Tuesday, September 28, 2010
Correlation Between the SPY and SMH
Well that SMH pattern broke down, just to show you that SMH is being used today to move the market, look at the correlation, SPY in green, SMH in red
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Risk Management
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Many of the charts you see here at WOWS are my proprietary indicator 3C which reveals underlying institutional money movements and often contradicts price. To understand the annotations made on charts, you must first understand that 3C has no numerical value, it is a pure divergence indicator. Positive divergences represent accumulation by smart money, negative divergences represent distribution by smart money and when 3C trades with price, that is trend confirmation.
The chart annotation system is simple; white arrows represent relative positive divergences, red arrows represent relative negative divergences and green arrows represent trend confirmation. When 3C is in a white or red box, that represents a leading positive or negative divergence, leading divergences are the most powerful.
We analyse 3C in multiple timeframes, the longer the timeframe the stronger the accumulation. 1-2 min timeframes represent intraday moves, a 5 min timeframe can represent a day or two and 15 min timeframes average trends of a swing trade nature. 30 and 60 min charts can move the market for a month or more and daily charts can be over a year.
You'll get use to seeing the charts and understanding how the multiple timeframe analysis works and works well.
Welcome to Wolf on Wall Street.
The trades featured here are meant to maximize returns with the least risk and highest probabilities. Unless otherwise mentioned, all trades are meant to be executed at market. I prefer long-term trending trades which perform well in rising markets, but really stand out in declining markets. However, we get occasional one day gifts 30,40,60% 1-day gains. I'd urge you to consider taking some or all off the table in such cases, the markets don't give gifts like that often or for very long. Most of the returns that make the system outperform so well come in short-entry trades. If you are opposed to short trades, this is not the system for you, unless you are ok with buying an inverse ETF. If you would like more information about the truth about shorting stocks, just email me.
Risk management. I recommend a specific and consistent risk management approach to all positions. In most cases we try for 2% risk money (2% of portfolio) unless such a position size exceeds 15-20% of overall portfolio in actual position size. Each trader is different and each has a different allowance of open trades. I like to keep the overall money in the trade around 10-15% of portfolio per position in case of gaps against you. Stops are generally executed at the end of day and I personally never place a stop order, all my stops are mental; remember, the middle man gets to see everyone's cards. When you are not in tune with the market or opportunities just aren't that spectacular, I take my risk per position down to 1% or even half a percent of portfolio value.
Each trader is different and must determine their own level of comfort with risk. I do have a channel stop which I provide to TeleChart/StockFinder users for automated stops, I appreciate you using my links to sign up if you do. The Trend Channel catches trends and works well as it automatically adjusts for each stock's volatility. Arbitrary exits based on nervousness about the markets WILL decrease the portfolio performance dramatically. This system will not ever get you in at market bottoms or tops. The recent 1 year performance against the Russell 2k buy and hold had the system beating it by 3:1. Ultimately it is up to you as to how you proceed, but I'm always available to help you determine what might work best for you.
Risk management. I recommend a specific and consistent risk management approach to all positions. In most cases we try for 2% risk money (2% of portfolio) unless such a position size exceeds 15-20% of overall portfolio in actual position size. Each trader is different and each has a different allowance of open trades. I like to keep the overall money in the trade around 10-15% of portfolio per position in case of gaps against you. Stops are generally executed at the end of day and I personally never place a stop order, all my stops are mental; remember, the middle man gets to see everyone's cards. When you are not in tune with the market or opportunities just aren't that spectacular, I take my risk per position down to 1% or even half a percent of portfolio value.
Each trader is different and must determine their own level of comfort with risk. I do have a channel stop which I provide to TeleChart/StockFinder users for automated stops, I appreciate you using my links to sign up if you do. The Trend Channel catches trends and works well as it automatically adjusts for each stock's volatility. Arbitrary exits based on nervousness about the markets WILL decrease the portfolio performance dramatically. This system will not ever get you in at market bottoms or tops. The recent 1 year performance against the Russell 2k buy and hold had the system beating it by 3:1. Ultimately it is up to you as to how you proceed, but I'm always available to help you determine what might work best for you.
I do use other scans and systems when market conditions warrant their use and may change strategy with market conditions.
The MOST IMPORTANT tool you have to bring you long term success is RISK MANAGEMENT. There are plenty of articles linked at Trade-Guild.net on Risk Management. We can be wrong 75% of the time and still outperform the market with solid, consistent risk management.
Position Sizing
The position sizes noted in the positions @ 2% risk of portfolio are based on a $20,000 portfolio-adjust as needed. Due to tight stops, there is the possibility, even probability that one position could take up the entire portfolio. You need to decide how many positions you want to trade and reduce the position size according to that. For instance, if you want to trade 5 positions in a $20,000 portfolio, no one position should be valued at more than $4,000-not risk money or 2% rule, but share price entry x shares.
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Futures Update BR-EXIT Edition - So the conventional wisdom couldn't have been more wrong. Those chasing risk and closing hedges couldn't be in a worse place right now. I would still remin...7 years ago
15 comments:
How does 3C think the markets will close Brandt? Looks like we are going up to the highs of the day again.
sure looks like it
Yep, looks look the sell off at the close yesterday has been all recovered nicely. And just think, the DOW was actually down 80 points at one point today.
There is not a retail investor in sight in these markets, we need to stop kidding ourselves that these games are to trap retail investors in at higher prices. This market just the consists of the FED, hedge funds and HFT who take the market wherever they want, usually up!
absolutely, the bots and the fed are the other side of the trade. gotta think the boyz are showing their allegiance to the current administration here too.
Mr. Pink your statements are very emotional and cloud the picture what is going on. You should try to always trade in an unemotional manner or else you will make rash decisions that are not productive.
Mr. Pink, I don't really know how to make it more clear that 3C is not a timing tool, it simply is telling you what is happening into rising or falling prices. Anything beyond that as to "how will we close is just my guess". Right now 3C is in a negative position but following price, meaning there's no positive divergence, the negative position remains. If I knew when I would be sitting on a 150 foot yacht in the Virgin Islands right now. That being said, all are in relative negative divergences right now.
Also SMH is negative as well in every timeframe so I'd expect it won't be up here much longer.
close on the highs wouldn't surprise me to see gap over that 1150 rez in the am, that's usually what happens.
negative divergance in any other indicator i follow isn't a sell signal and can go on for a long time!
140 point swing so much for negative divergence!!!
Hi Brandt,
Don't feel i'm having a go at you. I'm certainly not.
When i said 'how do you think the market will close'... i mean, what's the highest probability given the signs that 3C and other indicators are showing.
Obviously no indicator can give 100% correct predications, otherwise i'd have a yacht in same harbour as you in the Virgin Islands. I'm just looking for the highest probability!
Note: There's a few things happening after hours today:
http://www.zerohedge.com/article/todays-economic-data-highlights-7
This is one of the strangest situations I've seen, stranger then Q1 2009 with a lot of manipulation. However, even with manipulation, 3C made the call correctly. The Fed is not transparent at all about what they are doing, believe me, if they wanted this market significantly higher, they had about a half dozen good chances, why there's still distribution into higher prices and insiders flocking out of the market in the face of POMO, I don't know. I suspect there's a lot more to the story. I'll update the 3C charts tonight.
John 3C is not like any other indicator you've probably seen. A negative divergence is when the indicator is showing distribution into rising prices. To answer when the turn occurs, you have to know how much inventory is being distributed a day and how much left there is and if they intend on then accumulating a short position which would still be a negative divergence. Smart money doesn't buy into trends, they create them. they bought in (in this case) a week before it started as the market was still falling, it's all documented here.
... but we did establish the other night that they didn't accumulate much before the 'bounce', correct Brandt?
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