I have plenty of subjects to discuss in September and later. I want to spend three weeks far from Internet, the worldly (bad) news, … I will monitor my open positions, but not much more. I will not validate the hundreds of comments that I have undoubtedly when I come back!
S&P has gone through the last reaction lines quite harmlessly. Next one is not drawn yet but is much further away. This rally can continue for a while, unless something wrong happens! Your stop should be around 3100.
As written some time ago, you ought to have gold. Dollars and euros are printed faster than trucks can transport them where needed, so their value to the good old Gold is going down, so Gold goes up. Turbo has even been clenched for the pleasure of traders and investors alike.
If there is something that has been very pleasant these last days, it is the post-halving Bitcoin rally that has started. At last! Many other cryptos either anticipated (Etherum) or are following (Litecoin, Ripple). My portfolio shows massive gains in just a few days, and it is very likely that the rally will extend for a long time.. for the same reason as Gold!
You need to monitor the progress of virus and countermeasure applied in each country to anticipate a possible slowdown on stock market. Gold and cryptos may or may not correlate with stock market like during containment. Each needs specific attention.
That’s it. Until September, trade safely. Stay away from virus and wear a mask if needed: it is only a matter of probability, you are decreasing the chances to get sick. So be bullish on masks and bearish on the virus!
S&P500 is stuck behind the reaction line. It can go through or slide down along the line. Again, see how reaction theory does not predict where market is going, but tells you where market may be in trouble, and that is more than good enough! Just have a stop at 3040 and do whatever you want with your day!
DragonTrader is still on vacations until end of August, but market commentaries still come for another two weeks. Totally free as usual!
S&P500 has crossed blue down sloping reaction line since last post. The money is still flowing in, so I would not be surprised movement still continues for a while. Should it reverse during my August vacations, please alert so everyone can profit from a little short!
As the Fed is printing lots of money, it flows in the stock market but also in Gold and possibly some cryptocurrencies as well. Diversification? Possibly. Or you need to see the other way round: as you print more money, the value of money decreases, so price of Gold goes up! Volume of available gold does not change a lot year over year, and countries wealth (GDP) is going down due to little virus, so gold is safe harbor! See, if dollar has been disconnected from Gold more that 45 years ago, people still think in gold terms!
It is even better for Silver, but you need to ask a drunk economist reason for this strong uptrend!
I was moderately bearish on Bitcoin but the graph starts to show something different. First, the money is flowing in as shown by accumulation distribution indicator and there is now a hidden divergence with WAD. Makes me think that an up move is possible, the post-halving rally everyone has been expected for a while! Tip: look at Ethereum, might be even more interesting!
We are middle of the summer and your goal is to get rest, enjoy the sunshine, get enough sleep and stop worrying about nothing.
I got very genuine comments over the last months, most positive, and overall very motivating. Now I see many comments copy / pasted while changing one word by an other, but since I have elephant memory, I remember every comment written previously. Please take a little time to think before writing! I also enjoyed the worst comments a blog can get “you text is so full of misspelling that it is not readable, I am very disappointed” (sic, I had to fix the spelling): you are excluded, man, do not come back!
Let’s get back to market summer conditions. S&P500 is about to reach the 2 downward sloping reaction lines. Will it go through unhurt? We will know in coming days. I have moved my stop up to 3050.
Bitcoin is also lazily resting on the random path. I am an unconvinced bear, eying at the bottom indicator to come back up the zero line. Wait and see!
Gold (or even better Silver) is the place to be for now (outside stocks). No cloud in the horizon, for a golden suntan! A stop at 1750$ seems a good idea to me!
If trading is your only occupation (not my case!), then life can be quite boring. The fact is you only need to wait… until there is a crisis or some excitement somewhere and then you enter the market, make your gains and go back to your boring life! Patience is key!
Summer time should be dull, shouldn’t it?
Anyway, a good time to look at all the funny articles on internet. Look at those two brilliant analysis:
What? One says 60k, the other one 1.8k? Predictions, pretty much like conspiracy theories, are fun to read but you can not make anything with this information!
Fact is bitcoin is enjoying for now a cool summer, on a small downward slope. Capital is flowing out quietly but Bitcoin stays above the random walk path. The objective for down move is about 8100$ but I do not see enough bearish energy. Should it resume the uptrend, then objective 10250$, not that much. Quite boring for crypto!
S&P500 continues on to next reaction line, which could be reached… next week! Maybe some sport is coming… or not!
As for the Nasdaq 100, a warning line was reached yesterday. As for S&P500, there is divergence with bottom indicator (the WAD2.0 if you follow!), only a warning of course. I hope you are in since mid-April, a stop at 10k is now the best idea you can have!
That’s it! Until next time, enjoy the summer, stay away from harmful virus and trade safely!
Now that most of you have read all the blog, your neurons are ready for experimenting new sensations! The indicators from the old world, such as RSI or MACD, have plenty of issues but are nonetheless used by professional traders, because if you can trade with candlesticks, RSI and 2 simple moving averages, then indeed it requires lots of training and experience to become profitable. They call it price action analysis!
If you don’t have 10 years to dedicate to training, then consider any old indicator and how it could be improved to give you less false signals! That’s it!
Let’s take the example of Williams Accumulation Distribution. It is supposed to be traded with divergences, but those do not appear quite often. Let’s have a look at formula:
This is the original formula defined by L. Williams. It contains volume information. First problem is that volume information is not always available (e.g. for cryptos) and second one is that many transactions take place outside the stock market, so we get only a partial view!
Steve Achelis improved this formula with this adaptation:
1. Calculate True High (TRH) and True Low (TRL) TRH = Current bar high or precious bar close, whatever is higher TRL = Current bar low or previous close, whatever is lower
2. Calculate current bar Accumulation/Distribution: if Current close is above previous close then AD = Current Close – TRL if current close is below previous close AD = Current close -TRH if current close = previous close then AD = 0
3. Calculate Williams Accumulation Distribution which is calculated as cumulative total sum of AD values WAD = Previous WAD + AD
Here is how it looks:
Without divergences, the indicator is useless, or is it?
The point is that most indicators stop to work when too many people are using it. Market likes to play with your nerves! And if you want to program the ups and downs in automatic trading, well, good luck!
There are surely multiple ways to improve this and here is one!
First thing is to smooth this indicator, but not with an average! C. Kase (see here) has introduced the concept of synthetic weekly indicator. The change in the formula above is straightforward and we are going to use n days instead of just 5 days as implied by the word ‘weekly’
Just make the following changes:
Close is unchanged
Open is the opening price of n days ago
High is the highest of last n days
Low is the lowest of last n days
See how much smoother it is? You don’t have to worry about using 5 or 8 days as in the graph above, because indicator is evaluated every day! On a 8-days chart, you would have to wait 8 days to get a new candlestick, but here you might get a signal as early as there is something significant!
OK sir, but we still see no divergence? That’s right so let’s go one step further and calculate the smoothed ROC of synthetic n-days WAD!
The smoothed ROC is simply the Rate of Change applied to an average instead of raw indicator. I have considered a 10-day EMA of the WAD and 21-days ROC. Here is the fabulous totally refreshed indicator:
I colored the SROCSynthNWAD (or more simply WAD2.0) in grey when going up, and red when going down. As you can see, indicator is above 0 when trend is up, you have additional entry point by color change if needed and (some) divergences appear from time to time! It is so smooth that you can program it easily in automatic trading system!
Your task is of course to evaluate it over many stocks or securities, over long periods of time, over multiple time frames, ….
This is of course just one way to do it. Maybe you can work out an RSI2.0?
That’s it for today. During next 2 months, I will only post markets commentaries from time to time. Enjoy summer time and stay away from harmful viruses!
S&P500 is still hesitating where to go, bears are now predicting a new market crash because of a stupid virus that can not be kept under control in the US and bulls are thinking that Fed is standing, ready to do whatever is needed to sustain the markets….
I introduced the Ferrari trading tool in previous post. As you can see, we reached also the red zone. Either you jumped out at that time or… your stop is taking care of securing your profits, especially should the trend continue, you are ready to drive it along!
With a stop positioned at 2956, you can switch off your screen and enjoy the sunshine!
In 2012, Facebook IPO price was about 40$. Just 3 months later, it was trading at 18$ but if you bought at that time, then you would be enjoying today about 1000% performance just by holding the stock and not caring what might happen on the stock market. That was a bet at the time, that I have not taken!
I personally hate Facebook because it prevents its users from thinking by themselves, promoting subliminally some herd thinking that is supposed to facilitate your life. And people are so gullible they are buying the invisible marketing message.
Imagine I want to buy this electric car from eMoon Motors. I look on Facebook if any of my friends, real or virtual, have bought any and what they think about it. I have found 5, 1 is very angry because his wife dislikes it very much, 3 are complaining and 1 has no opinion. What happens is that people who are not happy are writing it to let out their bad energy, and others that had a little problem are going to confirm, hugely amplifying that scratch on the door made by a dog passing by. People who are happy don’t take the time to comment. What can you deduce then? Well, nothing!
Who has become rich with Facebook? The founders of course, and stock owners. Any users? No! All users have given for free all their data to a monster that is selling this (free!) data to advertisers – wonderful business case, thereby also preventing serious newspapers with real content from getting advertisement, among other consequences. World would probably be better off without Facebook, users already have many alternatives but ignore them out of convenience or laziness. Of course, if your (potential) customers are all using Facebook, you have to use it!.
Facebook stock is a stock real hard to play, because it tends to gap every once in a while, causing automatic trading algorithms to go nauseous. Don’t let that prevent you from making a trade or two when visibility is fine.
The stock follows a random path, too flat most of the time to make substantial gains, but as you can see, the price wanders along the warning lines, like invisible resistances, then suddenly end of last week, a black Friday!
What is happening? Tier-1 corporations propose to boycott FB through November election if Zuckerberg does not take action to control hate speech, that is everywhere on this media! Companies include Unilever, Verizon, Honda, The North Face, Ben & Jerry’s, Patagonia, Mozilla, Birchbox Dashlane, TalkSpace, LendingClub, and Coca-Cola , just to quote a few. See how good I am also at advertising, but I do it very smoothly, not disturbing the casual reader!
What to do now? At very least, as a trader, you should be out and you can come back later. No, stay with me, I am not finished yet! The indicators at the bottom are the Accumulation/Distribution (A/D) and one derivative. The money during last 2 months was still going in, but not so fast (divergence), and now A/D has also crossed its average indicating money is flowing out of FB. The random walk path is still green (going up), so I do not advice a short position in this time frame. The objective for this down move is 186$ but could be stopped before. Don’t think that Zuckerberg is going to sit around seeing the money vanishing , sure we are going to see some Facebook message stating that situation is under control, and he will invite his announcers to a party (not a virtual one) to celebrate this. If it fails, prepare for a plunge to 130$! Have fun!
This post will not be technical at all, only food for the mind!
There are many brilliant brains throughout history and also many people who have had more luck than anyone else. Think of our dear Warren Buffet or even Bill Gates. If they had not been in the right place at the right time, they could have had totally different destinies! So was it luck or was it intelligence or both? Imagine one second that our computers could run OS/2 version 2020 operating system…
Finding an edge is key for trading, as your trading system needs to have a positive expectation if you want to be profitable over the long term. I have uncovered many edges in this blog that have been there for long, and will stay for long as it is unlikely that finance will change their model for a long time.
Now look at recent history: a small tiny virus has pushed many companies over the edge, pun intended! Finance is everywhere in each company, be it business case, cost tracking, profitability analysis, … and what? Companies are so weak, that a virus throws them off board?
The truth is more simple. The bosses are all trained in same business schools, applying same models without thinking about their validity. Role of chance is totally underestimated in their career, they think they manage successfully and will write books about it. Nothing is further from truth.
Finding a robust edge is key to your trading career. Most of those published on this blog can land you in positive territory but this is just the start. You need to work on your own edge, by finding new ones or improving those shared here. You do not need mathematics or philosophy to start with. Use these approaches only to confirm your theory. Honesty is also key: do not look for confirmations that your system is working, look at the cases where it does not work and find the reasons. Exactly what business schools are denying to do, because, should they do it, they would have to close their doors!
My latest trading strategy, which I can’t share of course, has found recently the mathematical confirmation I was looking for: Laplace first law of errors, created in 18th century! The second law of Laplace, also called Laplace-Gauss is the one used by finance in spite of its non applicability. The performance of the system is beyond all expectations… Laplace was a genius! Henri Poincaré is an other one of my favorites. Do you know them? H. Poincaré had identified the relativity before Einstein, who was only better at marketing it!
Some say that markets are not allowed to go down any more. Many PMI figures will be published today, as well as new houses selling numbers. As usual, there will be plenty of comments about how markets have gone up or down by a tiny 0.x% because investors like or disliked the numbers. Which is absolutely ridiculous, it is just noise commenting! You should always look at wider charts and understand the underlying movements!
S&P kagi line is still yang so it is no surprise we are still in up market.
There is a divergence between Williams A&D and its momentum just below, but it is just a warning, no action needed for now. Your stop should be around 2960 and you would better go out and enjoy the sunshine!
