3rdfriday(1)[1] = 1 then begin condition1 = true; if close - close[timetoexit] > 0 then rally = true else selloff = true; end; {Sell Short} if condition1 and selloff then sellshort ("Expiration Short") next bar at market; {Go Long} if condition1 and rally then buy ("Expiration Buy") next bar at market; {Manage Trade} if marketposition = -1 and barssinceentry = timetoexit then buytocover ("Exp Cover") this bar on close; if marketposition = 1 and barssinceentry = timetoexit then sell ("Exp Sell Long") this bar on close; end;
OffShoreTrader, You look like one of those real smart math guys ore something. Figure this one out: Stocks rally every day. Which ones should a trader take a position in. If you can tell that you can make a million a year. Just by increasing your buy size until you get to the million. Stocks go up every day. Which ones should a trader get into for an 80% probability.
Following the expiration continuation edge, we are entering longs for 1 day and 9 day periods. We should see a minimum low of 992.50 in the SPU today according to S&P stats, so that is where we entered.
Technical analysis of 30 year bond via $TYX.X. If patterns hold, 30 year futures should rally back to the 111-112 level. We are long bonds from the 78.6% retracement level.
The move from the June lows in rates has happened quicker than any other rally. This may signal that indeed a MAJOR bottom has been placed in rates, but for now the market still has most of the characteristics of previous bear market rallies. We are wrong above 5.8 which I don't have the exact conversion for futures. I believe it roughly stands around 98-99. In either case from these levels, we have a favorable risk reward. Our risk stands at roughly 3.5 points to a reward of 7. We will also add to our position just a shade below 5.8 if indeed we trade there with stops just above. $TYX is inversely related to the 30 year futures contracts.
Weakness begets weakness in EUR/USD. Since 2001 there have been 33 occassions where the Euro Currency futures have been down over 80 ticks. Out of these 33 occassions the euro has continued its selloff overnight of at least 20 more ticks from the next day's open 25 times. We have been using this statistic to isolate these moments and short rallies when the downside of open to low has not met 20 ticks or more. The 20 ema on the 60 min eur/usd provides good s/r in trending markets. ----- A closer examination of the big move down also reveals that by the 2nd day short covering hits the market forcing the euro to close positive 19 times out of the 33 while the remainder 13 out of 14 days showed no continuation of weakned close to close. Only one day showed back to back days of greater than 80 ticks. ----- Our traders plan tonight then is to short strength and buy weakness in the euro. Good luck.