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Market Overview August 8 2021

Aug 11, 2021

This past week the $NQ (NASDAQ 100 Futures) were treated to what may potentially be a great opportunity to get our position size up on low risk setups before the index made new all time highs. 

We have now taken 6 long positions in $NQ, with another potential add shaping up off of Friday's weakness. 

A few weeks ago I wrote about How To Find A Market Top, and the three requirements I have of an indice before considering it a top. 

  • SQN Bull Volatile
  • Monthly Close above R3 Pivot
  • Price Parabolic Breakout

We likely have achieved one of the three requirements this past week, with the SQN going into a Bull Volatile Market Regime. 

Simply moving in to a Bull Volatile regime does not mean that a top is imminent, or even near. We can spend a lot of time here without getting a major market top. 

Price has not gone parabolic and we are not above the R3 Pivot which is 15,533 for the month of August. 

At a current closing value of 15,092.75 and an all...

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Market Overview August 1 2021

Aug 11, 2021

Last week, I went over the way I look for a major market top (I consider this an 8% or greater, dip). 

Quickly summarized:

  • Bull Volatile SQN Reading
  • Price closes above monthly R3 Pivot
  • Parabolic rise above trend channel

We start a new month of trading this week and we met exactly 0 of the major market top requirements on the $NQ. 

That doesn't mean we throw caution to the wind and market buy our full buying power on leverage, our job is to manage how we take risk and how we limit downside. 

We want to take low risk, high probability entries each time the $NQ is tested, and passes that test successfully, which is what we have done since $NQ broke out in June. 

From March until June the $NQ was trading in a mean reversion regime, where both longs and shorts work out from the edges of those ranges. Three out of four times the Failed Breakout setups were successful (75% win rate), which was the $NQ passing our mean reversion tests.

What gave us the heads up in...

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Which Market Regimes Dominate

Aug 05, 2021

(originally sent to subscribers December 22, 2020 - sign up here)


Today is like any other day for me. Wake up, read for a few hours, hang with my son, go for a walk listening to an audiobook or podcast, fire up the monitors, launch zoom and get to work in the trading lab. 

I've been working on slicing and dicing a bunch of data and as usual when I go into these data slicing modes, I generate a bunch of new interesting insights. Or rather rabbit holes. sometimes, the rabbit holes are fruitful, sometimes I just get to sharpen my data skills. Either way it's a win!

This week I wanted to work with Market Regimes, as I do. No surprise there. 

Here are some of the insights I gathered in my work so far. 

Instead of the typical "A bear market is a 20% decline from the highs" or any other random statement about the markets, I use a tool called the SQN (Systems Quality Number) to help me organize market regimes. 

The SQN measures the past 100 trading days close to close,...

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Less Bullish In Q12021

Aug 05, 2021

(Originally posted March 28, 2021)

2021 started out like a continuation of 2020 with tech ripping higher and everything else lagging in the US Equity markets, but as I'm sure you are well aware, the last month (plus) has been anything but.

Below are the year to date returns for Russell, S&P500, Dow and Nasdaq

YTD Returns respectively

  • $IWM 12.52% (down from a high of 19.57%)
  • $DJI +8.03% (New all time highs)
  • $SPX +5.80% (.01% below all time highs)
  • $NDX +0.65% (down from a high of 7.13%)

We took profits on over 1/2 of our long $NQ/$QQQ (Nasdaq futures and options) position as our March Futures contracts expired freeing up a lot of capital that we started deploying to $YM/$DIA (Dow Jones Industrial futures and options).

We still retain our $NQ long position with June expiration and will happily build back up our long position there IF $NQ picks up the load again and starts carrying the markets, but the opportunity in $YM and $ES is far stronger looking at the moment. 

As we...

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Bitcoin Bottom Or Bear Rally

Aug 05, 2021

 (Originally sent to email list July 27, 2021)

First off, I want to disclose that i'm in the enviable position of being in crypto and Bitcoin since end of 2013 or so. Seeing Bitcoin trading above $1,000 is still pretty incredible, let along above $30k. Heck, less than a year ago it was barely back above $10k.

This perspective gives me a lot less worry than someone who's newer to crypto and maybe bought Bitcoin at $50k or ETH at $2400, so take my analysis as someone who's already done quite well whether it's trading at $30k or $60k. 

For me, crypto is a long term strategy, proven time and time again that patience is the best teammate to play with. 

Instead of hyperbolic headlines and meme's, my analysis is done the same way I analyze $NQ, Gold, $EURUSD and any other asset I trade. 

We got long Bitcoin back in August of 2020 and more importantly we stepped out of the way when our stop losses were hit on May 21 of 2021, leaving all the chaos and carnage to...

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How To Find A Market Top

Aug 05, 2021

By far the most common question I've been asked lately is something to the effect of "Are we about to crash", "Is this the market top", referring to the Nasdaq $NQ/QQQ.

Rather than just giving a flat answer, I'm going to break down my risk management process. 

The first thing I look at is the Market Regime, and the tool I use is the SQN indicator. 

The SQN indicator is a tool to quantify the direction and daily change over the past 100 trading days.

Basically it figures out the difference between the previous day and todays close and makes a simple moving average of the last 100 days.

SQN = ((SMA * square root(period))/standard deviation)

Where the period is 100 days.

A simpler way to explain is the average change in price from today to yesterday of the last 100 days. This gives you a general read of the direction and if the day over day moves are big or small. 

This is rendered as a histogram on the bottom of the chart.

Each color represents a...

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Bull Volatile Regime

Feb 15, 2021

We knew this was coming, the volatility. 

If you are new to this game or been around for a while it should come as no surprise that markets can go from relatively calm and peaceful to extreme volatility quickly. 

The last part of 2019 and first month or so of 2020 was the Bull Quiet regime, which is low volatility, nice easy drift to higher price levels. It’s very easy to trade, you simply buy for any reason and hold because prices, even if they drop, will resolve higher in short order. This is when you as a trader, as long as you don’t get too cute with the sell button, can make the most and easiest money in the markets.  

As the saying goes, it’s easy to make money in a bull market, and the Bull Quiet market regime is exactly what they are talking about.  

What makes it even easier to make money in a Bull Quiet market regime is that we DON’T have a real market top happen in a Bull Quiet regime. This is important because knowing...

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What Is Prop Trading?

Feb 15, 2021

I've been asked a bunch how to get into prop trading, so I made a Video

Enjoy 

http://bit.ly/2IbOTkc

 

 

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Live Trading and Bitcoin 10,000

Feb 15, 2021

First of all I want to thank you for following along with my work, I've been trying to put out as much relevant content, that people have been asking for, as I can. 

This past month was a world wind for me, ending a 3 year(ish) stint as a nomad, traveling the world (with my wife), living in Airbnb's and trading. It took a number of years to convince my high powered litigator of a wife to give up the nice house, car, country club membership and all the *things* that she thought was important, to sell it all and travel the world in style. 

To be clear, we weren't private jetting nor were we staying in hostels or on some gracious hosts couch. We were in Aribnb's, the whole Airbnb not just a bedroom, and still working pretty much every day. So it wasn't a permanent vacation and it wasn't site seeing all day everyday, in fact as we were going through our photos from the last few years, we really didn't spend a whole lot of time visiting Instagram's best. 

It was our first...

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Volatile Regime March 8 2020

Feb 15, 2021

Last week I wrote about the Bull Volatile regime. As I always like to remind people the way that I categorize the markets is using a LAGGING indicator, the SQN (System Quality Number). The SQN is similar to the way a calendar works, it won’t tell you the temperature exactly every single day, but you have a general idea of if it will be cold, hot, rain, snow, dry, long or short hours of sunlight. 

 

That is if you are in Buffalo, New York in January, you are most likely to have cold, perhaps snow and more importantly you’ll know the tools you need to have handy for that month. Flip flops and a tank top are not to be considered, where as you wouldn’t even think of not grabbing your coat, wearing a sweater and likely your boots and gloves. 

 

The SQN is the same, it helps traders by giving you the general characteristics of the market regimes.

 

There are two parts to it, first the trend, Bullish, Bearish or Neutral. 

 

Being a...

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