Archive

Posts Tagged ‘trading’

Is The Stock Market Rigged?

April 1st, 2014

wall streetHow would you feel if you went to the store to buy something, and someone rushed ahead of you and purchased it first and then sold it to you at a higher price?  Well, in the financial world this happens millions upon millions of times.  Read more…

Economy, Government, Markets, Technical Trading, World News

The Definitive Guide To Trading Options On Futures

January 1st, 2013

Justin Kuepper: Options on futures–otherwise called futures options or commodity options–may seem like a complex topic for these relatively new to derivatives and somewhat unnecessary for those with experience. But combining Read more…

Education, Markets, OPTIONS

Exxon Mobil Corp. (NYSE:XOM) Setting Up For A Stock Rally

December 12th, 2012

Stoyan Bojinov: Major equity indexes continue to drift higher despite unresolved drama in Washington D.C., which has led many to wonder just how serious the next sell-off may be if Congress fails to strike a deal on time. Amid the doom and gloom, however, there is a silver lining; Read more…

Crude Oil, Energy, Markets, Technical Trading

Google Inc. (NASDAQ:GOOG) Earnings Trading Idea

November 7th, 2012

J.W. Jones: We recently discussed the impending release of third quarter earnings for Google (GOOG), analyzed the expected move in light of then-current options pricing, Read more…

Earnings, Education, Markets, OPTIONS, Technology

Investors: Top 100 Futures Trading Blogs

August 25th, 2012

Jared Cummans: Futures investing was the original means of establishing exposure to commodities. It was first utilized by farmers and other commodity producers in order Read more…

Investing Guide

The Stocks & Commodity Technical trading Outlook Part I

June 13th, 2011

The coming summer should be exciting for traders! While summer trading generally tends to be slow, this one could be different. A large number of other professional traders I talk with are all feeling the tension building in the market. We all think some big movements are just around the corner and the big question is which way are things going to move?

Depending on your trading style you may be viewing the recent market action as the beginning stages of a bear market (major sell off). A bear market is not necessarily impossible as the U.S. Economy is showing the beginning signs of weakness. The fact that stocks have moved lower for almost 6 weeks straight is a recent reminder that we may not be out of the woods just yet. The recent price action and negative sentiment has been harsh enough to make 99% of traders bearish.

In contrast, some traders may be seeing this market as an oversold dip preparing for a bounce/rally in the bull market which we have been in since 2009. Some traders may see this as a buying opportunity because you are a contrarian. Most contrarians generally want to do the opposite of the masses (herd) who are merely trading purely out of emotional sentiment.

I myself have mixed thoughts on the market at this point in time. I’m not a big picture (long trend forecasting) kind of guy but my trading partner David Banister is great at it. Rather I am a shorter term trader catching extreme sentiment shifts in the market with trades lasting 3-60 days in length. So looking forward 2-5 days I feel as though stocks and commodities are going to bottom and start to head higher for a 2-6% bounce. At that point we need to regroup and analyze how the market got there… Was the buying coming from the herd, institutions, or was it just a short covering rally? Additionally, where are the key resistance levels and did we break through any?

During extreme sentiment shifts in the market we tend to see investments fall out of sync with each other for a few days. I feel the attention will be on stocks and we get a bounce this week. I am expecting commodities to trade relatively flat during the same time period.

OK let’s take a quick look at the charts…

Dollar Index 4 Hour Candles
I feel as though the US Dollar is trying to bottom. It is very possible that we test the May low at which point I would expect another strong bounce and possible multi-month rally. So if the dollar drops to the May lows then we should see higher stocks and commodities, but once the dollar firms up and heads higher it will be game over for risk assets.

Crude Oil Chart – Daily
Oil took a swan dive in early May and has yet to show any signs of moving higher. Actually crude oil is looking more and more bearish as time goes by.

Silver 4 Hour Chart
Silver has formed much of the same pattern that oil has. On a technical basis its pointing to sharply lower prices still. The fact that silver bullion went from an investment to a speculative trading instrument within the past 8 months makes me think it could test the $25 area. The one thing to remember here is that silver is still overall in a bull market. This is a 50/50 guess in my opinion as it nears the apex of this pennant pattern.

Gold 4 Hour Chart
Gold has held up much better than other metals and commodities and I feel that is because it’s still seen at the REAL safe haven. But reviewing the chart Im starting to see bearish price action beginning to take place.

SP500 Futures – 10 Minute Chart Going Back 8 Days
Last week the SP500 continued to show signs of weakness. Any bounce in the market was on light volume and that is because the sellers took a break and let all the small traders buy the market back up. But once the market moved up enough then sellers jumped back in and unloaded their shares.
Last Thursday I sent out an update to members pointing out that lower prices were to be expected. I came to this conclusion because of many data points. Looking at the chart you can see sellers are clearly in control. The SP500 bounces high enough that it reached a key resistance levels going back 5 days. Also the 200 period moving average was at that level. To top that off my sentiment reading for the herd mentality was at a point which sellers like to start dumping their shares again.

Weekly Market Trading Conclusion:
In short, I am getting more bullish for a bounce as the market falls. But once we are into day 3 or 4 of a bounce we must be ready to take profits and/or look for a possible short setup.

Get my free weekly reports here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Read more here:
The Stocks & Commodity Technical trading Outlook Part I




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Key Support & Resistance Levels for Financials, SP500, Silver and Gold

June 9th, 2011

During the past 4 months we have seen the financial sector (banks) under selling pressure. With real estate prices continuing to fall and foreclosures picking up speed again investors have not been that interested in holding bank stocks. And we all know that without the financial sector moving higher we cannot expect the broad market to make any significant moves higher either.

If you take a look at the financial sector ETF XLF you will notice that it’s now trading near a major support level (fair value) where most shares changed hands in the past. With this sector sliding 13% from the highs in February and the fact that it’s making a parabolic drop into a support zone I can’t help but think a bounce is very likely to form soon.

XLF Financial Sector ETF – Daily Chart

SP500 Futures – 10 Minute Chart
With the financial sector nearing major support and the SP500 staring to show signs of a bottom forming I will admit my heart is starting to pound in excitement for an entry point. I am really hoping that this week we see another sharp drop in the stocks which should spikes the volatility index up (VIX) to 21 or higher. If we can see this take place, then I will be taking a long position to catch a 2-15 days bounce in the broad market.

The chart of the past 10 trading sessions below shows a price and volume pattern which typically leads market bottoms. I’m keeping a close on things these days…

Silver 2 Hour Chart
Silver took a big hair cut last month falling from $50 down to $33 per ounce. Ever since then it has been trying to form a base which will act as the next launch pad for higher prices. So far it is looking good but there is a key resistance level to breakthrough before fireworks. Keep your eye on the silver bullet.


Gold 2 Hour Chart

Gold is back trading up near its high but is starting to struggle with resistance (sellers). We could easily see gold pullback to the $1520 area before taking another run at resistance.

Mid-Week Update Conclusion:
In short, I feel investors are getting very nervous because of the 6 week sell off in stocks. There have been some technical support levels broken on the SP500 and other indexes and its these broken levels which have investors running for the door. The thing is, this type of selling happens every year and generally 2 -3 times. During a bull market I like to see fear in the eyes of investors. Until we are proven wrong about buying extreme oversold dips, they continue to be my focus.

Also if the financial sector can find a bottom and start to rally, then we will see higher stock prices across the board in the coming weeks. I am currently neutral on metals, oil and the dollar. But am getting bullish on financials and the SP500 as they move lower.

Get my free weekly reports here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Read more here:
Key Support & Resistance Levels for Financials, SP500, Silver and Gold




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF, Real Estate

Key Support & Resistance Levels for Financials, SP500, Silver and Gold

June 9th, 2011

During the past 4 months we have seen the financial sector (banks) under selling pressure. With real estate prices continuing to fall and foreclosures picking up speed again investors have not been that interested in holding bank stocks. And we all know that without the financial sector moving higher we cannot expect the broad market to make any significant moves higher either.

If you take a look at the financial sector ETF XLF you will notice that it’s now trading near a major support level (fair value) where most shares changed hands in the past. With this sector sliding 13% from the highs in February and the fact that it’s making a parabolic drop into a support zone I can’t help but think a bounce is very likely to form soon.

XLF Financial Sector ETF – Daily Chart

SP500 Futures – 10 Minute Chart
With the financial sector nearing major support and the SP500 staring to show signs of a bottom forming I will admit my heart is starting to pound in excitement for an entry point. I am really hoping that this week we see another sharp drop in the stocks which should spikes the volatility index up (VIX) to 21 or higher. If we can see this take place, then I will be taking a long position to catch a 2-15 days bounce in the broad market.

The chart of the past 10 trading sessions below shows a price and volume pattern which typically leads market bottoms. I’m keeping a close on things these days…

Silver 2 Hour Chart
Silver took a big hair cut last month falling from $50 down to $33 per ounce. Ever since then it has been trying to form a base which will act as the next launch pad for higher prices. So far it is looking good but there is a key resistance level to breakthrough before fireworks. Keep your eye on the silver bullet.


Gold 2 Hour Chart

Gold is back trading up near its high but is starting to struggle with resistance (sellers). We could easily see gold pullback to the $1520 area before taking another run at resistance.

Mid-Week Update Conclusion:
In short, I feel investors are getting very nervous because of the 6 week sell off in stocks. There have been some technical support levels broken on the SP500 and other indexes and its these broken levels which have investors running for the door. The thing is, this type of selling happens every year and generally 2 -3 times. During a bull market I like to see fear in the eyes of investors. Until we are proven wrong about buying extreme oversold dips, they continue to be my focus.

Also if the financial sector can find a bottom and start to rally, then we will see higher stock prices across the board in the coming weeks. I am currently neutral on metals, oil and the dollar. But am getting bullish on financials and the SP500 as they move lower.

Get my free weekly reports here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Read more here:
Key Support & Resistance Levels for Financials, SP500, Silver and Gold




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF, Real Estate

Investors are fearful and that means higher prices are around the corner

June 6th, 2011

Everyone knows people make mistakes when rushed to do something or if they are scared of something bad happening. We also know fear and greed is what moves the market each month, week, day and tick… So when the majority of investors are selling their shares at the same time you must recognize the psychology behind it and prepare for a low risk trading opportunity in the days that follow.

Stepping back and looking at the general vibe in the financial arena we hear about Quantitative Easing II coming to an end which should help the dollar gain strength again. A rising dollar means lower stock and commodity prices. Also keep in mind the United States is in so much trouble they will always have quantitative easing even if they are not calling it QE, that’s my opinion anyways…

Commodities, ETF, OPTIONS

Parabolic Moves are Only Temporary for Silver and Gold

May 5th, 2011

The past few weeks we have been seeing the US Dollar slide to new lows at an increasing rate. The strong devaluation of the dollar has sent precious metals like silver and gold rocketing higher out of control sending them parabolic!

During the past 6 weeks both silver and gold have been rising in a parabolic formation. Meaning the price is going straight up with strong volume as everyone gets greedy and buys into the commodities at the same time. Most of you who follow my work already know that if the general public is piling into an investment rocketing prices higher, you better start focusing on tightening your protective stops and or taking some profits off the table before the price collapses.

Take a look at the weekly chart of Silver below:
Silver was grinding its way higher from July into March of this year. Only in the past 6-7 weeks did we start to see silver open up and run with expanding candles growing at an accelerated rate. This virtually straight up rally is a signature pattern and tells me that price action is now VERY unpredictable and anyone getting involved should be tightening their stops and or taking partial profits on price surges.

Parabolic moves can provide some big gains but most traders end of giving it all back and then some because the price can drop very abruptly as seen on this chart.

The weekly chart of gold below shows much of the same thing but without the extreme volatility that silver has.

Now, if you take a look at the US Dollar chart it’s starting to look very bullish in my opinion. The chart shows a falling wedge which typically means the selling pressure should be coming to an end soon. I’m not sure how large the bounce/rally will be. I do think a quick move to the 75 level is very likely in the near future though.

I find that metals tend to turn just before the dollar does. So I’m very cautious here on buying any stocks or commodities at the moment. The past 2 years we have seen stocks and commodities have an inverse relationship with the dollar so a rising dollar means a market pullback will take place. Sell in May and Go Away…?

Mid-Week Trading Conclusion:
In short, we exited our SP500 position this week for a nice 6% gain in a couple weeks making that our third profitable back to back index play. At this time I’m not ready to buy or short the market until all the charts line up for another low risk entry point. Things are 50/50 odds here and that’s not good enough for me.

That’s it for now, but remember you can get my free trading reports each week at: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Read more here:
Parabolic Moves are Only Temporary for Silver and Gold




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Adapting to the Surging Average True Range in Silver

May 2nd, 2011

All measures of volatility have increased significantly over the last few months in silver, which have both thrilled traders and caused them to adjust their trading tactics as a result.

Let’s zero-in on the recent changes in the Average True Range – ATR – and find out what that means for traders adjusting to the new volatility highs in Silver.

The chart above shows the Weekly ATR indicator hitting a new high at $3.19 per ounce.

What that means is that if you average the last fourteen trading days, one could expect the price of silver to move up or down $3.19 in the course of the week.

At roughly $45.00 per ounce, that $3.19 represents a 7% move in the metal in a given week, which is far more volatile than most traders can stand.

You can see the prior values in the indicator and how weekly volatility – as measured by the ATR – has steadily been increasing over the years.

The Daily ATR hit similar highs:

Though I’m showing the @SI – Silver Futures Chart – the picture in SLV is similar.

The Weekly ATR in SLV is $2.71 while the Daily ATR value is $1.74.

I draw your attention to this indicator because silver was down as much as 10% in the overnight session on Sunday – which probably panicked traders who were not expecting such a large move was possible – it is.

That brings me to my main point – when volatility significantly increases, it tends to draw traders into the action to make quick profits from the higher volatility… but with increased volatility comes increased risk.

To minimize the risk from a suddenly higher volatility market, traders can employ a number of strategies, including:

1.  Reducing Position Size

2.  Substituting Options instead of Full Positions (SLV options for example)

3.  Increasing Stop-Loss Parameters

4.  Reduce Your Trading Frequency During this Period

I know it’s fun to watch your account grow significantly from being positioned with a big size on the right side of a breakout market – but breakout rallies like this can turn sour overnight and trap traders, wiping out significant profits.

I understand that discussing “Risk” is not popular in a red-hot market, but focusing on risk can keep you in the trading game and prevent career-ending losses in a single trade (or series of back-to-back bad trades).

As volatility increases, you should account for it – either by reducing position size to cut back on outright risk or increasing stop-loss parameters from what seems normal in the past to what is normal in the present.

A $1.00 stop in silver would have been appropriate almost anywhere from 2002 to 2006, but as volatility (weekly and daily range) has steadily been increasing, so has the need to use a wider stop that’s outside the noise or expected volatility.

Of course, you can always jump into the options market – both as outright plays (long calls or long puts depending on what you expect) or complex hedges on open positions.

Perhaps the least popular tactic would be to “go trade elsewhere” until the volatility returns to somewhat normal levels.

Notice in mid-2006 and late 2008 how the ATR (volatility) spiked and then leveled off (flatlined) for a year or more after the spike-up in volatility occurred.

Believe it or not, we’ll see a similar leveling-off in volatility in the future and you’ll probably find silver easier to trade in that period.

Not only are there dozens of other futures contracts to trade, but there are hundreds of ETFs and thousands of stocks.  While they might not offer the instant overnight riches that silver seems to entice, these other markets may offer safer, risk-controlled plays.

Ultimately it’s up to us to adapt to sudden and significant changes in volatility, and now would be a good time to do so if you have not adapted already.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Adapting to the Surging Average True Range in Silver

ETF, OPTIONS, Uncategorized

Using the iPad for Trading

March 31st, 2011

Unless FedEx (FDX) and Apple (AAPL) have their facts wrong, today the iPad 2 will arrive at my door step.

Since I passed on the iPad 1, this will be my first chance to play with something that I have no idea what I will ultimately end up interacting with. This could turn out to be new computer in a different form factor a toy or anything in between.

While I will try to integrate the iPad into my trading, I am not sure how this is going to happen either. I am not a big fan of using my iPhone for trading unless my environment does not allow any alternatives. As for the iPad, I can imagine it as a complement to my main trading setup, an excellent portable alternative to the iPhone and perhaps filling a bunch of other roles that I am not able to anticipate.

I would love hearing from other traders about how they use the iPad in their trading, whether it means news, charts, quotes, trade execution or whatever. If I get enough responses of note – either here or on Twitter (http://www.twitter.com/VIXandMore) – I will summarize the information in a future post and add in my own experiences as well.

Related posts:

Disclosure(s): none



Read more here:
Using the iPad for Trading

Uncategorized

Register Early to Attend the Dallas Traders Expo in June

March 23rd, 2011

It’ll be here before we know it!

The International Traders Expo is expanding its summer meeting in June to a new city this year -  Dallas, TX – and there’s no time like the present to register early for the next big Expo event.

The Expo will take place from Wednesday June 15th to Saturday 18th and will be held at the Hyatt Regency Dallas.

I’m excited about this new city for the Expo and hope you’ll be able to join us all there!

I’ll be again joining a large list of speakers who will be presenting topics that range from all markets – ETFs, futures, FOREX, commodities, stocks, options – along with many different strategies and tools from the basics to more complex trading tactics you can include in your growing arsenal.

Here’s just  a partial list of the many speakers who will be presenting at the Expo:

I’ll be presenting an intensive, four-hour training session on Wednesday June 15th entitled:

Simplify Your Trading Decisions with Early Recognition – from Entry to Exit

You can see the details for this other intensive classroom training sessions via the Traders Expo homepage.

The workshop schedule is available also to view so you can plan ahead and maximize your time at the Expo.  You’ll want to save time to socialize with fellow traders of course!

One of the best benefits from attending a Traders Expo is the connections and friendships you can build with your fellow traders.  Be sure to network not just with speakers, but with your fellow attendees who are on the same journey to trading success as you are.

I’ll keep you posted with additional details, but don’t let this Expo sneak up on you!

Head over to the Expo website and learn more information and see if you can make time mid-June for an amazing educational and networking experience.

I hope to see you there!

Corey Rosenbloom, CMT

Read more here:
Register Early to Attend the Dallas Traders Expo in June

Commodities, ETF, OPTIONS, Uncategorized

A Quick Look at the Current Intraday TICK Compression

March 22nd, 2011

As of this moment, the NYSE intraday TICK is deeply compressing relative to the prior sessions, and to historical norms.

Why is this important?  Compression highlights “no activity” and “little opportunity” in the intraday market on the one hand, and on the other, it suggests that an expansionary move – a sharp rise in volatility – is likely to follow tight compression periods (similar to the “NR-7″ concept).

Let’s take a look at the current multi-day TICK Index to see what I mean:

Click for full-size image via Flickr.

Before we get too deep in this chart, take a look at my two prior updates on TICK Behavior Research:

“Why You MUST Consider Volatility When Trading with the TICK”

“Research in Behavioral Changes in the TICK Over the Last 10 Years”

Using those a foundation, we see even over the last five trading sessions, the extreme values (highs and lows intraday) of the TICK have changed along with market volatility – as expected.

The volatile trading session of Wednesday March 16th gave us an intraday TICK high of 1,070 and a TICK low of -1,461.  Yes, you read that correctly – almost a negative 1,500 value.

The prior session – the 15th – gave us a TICK high value of 1,313.

Notice the TICK lows under -1,000 was common on the 16th but since then, we’ve only had three 5-min TICK values lower than -1,000 … and those were ALL on March 17th.

This underscores my point – you can’t just pick a random TICK value (like plus or minus 1,000) and expect it to work perfectly all the time, particularly if you use the TICK values for entries (for fade trades) or exits (exiting a profitable position on an ‘extreme’ TICK reading).

What’s the point of this post?

Today, with over half the trading session behind us, the TICK high has been 624 and the TICK low was -736.

If you were waiting for a plus or minus 1,000 TICK to guide your decisions, you might wait all day.

So rule 1 is to ADJUST your strategies to the relative volatility of the stock market, which has a big impact on the intrday highs and lows of the TICK.

Rule 2 is that – in general (and as viewed by the TICK and stock prices) – periods of low volatility cycle into a period of high volatility… and vice versa.

So as price seems to be unable to overcome the 1,300 key resistance level and price has compressed for two trading sessions near that level – along with a compression in TICK and volume – expect the NEXT move to be a high volatility departure from this trading range.

It’s best to let the market tip its hand – either breaking firmly on higher volume and TICK highs above 1,300 (get long to play for “Popped Stops”) – and expect continuation … or the alternate play would be look for a breakdown under 1,295 or 1,290 on high volume and new lows in TICK (hopefully beyond -1,000) with the expectation that the downside break will continue and spark a volatile down-phase.

Anyway, just a quick thought I wanted to share – that the TICK is tightly compressed today and the market is gearing up for a volatile pop one way or the other as a result of the tight price and internals compression.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
A Quick Look at the Current Intraday TICK Compression

Uncategorized

Why You Must Consider Volatility when Trading with the TICK

March 16th, 2011

If you’re an intraday user of the NYSE TICK – a powerful market internal – you must accommodate current market volatility into your trading decisions.  If you don’t do so, you’re likely to get in trouble.

Why?

Let’s take another look at the NYSE TICK and how it changes over time depending on the volatility of the current market:

What we’re seeing is the SPY (or just as easily could be the S&P 500) overlaid with the NYSE TICK ($TICK) which I frequently show in blog posts and you probably use in your intraday trading decisions.

Other than being a pretty picture (of waving blue), take a moment to look at how the TICK CHANGES in terms of market volatility.

Stated differently, you’re far more likely to see higher TICK highs (intraday extremes) and lower TICK lows during VOLATILE market periods than you are during lower volatile periods.

While this makes sense intuitively, it’s my guess that you’re probably not taking this into account in your trading decisions.

Here’s an example:

Trader A loves to fade intraday TICK extremes that register plus or minus 1,000.

That means when the TICK registers -1,000, the trader will get long (the SPY, @ES, or a leveraged ETF) or when the TICK registers 1,000, the trader will get short.

Thus, he (or she) is using the TICK as a contra-indicator intraday to put on (or take off) positions.

That may be a logical strategy, but it does NOT take into account the fact that the TICK itself is volatile, and readings of 1,000 may mean MORE in non-volatile times and LESS in volatile times.

Alternatively, a trader might see NO examples of the TICK registering 1,000 on the session during very low volatile periods.

Take a look at my recent research post entitled:

“Research on Changes in the TICK over the Last 10 Years.”

Not only does the TICK change in volatile or non-volatile periods, it changes behavior from year to year (or at least over a period of a few years – like 2007 to present).

Look at the chart above – I drew a black horizontal line at the +1,000 and -1,000 TICK levels.  Where you see white space (particularly at the end of 2010) means the TICK did NOT register a 1,000 reading for one side or both sides of the market.

No TICK beyond 1,000 means no trades for the intraday “fader” trader.  Oops.

What’s worse than a day where your strategy triggers no trades?

How about a day where your strategy triggers a short with a TICK reading of -1,000 but then the TICK falls lower to -1,200 then -1,400 – while price falls sharply with it… leaving you with a sudden, large loser as you got long the original -1,000 TICK reading.

Bigger oops.

Look for example at the May – July period in 2010 where daily TICK extremes of +1,500 and -1,500 were COMMON.  You’re in danger of blowing out a trading account if you deploy your + or – 1,000 TICK fading strategy in THAT type of environment.

So if you draw a permanent line in the sand with regard to the TICK, you risk the following pitfalls:

On one hand, you risk taking no trades (in a non-volatile environment) and on the other hand, you risk significant/serious losses/drawdowns if you try to fade the TICK too soon in a volatile period.

The quick conclusion is that you MUST take current stock market volatility into account and look at the TICK extremes relative to the very recent past – again in context of what the broader market is doing (ranging tightly or exploding violently).

It’s best to adapt your TICK extremes to the current market environment instead of doing the same thing (triggering in/out at the same absolute level) at the same TICK level – lest you get into trouble when the TICK changes character as it frequently does.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Why You Must Consider Volatility when Trading with the TICK

ETF, Uncategorized

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