June 5, 2013

Parabolic Moves – A Curse or Gift – Or What Goes Up Must Come Down Part II

Parabolic Moves – A Curse or Gift – Or What Goes Up Must Come Down Pt. II

The easy answer is a gift because every trader wishes for the market they just got long to decide to move up parabolic in their favor. But as I mentioned yesterday -“what goes up – must come down”. Parabolic moves are actually not that uncommon. They can be found in many sectors from utilities, to equities, to commodities, to precious metals to forex and treasuries. Check out the charts below for a few recent examples:

Utility Stocks (UTIL)

As sector rotation was in full swing at the start of 2013, there was a general hunt for dividend paying companies. Utilities are a classic choice by many. Here then was a classic stampede into this sector that created a parabolic rise over a short 5 month period.

Japan (EWJ)

Last December the Bank of Japan announced its own version of QE and backed it with solid determination that the Nikkei would reach 14,000 before one could say Mount Fujiyama. The Japan iShares Fund (EWJ) rallied 33% in five short months. I don’t think all has been said and done when it comes to the Central Bank of Japan or its ability to inject several more rounds of QE into the mix.

Microsoft (MSFT)

Closer to home I have been discussing the ongoing sector rotation back into technology stocks. A large benefactor of this flow of money back has been MSFT.

And no mention of a parabolic move would be complete without including the latest star Tesla Motors (TLSA) – a day traders dream stock to say the least. The stock price has skyrocketed 200% in a very short two months. Much of the parabolic activity can be attributed to the solid line of short(s) needing to cover their positions ( at last read approximately 40% of the float is short – ouch!).

My point on parabolic moves is that they happen with frequency within many time frames (five minute to hourly to daily to weekly). As traders these types of moves can be a bonus and should not be looked upon as though Satan himself is trying to lure you in. Just because you happen upon a parabolic move in progress does not mean give up all rational thought and toss the entire account into one trade. Today, for example the DJIA Mini future tossed several parabolic moves out which we cleanly and beautifully captured by all three DTS trading platforms. Our goal remains to assist traders to make greater profits during all types of markets. Today’s somewhat free fall was just one of those days.

Diversified Trading System

I continue to recommend as the best trading platform available to a broader range of traders from novice to expert. The Diversified Trading System 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.

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
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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