Tag: analysis

Happy new year! Wake up your brain!

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!

To trend or not to trend, that is the question

Today we are going to study how trends transition to more or less flat markets and how to position ourselves for the best!

I am sure most of you are already familiar with indicators which supposedly indicate when a market is trending, and when you would be better off sleeping and out of the market.

Moving averages are close to be one of best indicator for that purpose. See that graph of Microsoft with Alligator indicator. Note ADX indicator at the bottom does not indicate too much!

The truth is investors are either having the same opinion at the same time and there will be a trend or investors disagree and market ends up being choppy and overall very flat. So any time that you see what could be the end of a trend, switch to drunkard mode and start counting the steps! If you need background information, please refer to this blog post.

Sure enough you could wait for prices to cross Alligator lines and then that colors are in the right order, … then you may have lost 50% or more the big next move! You need think differently. Don’t worry, I will skip the action-reaction lines for today!

First step if course to detect the end of an existing trend (at least 2-3 weeks long), you can use MACD crossing over its signal for this purpose. See this example with AMD:

What the heck am I supposed to do here? We are obviously leaving a short down trend and we don’t know where market is going to go. Nobody does unless you can dig into the brains of all investors at the same time!

Again we assume the most recent bottom is a lamp post, from where our drunk guy is going to walk northwards, maybe in trending manner or in random hesitating steps. But we know about the objective he can reach within the next period of observation. This is the first dotted line above the candles. In this example, it is 8 steps away and we are going to draw lines every 2 steps.

Now we are ready, the 3-months objective is roughly 55$, you need to use a convenient stop to protect and dimension your trade. See this post for instance. Let’s accelerate the time now!

2 weeks later, objective is reached (8 steps), the drunkard makes it even to the 10th step. From there, market reverses, a new long trend does not really pick, so you can do the exercise in opposite direction:

This time the drunkard does not go beyond 4-steps and after 3 months, you need to give up your short play. Then MACD goes again above signal

We reach first objective within 3 weeks, but this time the trend continues reaching 20 steps. You have successfully mixed together trending and random action!

That’s it. It does not need to be complicated. Don’t forget to choose stocks or indexes that have the capability to trend. Until next time, trade safely!

The boring market report – September 4th 2020

It had to come, it is there at last. The correction!

Yes, we can take this opportunity to go after Tesla or Apple, …. but we need to wait for markets to go back up again.

The current correction mirrors a messy period from August 2019, as highlighted by the orange circles. Of course, the trend is still up, but market will continue to be jumping up and down until next reaction line!

Situation is a bit more tricky for Bitcoin. Price targets are reached as usual on warning line levels, you just don’t know which one prices will stop at. Price target for the down move are 10250$, 9400$ and 8600$. Up trend will undoubtedly resume then as many professionals advise to buy some to protect yourself from the (virtual) printing of dollars by billions!

Gold is still above its random path, so we assume horizontal consolidation for now and we keep buying some more, for the same reason as Bitcoin.

That’s it for today. I will cover new subjects over the next weeks, from portfolio management to more technical or philosophical subjects. I will propose a tiny portfolio (10k$, 3 lines or technical volatile stocks) which will be updated on weekly basis.

Until next time, trade safely.

Facebook will make you rich. Or not…

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!

That’s it. Until next time, trade safely!

Should you want to share your ideas…

Hi all,

I hope you enjoy reading this blog. Volatility trading is like being a dragon slayer, you are fighting the mythical chinese beast that is unpredicatable. This is emulated in some chinese martial arts school where unpredictability is key to win your fights!

If you feel comfortable presenting and exchanging ideas, write articles on this blog, you are welcome to contact me: dragontrader at vivaldi.net or randomerrance on twitter. Spammers will be barred immediately! I may have only a few years thinking advance but I believe we can make a killing on the markets. As title indicates, it is a club, free to join, free to leave, …

It is NOT allowed to post very detailed advice on which stock to buy or short. I will only post market analysis from time to time. As they say in WallStreet and in China, there are those who know and those who tell, and these are not the same. We want to be those who know and enlighten the path of knowledge to others.

Talk to you very soon!