June 2, 2013

Logical Market Update: Report From the Battlefield – Casualties Remain Light – Treasuries Tumble Amid the Confusion

Report from the Battlefield – Casualties Remain Light – Calls For Escalation Premature – Treasuries Tumble Amid the Confusion

Although intense at times the battle for market position between the bulls and the bears has not struck fear into the hearts of traders just yet, even though the bond market decline picked up stronger downside momentum last week and the U.S. dollar continued it’s roller coaster ride. Gold and Silver were pulled in both directions leaving a cloud of confusion and bitter sentiment amongst calls for a resumption of the advance to a continued drop towards the $1000 mark for gold.

Stepping aside from the speculation though, I have found incredible trading opportunities (fairly solid two-way trade) across the board in equities, futures, forex, and precious metals. When the market indexes begins to chop up and down in a small range a quick look to treasuries, precious metals, or forex revealed solid opportunities and vice versa. All in all it was a satisfying week for day traders.

The trend in my opinion remains up for the mid to long-term. Near term the downside momentum has not been broken yet. For example, for several months the expectancy was for the markets to push higher into the final hour of trade. Last week I saw that trend reverse which leads me to believe that the algorithmic traders have switched strategies for now. Keep in mind that there are thousands of participants across a myriad of products that move in and out of the markets as trades occur. Attempting to understand why the DJIA future suddenly runs up 50 to 75 points will only prevent you from seeing and reacting to the signals being given. As the number of derivative products grows exponentially the need to hedge trades increases. Now add all the algorithmic traders and viola large intraday moves begin to appear.

Relying on years of trading equities, options, and futures I’ve come to realize I will never be as quick or bold as a computer. What I mean is computers don’t hesitate – human emotions do. So, after realizing that it was going to be easier to climb Mt. Everest with only one lung than to change some of my thought processes I sought after and found what I believe to be the best trading platform available. If you are going to attempt to play with the TBTF algorithmic trading desks you will need to level the playing field. Don’t get me wrong here – the TBTF banks are flipping billions of dollars around as their appetites for larger profits continues.

The team at the Indicator Warehouse, home of the Diversified Trading System, continues to bring high quality products to a broader range of traders – from novice to expert. Their dedication in providing superior customer support has raised the bar several notches.

I continue to extol the benefits of day trading versus position trading during these finishing moves of the much longer-term bull market. It may well take another year or another 5 years before all is said and done. Missing opportunities in either direction should not be a part of your trading strategy.

I have implemented several “core” longer-term positions, but the near to mid-term market gyrations have produced far more profitable day trading opportunities without overnight risk.

Diversified Trading System

I recommend as the best trading platform available to a broader range of traders from novice to expert, the Diversified Trading System. DTS offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.

Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility. Automated stop-loss management and position sizing eliminates most of the problems most individual traders have. Day trading and position trading both require (actually demand) good risk management. Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades.

A newer member of the money management tools available from Indicator Warehouse is the Profit Finder – System Back Tester. When implemented it allows the user to:

Immediately know the impact of parameter changes.
Automatically reads all of your DTS entries and exits
Calculates the profit/loss of each trade
Performs a wide number of essential intelligence boosting calculations instantly
Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators

The last two points above are valuable tools to use. It will show you where some “tweaking” is needed to improve results through the back testing feature.

Updated Charts

They say a picture is worth a thousand words — Take a look at the charts below to see how a 450 point drop in the DJIA, a 57 point drop in the S&P 500, a 39 point drop in the Russell 2000 and an 87 point drop in the NASDAQ 100 fit into the mid to long-term picture. Barely a scratch! The arrows indicate the support area (that) likely (will not) be reached during this corrective round. All zones are (now – well) above common Fibonacci support at the .382 levels. (Click on the chart to enlarge)

DJIA

S&P 500

Russell 2000

NASDAQ 100

The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA).

Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

DJIA future (e-mini available) – Highly recommended
S&P-500 future (e-mini available) – highly recommended
Russell 2000 future (e-mini available) – highly recommended
NASDAQ 100 future (e-mini available) very highly recommended
US$/Euro futures (e-mini available) – very highly recommended
GS (Goldman Sachs) – good two way volume –
AAPL (Apple Computer) – very highly recommended
GOOG (Google) – very highly recommended
LNKD (LinkedIn) – solid intraday range
NFLX (Netflix) – solid intraday range
TSLA (Tesla Motors) – highly recommended (new all time highs on Tuesday)
30-yr Treasury Bond future – did not get quiet – opposite took place
10-yr Treasury Note future
TLT (Treasury Bond Long ETF)
TBT (Treasury Bond Short ETF)
Gold (futures and ETF – GLD)
Silver (futures and ETF – SLV)

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