5 years ago
Tuesday, November 9, 2010
Positive 1 min divergences
We have positive 1 min divergences in the DIA, QQQQ, SPY and XLF so it looks like a bounce is coming intraday.
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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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10 comments:
Market and 3C have gone right down since this was posted.
Is silver about to bounce on this pullback?
I checked 9 charts on SLV most are in line or slightly negative divergence, there was only 1 that showed a marginal positive divergence.
Thanks, any comments on the effects global currency war and markets are having in this trade? Also, does 3C show a positive now that it has pulled back?
Jack, right now 3C is following the slight move up, there's no real positive divergence right now. I think this has a lotto do with the JPM scandal.
I don't see any strong correlation between FX and the drop. As far as Global currency wars, that's complicated, but I do have the feeling the Fed will try to put a majority of purchases upfront before the 3 new hawks come into voting rotation next year. It makes me wonder if QE2 will go along as sold.
It might have been market hype to prevent a blowout. Give the market exactly what it is looking for. With the change in the make up in Washington, plus the new rotation of FED it would seem that we may be in for some large purchase the rest of this year to front load as you say. Did you see the Chinese downgraded us from AA to A+ with negative outlook. It would seem we may be in for a battle over the worlds reserve currency.
Yes I've seen this. The Fed really took a step that hit the beehive this time. This is a tax on all of us, people don't realize that yet and the stock market up -to make people believe they are rich is ridiculous. So in one fell swoop the Fed not only purgered (Bernanke himself) in front of the Senate under sworn oath saying "We will not monetize the debt", they've also created a new artificial mandate, some would argue has been around a long time, that is the PPT. I saw it as I was day trading back then in late 2008/early 2009-they were as predictable as clockwork.
So if the FED is now doing this themselves, how does the market go down. Volume is so low, it doesn't take much action from the FEd to keep the market afloat. A couple red days here and there aren't going to get us the returns we need. Any ideas on trading this to be profitable. Bond shorts, commodity longs.
Jack,
"Any ideas on trading this to be profitable."
- Yes, do the complete opposite to what 3C/Brandt says.
You would have made a fortune on gold, silver, equities, VIX, FAZ, $dollar.
THAT IS A MATTER OF PERFORMANCE FACT.
Brandt doesn't even put his money where his mouth is when it comes to these calls, why else do you think he needs to take $600 a year off of each of us suckers?
Jack, the short TMV on the long end of the bonds seems to be working pretty well. I'm not sure about PM's, GLD looks a worse then silver, but silver saw a short covering rally from JPM I believe, that's why I'm watching for any hints of accumulation in either at this point.
There was an article on ZH where I believe Mark Fisher was talking about the commodities bubble and the Fed maybe wanting to kill Gold, I haven't read and seen the entire interview, so I'm not really going to say much more then that for now. However it does make one wonder why JPM held that SLV short so tenaciously.
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