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Perishabull

PositiveDev's trading journey

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I've decided to start a separate thread documenting my thoughts as I'm currently going through a process of developing a trading strategy based on indicators I am developing, it will include some observations on my own indicators and really document the journey I am on towards becoming a trader. The other thread I started "Currency and equity market correlations" on the main board is really there to present to others what I think are interesting observations I find in the markets.

 

I will post my indicators on that thread when they signal as others might also be interested but I will not post trades as it's straying away from the purpose of the thread, the main board is not really the place to go into real detail. I want the thread to remain true to it's title.

 

Just briefly I have been interested in the markets for a few years, started dabbling with trading about 2 years ago, having funded an options trading account. I made and lost some of my account however I recently realised that although my account is down, the main loss on my account has been down to commissions. If I had the commissions back I spent I wouldn't be far from breakeven. I use thinkorswim and earlier this evening negotiated a 50% reduction in commissions (I only wished I tried that earlier!)

 

Over the years I noticed that I have an ability of seeing things sometimes other people don't see, an ability to look at things in a more abstract way and sometimes spot things ahead of others. In my work life I have a mundane role requiring little thought or effort, I am channeling the frustration I feel in my work life into my development as a trader. The markets are the perfect arena for someone with original ideas, since if those ideas work I can exploit them.

 

I hesitate to mention Soros but having read the Alchemy of finance, I found it to be a fascinating book and some of the ideas within it have inspired me to develop my own methods.

 

Over the period I have been trading I have realised that there are many other ways to look at the markets other than the traditional moving averages and multiplicity of indicators that exist. For me, the way forward is developing my own indicators. If I'm the only person using them it should give me the edge I need.

 

What I've done is looked at a range of different types of financial products (bonds, stocks, commodities) - and defined not the price of those but what I believe the value to be - and then incorporated those into my indicators in various different ways. People are programmed to think up or down, black or white, left or right and that is as evident in trading much as it is in many other spheres of life. You can go long or short, or perhaps put a pairs trade on to exploit the opposing forces to capture a spread. There are many relationships between groups of investments that are not easily defined since it's difficult to visualise these on a chart.

 

So what I have attempted to do is define value (not price) of various underlyings and incorporated them into a formula in such a way to try and model movement of capital in the market that I can then chart and then compare to a specific underlying. I'm not going to explain the exact detail since there is a possibilty that my work is original. What I will do is post the results open for debate.

 

DBDTSignalGEI.png

 

This is my double top double bottom indicator, you can see that these double top and double bottom reversals occured before they did in the actual market (SPY). In this case I have charted my indicator in black against SPY in green. I was very encouraged when I developed this since you can imagine if it works with a high probability it will be a powerful trading tool.

 

I initiated a short (via puts) when it last double topped, I've marked it on the chart. Since then this has happened;

 

Screenshot2010-10-01at224048.png

 

As the double top has been breached it should render the double top invalid (I now think I should have listened to my indicator and sold the puts). That would be my signal to cancel the trade, to get out after I enter following a double bottom or double top, a very useful one if the market carries on going higher, after the double top in my indicator has been breached. That remains to be seen next week.

 

Whilst this indicator had me long for some nice trades in September...

 

Newtrading.png

 

I then started reviewing the indicator to see if it would work on shorter timeframes. Since part of the indicator is the instrument to be traded I found I could swap out SPY for other underlyings and it works well on those also. It also works on shorter timeframes.

 

Here is an example with QQQQ, this is a good example since it shows a double top and a double bottom in my indicator when there was no double bottom or top in the actual underlying price of QQQQ (in blue). The red lines intersecting indicator and price are the entry points.

 

Screenshot2010-10-02at002408.png

 

If the indicator makes a double bottom or top that is level and turns around at exactly that level then the trade is initiated, you can see here that these were great entry points for, intially a long trade, then a short on QQQQ. There is also a double top that has just formed (top right of chart), I'll have to wait until monday to see if that one works out.

 

This time an entry on Netflix;

 

Screenshot2010-10-02at004017.png

 

A very precise entry just after the high. I've only just recently discovered this fractal nature of my indicator and will be posting my trading it in the coming days. It's probably more suited to trading futures but I will aim to build my account first with options. EDIT - I've just actually spotted a double bottom on the same chart (from 7th - 17th September) that caught the low before the ramp higher during the following days.

 

Here it is, along with another double top I spotted, very precise entries where my indicator has made a precise level double bottom or top when the actual stock price of NFLX has not.

 

Screenshot2010-10-02at012051.png

 

It's not going to work every time, that much is guaranteed but it does seem to catch the ebb and flow of the market and pick precise entries. As it does indicate these type of entries, if the price goes the other way I can get out - fast.

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Screenshot2010-10-02at002408.png

 

If the indicator makes a double bottom or top that is level and turns around at exactly that level then the trade is initiated, you can see here that these were great entry points for, intially a long trade, then a short on QQQQ. There is also a double top that has just formed (top right of chart), I'll have to wait until monday to see if that one works out.

 

Et voilà;

 

Screenshot2010-10-04at192114.png

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An intraday triple top has formed on my indicator for QQQQ (my indicator in black, QQQQ in blue).

 

Intra.png

 

There is a longer term double top forming at the same time spanning August to October. I've highlighted other double tops/bottoms that occurred during the period along with the difference between those and the price of QQQQ, all of them would have been excellent entries.

 

JulyOct.png

 

On a much longer timeframe a triple top is also forming

 

Screenshot2010-10-08at175515.png

 

Due to the confluence of tops I've bought some puts on Apple initially, I will need to wait until monday for further confirmation that the longer term triple top has formed, if so I will add more.

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Interesting thread, which I will visit more often.

 

I find some the of the large charts a bit hard to see.

But some would say that about mine too

 

Due to the confluence of tops I've bought some puts on Apple

 

Here's my own chart

Apple / AAPL .. update

xx

 

Decent topping area

There's likely to some support at $288-290

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Screenshot2010-10-11at174420.png

 

Got out of half the position as the intraday tops were breached. (It was two trades - one short term based on the intraday formation - the other based on the longer term formation).

 

The longer term triple top appears to have formed today, if things stay roughly where they are.

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Screenshot2010-10-11at174420.png

 

Got out of half the position as the intraday tops were breached. (It was two trades - one short term based on the intraday formation - the other based on the longer term formation).

 

The longer term triple top appears to have formed today, if things stay roughly where they are.

 

 

Screenshot2010-10-11at183836.png

 

The longer term triple top formation

 

Indicator (black) used on QQQQ (blue) with SPY (green) for reference

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Here's one I was watching earlier today as the double top was forming - ISRG (Intuitive Surgical), it made a perfect double top on my indicator at 5.35 then my signal to short was 5.40 (when my indicator moved away from the double top). I didn't take it since the spreads on ISRG options are wider than the grand canyon. Unfortunate since it was a straightforward $3 drop in the share price right after the high of the day. The entry signal point was $293.26, 19 cents from the high of the day...

 

Screenshot2010-10-11at185451.png

 

Here is a further chart of the ISRG price with volume charted in profile across price, you can see how the volume dried up near the highs.

 

Screenshot2010-10-11at185557.png

 

Entry point shown also in red.

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Here's one from Friday I missed as I was busy watching the (losing) AAPL trade. This is AMZN - Amazon.

 

Indicator entry point was at $153.26, just after the low of the day, stock went to $156 before the close.

 

Screenshot2010-10-11at192140.png

 

And here again on the price and volume profile chart from Friday, the volume dried up into the lows. The 3 o'clock entry marked again in red.

 

Screenshot2010-10-11at192828.png

 

A brilliant entry point. I didn't think it was possible to feel both frustrated and inspired at the same time until today.

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Here's one from Friday I missed as I was busy watching the (losing) AAPL trade. This is AMZN - Amazon.

 

Indicator entry point was at $153.26, just after the low of the day, stock went to $156 before the close.

 

Screenshot2010-10-11at192140.png

 

And here again on the price and volume profile chart from Friday, the volume dried up into the lows. The 3 o'clock entry marked again in red.

 

Screenshot2010-10-11at192828.png

 

A brilliant entry point. I didn't think it was possible to feel both frustrated and inspired at the same time until today.

 

Interesting, so why would you have bought on no volume at the red line? Are you saying because there was no selling volume that was the signal to buy?

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Interesting, so why would you have bought on no volume at the red line? Are you saying because there was no selling volume that was the signal to buy?

 

No, using the indicator I have developed I look for either a double top or double bottom.

 

Screenshot2010-10-11at192140.png

 

My indicator in black here with AMZN in blue, when my indicator forms a double bottom or top, that is my entry signal, long or short. So in this example my indicator bottomed on Thursday and then made a double bottom at the same level on Friday, as soon as this happens that is my entry signal, I've shown it in red on my indicator chart. I've also shown the entry point on a chart of the AMZN price with volume profile shown. The signal was given at 3pm, if you had looked at the price chart with volume at that time volume would be low for that price however that in itself would not necessarily be a good signal to enter since more volume could come in at a lower price later in the day. The price and volume charts show where the entry is, it's easier to illustrate the result of the signal on a more standard chart. I find it interesting that the signals my indicator gives, also sometimes coincide with low volume points, particularly as volume is not a component of my indicator.

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I just want to correct a typing error in the AMZN example. I have referred to the signal being generated on my indicator at 3pm, it should read 3.30pm, the red lines on the charts are at that time (some of the more eagle eyed will have spotted this on the price and volume profile chart.

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As posted on DrB's Diary

Perishabull likes this FXA/FXY Ratio

zzzzc.png

 

Something bearish may develop soon from this juncture.

 

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Here's my own chart

Apple / AAPL .. update

Decent topping area

There's likely to some support at $288-290

update

zzzzi.gif

 

New high on light momentum. Let's watch for a possible breakdown in AAPL

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I find it interesting that the signals my indicator gives, also sometimes coincide with low volume points, particularly as volume is not a component of my indicator.

 

Thanks for the explanation.

 

Should be interesting for you then to see if this continues, do keep posting such indicators on basic charts, can just about grasp those! :rolleyes:

 

Another question then, does the volume substancially increase with the new direction? If so, that in itself may be a signal of renewed sense of direction? Or do you not find that the case?

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Well, as well as the volume plotted in profile across price in light blue, the volume is also show in the more standard format below the chart, there is no discernable change in volume, if anything it dips after the turn then picks up again.

 

Screenshot2010-10-11at192828.png

 

I got out of the other half of my AAPL trade yesterday before the close, picking the leading stock within the NASDAQ as a proxy for QQQQ was unwise. My system works best trading the actual underlying where the double top or bottom forms.

 

This is what I'm watching right now. My indicator working on QQQQ, again QQQQ in blue, SPY in green for reference. It is an exact level double top, if my indicator moves lower (as opposed to above the red line) today to form the double top fully then I will buy puts on QQQQ.

 

Screenshot2010-10-13at071647.png

 

My indicator works on short term timeframes and has worked on longer term timeframes in the past also, it'll be interesting to see if it works this time. On the longer term timefarmes when the double top or bottom forms the change in market direction can take a few days, particularly with tops.

 

The FED seems determined to prop up asset values, but they can't control corrections. The ratio of October puts to calls on SPY is 4-1, they expire Friday, on that basis it would make more sense for the market to correct next week, as the larger players selling options are less exposed.

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Screenshot2010-10-13at172625.png

 

The formation has been overwhelmingly invalidated today, unless there is an extremely dramatic turnaround before the close. Back to focussing on the short term ones now, nothing interesting so far today.

 

 

I tried drawing a Fibonacci extension from the February low in my indicator to the April high. So the April high is the 0% point and February low the 100% point, I then set it to draw 123.6%, 138.2%, 150%, 161.8%, 178.6% and 200% entension lines. The 178.6% level is close to 3 turns in my indicator, with the 123.6% level lining up with the level my indicator turned on 7th May 2010, the initial low in the market before a rally back up. And also the 200% one, it lies at the level of the turning point before September's rally. I find this highly interesting, my initials thoughts were that these are coincidental but I'm not so sure.

 

The chart is with my indicator working on SPY this time.

 

Screenshot2010-10-13at185718.png

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Interesting thread Perish.

 

Thanks for the explanation.

 

Should be interesting for you then to see if this continues, do keep posting such indicators on basic charts, can just about grasp those! :rolleyes:

 

Another question then, does the volume substancially increase with the new direction? If so, that in itself may be a signal of renewed sense of direction? Or do you not find that the case?

 

Riggers - may I ask - you do seem to read the markets very well but how do you manage this if you dont use charts much? I think it is more than just going against consensus as you posted a short trade on Bubbs diary back in Aug at an opportune time

 

Apologies to Perish for interrupting his thread!

 

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Riggers - may I ask - you do seem to read the markets very well but how do you manage this if you dont use charts much? I think it is more than just going against consensus as you posted a short trade on Bubbs diary back in Aug at an opportune time

 

Sure it served my ISA handsome, but i'm far too humble in such esteemed company on GEI to claim any sort of charting ability, so lets say I ask questions of people like perish, Bubb,G.F, R.H.Ker etc and try and learn even more and couldn't give a monkeys if i'm labelled a novice, numpty or ignored - If you don't ask, you don't learn.

 

What I do remember on that trade is like now a lot of people were calling the market down for sometime and many stating their shorts were massively underwater.

 

Not always the case, but I do only trade what I understand and they often do tend to be contrarian and risky, but i'll P.M you as it's not relevant or right to hijack perish's thread.

 

 

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I've noticed my indicator comes up with best trades in the first 2.5 hours quite often, I tend to get home from work at 5pm (but can sometimes go early) - so I've got this system that works really well and I miss trades on it - absolutely maddening. I'll need to have a think to see what I can do about that workwise.

 

Here's one on QCOM (QUALCOM)

 

Screenshot2010-10-14at181335-1.png

 

Indicator in black, QCOM in blue, SPY in green for reference.

 

Double top formed, confirmed at 4.10pm (by indicator moving away from double top spike point), this would have been a peach since then there was a double bottom, confirmed at 4.50pm, at the low, that would have signalled an exit.

 

Screenshot2010-10-14at181319.png

 

4.10pm and 4.50pm marked on chart. In actual fact it was only a 45 cent move so not that impressive for a missed trade.

 

I've enlarged the text on the indicator charts but I can't make the price lines clearer, no function available to do that unfortunately.

 

 

 

It's not a panacea, here's one that didn't work - TEVA (Teva Pharmaceutical Industries) - price just flatlined following entry point - absolutely no volume though.

 

Screenshot2010-10-14at193643.png

 

There was a double top afterwards, that would have prompted an exit, at 4.10pm at the same price as entry - $54.

 

Screenshot2010-10-14at184316.png

 

TEVA in blue, entry point following double bottom at 3.15pm

 

I've noticed a key feature of the indicator is the divergence of my indicator compared to the underlying prior to price moves, I may look at that in more detail to see if I can use it for more than double bottoms and tops.

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I've noticed my indicator seems to work whatever underlying I choose but thus far I've only tried stocks and indices, so I tried it on UUP as a proxy for the Dollar Index, just to see if anything interesting would result;

 

Screenshot2010-10-14at195312.png

 

This is a chart covering a year to date.

 

What I've done here is marked out a clear channel in my indicator working on UUP, (UUP in blue). When my indicator has bounced of the bottom channel it has coincided with good points to sell UUP and when it bounced of the top channel good points to to buy UUP. The indicator is now back at the top of it's channel, suggesting some form of interim low in the dollar, but the indicator needs to reverse and move down tomorrow to validate this scenario.

 

Also, there is a double top forming on my indicator working on SPY, spanning Mid-May to today. If there is a general down day tomorrow my indicator should move down therefore creating the double top and giving me a sell signal.

This is the chart I first tried my indicator on (see earlier on in the thread), all of the double bottoms and tops worked previously, much to my surprise. On the QQQQ chart I posted a few days ago the formation was invalidated as the indicator decisively broke through the potential double top line, instead of the down move I was looking for. There was only one formation on the QQQQ chart from earlier in the year. SPY, being a general market benchmark makes a more valid signal IMO if it gives one tomorrow, since the indicator nailed a lot of the turns on SPY previously (see opening post).

 

Screenshot2010-10-14at200113.png

 

I'll post the chart tomorrow to show if the signal is generated. It will be interesting if both the UUP and SPY charts give a signal together. I've mentioned it before but there are roughly 4-1 puts to calls on SPY for October expiry however for November expiry it's about 2,000,000 puts to 715,000 calls or about 2.7 to 1. A lot less exposure for options sellers on the downside in November, my view is that makes a correction more likely next week. I'm only trading my view if it's confirmed by the indicator though. I keep calling it the indicator after I already named it the TB indicator (Top/Bottom)....anyway the foreclosure story is building momentum, if there is a development over the weekend then next week could be very interesting.

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Just as one potential double top dies, another is born. AAPL, long term, needs to move down on monday for confirmation. The way it's going it seems unliklely...

 

Screenshot2010-10-15at203839-1.png

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Apple / AAPL ... update : GOOG

001bu.gif

 

AAPL Weekly ... update

002xwg.gif

 

AAPL: 314.74 Change: +12.43 // Percent Change: +3.95%

Open: 307.44 High: 315.00 Low: 304.91 // Volume: 32,935,492

 

Meantime, Google had an insane day - up 10% !

 

GOOG: 601.45 Change: +60.52 // Percent Change: +10.06%

Open: 596.62 High: 601.64 Low: 591.60 // Volume: 14,819,162

 

Did GOOG shareholders GOOF yesterday?

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TB indicator working on Apple has shot higher invalidating potential double top.

 

Nice opportunity on GS (Goldman Sachs) at 2.35 pm today, while I was at work (Grrrr)

 

Screenshot2010-10-18at174744.png

 

Screenshot2010-10-18at174435.png

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Sell signal generated on IWM (Russell 2000 ETF). Long term double top;

 

Screenshot2010-10-19at214044.png

 

Also a double top covering Friday to Monday;

 

Screenshot2010-10-19at214325.png

 

The short and longer term double tops only gave sell signals today, it looks like the short term signal was generated yesterday but it was today, puts are the order of the day.

 

Has the dollar turned? We'll see.

 

I also bought a straddle on FXE that will profit if the the dollar rallies.

 

The developing foreclosure problems could prove very difficult for the banks, that should hit the small caps worse than the mid and large-caps (in theory).

 

The small caps also outran SPY quite some way on the way up so if the markets drop, IWM should drop by a larger %.

 

Screenshot2010-10-19at215932.png

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