For bull traders, life is easy as I will show again in the next few graphs. Our random walk tells us tells us when to step in, then get out. Two options to get out:
Partially on first price objective and then wait for the stop
In case of time out (the observation period), try to exit on multiples of risks (the dotted lines)
Case in point with SOX. Price objective is recalculated each day, but the flat sections above major troughs are the ones we target. SOX is above the green belt, even making new highs. Just hold for now.
Tesla: you should start raising an eyebrow or two! See that divergence with MACD? Worth securing some profits…
Bitcoin is back up again after the January consolidation. Getting above the green belt was a good buy signal. It has already passed through the first objective (not shown) and it adheres to the second dotted line. Your stop should be bottom of the green belt for longer term, and top of belt for short term trading. Next objectives are 53700$ and 58200$. 50k$ might be a short term psychological blocking point but random walk says not to care!
In many of previous posts, I highlighted the necessity of asymmetric trading ie. a reward/ risk ratio that is as big as possible. Even in today’s very complicated markets, with millions of news per minutes, the random static trading model that I have shared is working beautifully. It is is static because it only based on an ‘observation’ period. The dynamic counterpart is about analyzing how a stock or index behave over an observation period with respect to a specific moving average, here we enter the realm of Laplacian distributions, too complicated to explain on a blog but the news is that I am progressing on my eBook writing and I plan to release it by end of the year! It will be extremely expensive but definitely worth it! Will prevent you being on the wrong side of markets!
Asymmetric investment is a totally different job. You don’t rely only on mathematics to make your decisions. You need to have a vision, anticipate what may happen, … Very few services are capable to do it! And you can see it through the performance of investments funds, most of them never beat index performance. Investing on index fund (what I call static) for next five ten years is probably the worst idea you may have these days. Economic crisis has barely started, though you already know for sure some good businesses that are now worth zero because they can not open to customers. So what should you do for long term? I can not help you too much here except recommend NoHypeInvest (click on picture!). I get no commission!
They share a lot of advice for free and if your portfolio is big enough, it is worth subscribing to their premium service. It is not for tender at heart, they are looking for 3 digits gains over a few years, even if they are true only 25% of the time. As explained earlier, this means you can have a long series of loosing trades, don’t blame them, you are warned! They are however capable to explain the key elements sustaining their reasoning.
Speaking of of vision, take a look at Chris’s forecasts for the coming years. Don’t say he is conspiracy theorist, and look at all laws being voted in your country and you will see he is right… unless we, folks, do something!
OK, man, but what are we doing? It is the same subject I called for you to think multiple times on this blog. Open your brains and don’t take every bit of news for granted. When you have a Facebook account, FB knows everything about you, even things you don’t know yet. Same for Google. They have started to decide what you can say, what you can not say, …. and they sell the data you have given for free for huge profits. So it is time to either leave or scramble their data and make it worthless: change you GPS positioning, address, name, encrypt data, … In Google database, I am weed and alcohol addict, looking at pink elephants in Sahara desert right now, which of courses gets me some hilarious advertisement!
Those looking for alternatives software or websites can look here for instance
We talked about the short squeezes, which if coordinated, can lead to strong bull markets. This is usually the case when prices reach an area around the one year high, which is seen as resistance, and so many are shorting to benefit from a price reversal. This works from time to time, but the back testing does not validate it on markets, all stocks, … so be careful!
Coming back to our random market model, it is easier to pick up a trend when it starts, and drive it until it wears out. That is what I am doing with Bitcoin and Etherum. Bitcoin has walked back from its recent top to the random walk path (RWP) and is ready to pick up again. MACD is still largely positive, no reason to exit for now. A partial profit was of course welcome in January.
Etherum is even stronger. The RWP has not even pointed south one day! I don’t know if it will go to 100k$, but 1800$ is surely next target in the short term!
Tezos might be a candidate for near future. MACD is in positive area after a divergence, so just monitor!
There are two crypto-like stocks (in terms of performance). One is of course Tesla and the other one is …. surprise…. Ford!
In spite of never ending pandemic, a looming economic crisis, everything is bull, except maybe dollar and gold. Strange, isn’t it?
Sorry for silence other the last two weeks, urgent business to attend. Anyway, while Bitcoin and stock markets have been more or less flat, then emerge the stories of Robin Hood young traders who want to bring down selected Wallstreet funds because they have huge short positions on their specific stocks. Let’s take a look!
While it is absolutely ok to use same tools as big funds, playing against the big boys in frontal MMA fight will definitely end badly. Why? Because the big boys are making the rules! If you are making insane profits and they are making insane losses, one will claim you are working against the highest interests of the nation (or any bullshit like that) and deserve spending 120 years in jail. We already see the central banks being very unhappy about usual folks making money (and not that much actually) and planning to ban the use. See example of India here. I am still bullish on Bitcoin, Etherum, and many others but the situation must be monitored very closely.
We can make lots of profits by using the methodologies already explained on this blog. Don’t follow blindly the Reddit forums. If you are ever asked why you have Gamestop in your portfolio, then just show the chart:
The random walk path was bullish, the prices objectives were some good distance, … a no brainer case! Of course, don’t forget to exit while you have huge profits waiting.
When does the WallstreetBets game stop? I will tell you. As long as they disturb only a few selected funds and push some stocks up, they can survive. But if suddenly, Robin Hood decides to short BlackRock, then it will be a different story!
That’s it for now. I will come back later. Until then, trade SAFELY!
As written a few times, social network are stealing your time, your data, your ideas, and everything else they can. As of now, they tell who can tweet or put message on Facebook, they can remove any content they don’t like, … No surprise either when some say “Bitcoin is a worldwide scam”. It may be somehow, Bitcoin have no greater reality than fiat moneys, as their names indicate, but for traders in the short term, Bitcoin exists and the risk is just a bit bigger because of volatility. So it is worth having a strategy to enter at low volatility levels and decrease exposure when volatility is too high to your taste. If you don’t have or don’t want to spend too much time with custom indicators, just draw the infamous Bollinger bands and a long term MACD (parameter 48 and 64 for instance) on any financial web site as below:
MACD is positive, so the long term trend is up. No further question to be asked.
You can also see areas where those bands are getting closer to each other. Change the Bollinger moving average to 5 or 7 days if not visible enough.
Then if you compare where we are compared to previous bull run, as indicated with green smileys, we are barely at the beginning of ‘second phase’ of Bollinger bands, indicating the strong bull market will continue, albeit most likely on a quieter pace.
To get a peace of mind, consider the difference between last price and green moving average. That is your risk! If too far away (consider how many $ or € you could loose), just decrease the position size, thereby also securing some of the profits!
Started this blog just a year ago, but really got it up to speed with containment in order to stay active and fight boredom.
2021 is the year when people should start using again their brains in a normal way if we want to get out this crisis sooner than later. For this, let’s turn to neuroscience!
The brain, pretty much like any computer, stores information and can retrieve it with filters or criteria or whatever way to sort out things. Brain relies primarily on vision to distinguish one thing from an other one. One is blue, big and moving while the other one is red, tiny and static. Then other pieces of information are used, like when when you saw that big blue moving box, if it was hot or cold, if it was smelling funny or not. The brain can NOT negate differences, one can try to negate then from language and it will end up with neurosis sooner or later, so this will fail!
Conspiracy theories are also an other subject that has kept many busy in 2020 to appear as the greatest theorist in this or that area, virus and vaccines attracting most candidates. What is happening exactly? Brain, again, stores the information it perceives mostly from vision or hearing. Now numbers, dates, … are meaningless as standalone information. So the brain has a way to memorize these information, which is different from computer science, which is to build stories, consciously or not. Your brain is very good at identifying coincidences, these are events happening at the same time, but are typically the work of a random process. By putting coincidences together and building a story, your brain builds the memory of events. Now the media have peppered lots of numbers every day since the beginning of pandemic, so it is now wonder that many stories have emerged in conscious level and people are writing them down all over the social networks. Then, the media are shocked by the big number of conspiracy theories aka fake news, and they fall to the same fallacy: their brains are making a story about the numbers reported in ‘fake’ news… we are in a matrix of conspiracy theories!
The best wish I have for 2021, is that everyone focuses on what they do best. If you are no expert in pandemics, vaccine technology, statistical long tails,.. then avoid being just an other fool on internet. Be patient, think correctly your brain with its strengths and weakness, learn and seek the truth via scientific approach!
That’s it. Stay with me for trading. Until next time, trade safely!
Markets will still be there next year, plenty of profits to be made! It is now worth taking a break, do not forget to monitor loosely your open positions or enter a stop order in the system. Of course, stay away from the virus!
In part 1, you have learned how to identify key market turning points, which we have called Swing Point, shortened to SP. Swing points follow peaks and troughs in alternative way. Then we looked at short term and medium term SP’s. The last one are the ones we are interested in for drawing pitchforks.
Of course, the first question is why drawing pitchforks? Pitchfork is an interesting tool in the sense that is allows to identify trend in easy and blunt manner, no discussion is needed; then it gives buy and sell signal; it also measures the volatility! In short a dream tool, this is my Christmas gift to readers, but mastering will require some practice!
We are going to play with Exxon Mobil today. On the following graph, I have indicated the medium term swing points. Again take time to practice a bit here, because then it becomes (relatively) more difficult.
We are going now to number the SP’s, starting from the right of the graph, and in backward direction from 4:
Tough, isn’t it? Then your charting software should have a pitchfork tool. Select it and select the swing pints 1, 2 and 3. You should get something like that:
I am not going to explain the geometry used to draw the pitchfork, there are plenty of sites that do this. Let’s zoom instead on price action:
The green light is the median line, the red ones are the MLH (acronyms defined by doctor Andrew), are parallel to median line. After SP3, you notice that prices seem to adhere to the upper MLH, that is a sign of strength! At point 4, you can easily observe that price have not touched the median line, there is a gap between SP4 and median line, this is an other sign of strength and, according to A. Andrew, the minimum price objective for this situation is the price at SP3! The pitchfork is down trending and price have already exited the pitchfork even before SP4: this is the buy signal! We are all set up. We need to verify one last thing, the pitchfork made on SP’s 2, 3 and 4 should be trending up! Let’s draw:
Everything is perfect. We will look in future post the rules and how to find out where prices might be going, but let’s use for now the minimum price objective, so you need to place an order with stop at SP4 and objective at SP3, meeting your gain / risk sensitivity.
How did the trade go?
The min objective was reached only a few days later, then price has gone up since, landing currently a cool 33% at the time of writing!
This was your first pitchfork trade. Next time, we will look at the major rules to use pitchforks in safe and efficient manner.
Anaximander of Miletus, a Greek philosopher who lived in the 500s B.C.E. speculated that humans must have descended from some other type of creature, most likely fishes. This idea became later a scientific theory when Darwin wrote about it. But it still is a theory, because these days, no new species arise on earth, maybe man will change into superhuman with exoskeleton and additional processing power, but still is a man, form fit and and function wise! A counter theory is that at some point in time, a disruption occurred, allowing for instance more radiation from the Sun or stars on brain cells, that allow the monkey to become a different specie: the man! Don’t tell anyone I told you about this one ;-))
When a company changes so that it is not the same as before, because it has been eaten by a bigger one, or they invented a disruptive technology, it is not usually a smooth process. The new company may not have children (or clones) on its own because the market timing was missed. Or it may thrive in unusual manner and explode, what we call bubbles. This is exactly what we can observe and measure on our charts. Well, seems I have demonstrated life on earth is actually the output of a random process!
If you want to make money with trading (I did not say investing which is an other subject), you need board a ship that is willing to go northern direction. A disruptive technology is the right vector to use. Because, when something has the potential to disrupt, then it is attracting attention of big money, and you need to follow this track. If you are sticking to old business, then your gains may not outweigh your losses.
While I am it, instead of complaining of inefficiency of government in managing virus crisis, take time to think about disrupting something in a gently way. Become expert in one domain, then explode it with new concept, and sell you concept to make big money!
Now let’s look at the market and their disruption potential!
I will explain in future post about the usage of pitchforks. When you master many trading tools, you should change from time to time to avoid analysis being a boring task. So S&P500 escaped from a down trending pitchfork, thereby generating a buy signal. The MACD at the bottom being in positive area, and price being above moving averages, this was a good signal to check whether index was waking up from the horizontal move. Which it did! The slope looks good, we can stick with the market. Careful about any divergence with MACD… nothing to fear for now!
I am more concerned with Nasdaq. I is right on the 3-months objective and MACD is now lower than beginning of September. This is a divergence! Should you hold major index contributors, like Apple or Facebook, would be good to watch closer to market behavior and secure some gains!
Bitcoin is still pleasantly flying in the 10R area, 10R means it is 10 times the Risk I took when I entered beginning of October (stop under yellow zone). I have taken partial gain and will come back to it later. As long as MACD is positive, I am keeping a small line so I won’t miss out the beginning of next rally (the famous FOMO) and then I will add more to the line when the rally is confirmed!
Telsa has landed (pun intended after Starship issue!) me a cool 40% of gains without leverage. Same divergence as Nasdaq. I will wait lower!
That’s it! Until next time, trade disruptively but safely!
We begin a series of posts dedicated to newbies in trading. I wrote a few times, there would be no such posts, but of course I will take radically different approaches from other web sites. Again, I only target methods of trading that makes sense for those with small portfolio, so there is no need to spend too much time on candlestick theory other than a few key information.
Trading with a pitchfork sounds weird, but it is one of easiest and most reliable and profitable method… providing you know what you are doing. The second part of the sentence is exactly what is missed on some popular sites! Pitchfork trading is usually compared to channel trading, which it can be, but that is very poor usage of this wonderful tool!
Before we introduce the tool, you need to first major in peak and troughs analysis. Don’t go away just yet, it is pretty straightforward with a little practice. Peaks are … peaks and troughs are … just troughs! The major ones are usually easy to identify!
Let’s start immediately with an exercise. Can you point peaks and troughs on this Netflix chart?
Maybe you ended up with this, peaks with green ‘P’s and troughs with yellow ‘T’s
If you did not end up with same collection of peaks and troughs, that is fine. We are working with random system, you are allowed some deviations!
There is one important rule is that peaks and troughs must alternate: P – T – P – T – ….
Is there any way to automate the discovery of peaks and troughs? Answer is yes, and there exists more than one. But in order to respect previous rule, you will sooner or later meet some ghosts!
One way to to identify a trough (same for peak) is by using a two steps approach, first one can be automated easily, second one is more complex!
First step is to identify short term ‘swing’ points (SP), generic term for peak or trough. A swing point for a trough is simply a day where the low of the day is surrounded by two higher lows on each side. Example:
A medium term trough swing point is surrounded by one higher low short term swing point on each side:
Easy, isn’t it?
The medium term swing points will be the first ones of interest when playing with pitchforks.
Before I let you think on your own, remember the rule above, swing points must alternate tops and bottoms. But sometime, you will be missing a medium term swing point with the proposed method, so you know there is a ghost swing point!
Next time, we will look at how to anchor pitchforks to swing points