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Bull Volatile Regime

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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Volatile Regime March 8 2020

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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How Bull Volatile Turns To Bear Volatile - How To Proceed

Let’s talk about Bear Markets

Since this market chaos has taken hold, each week I’ve been covering each aspect of the different market regimes. Last week we talked about going from Quiet to Volatile and I touched a bit on the differences in bull and bear markets.

If we are to take the agreed upon (by whom) definition of a bear market, 20% below it’s high, then we are no longer in a bear market on a number of tickers, as we are no longer down -20%


Using that weird and entirely useless metric of -20% being a bear market, we should all go out and breathe a global sigh of relief because we are above the -20% mark on the Dow SPX and Nasdaq indices… for now, it could change in five minutes. 

I think we can all agree that this magic 20% number is entirely useless because what happens if we are -19.9% like we were in December 2018 on SPX, yet NASDAQ was down -26%...so yes and no on the bear market??? Kinda???

It’s great for headlines, and I’m sure...

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Systems Trading - Learn To Build

One of my core concepts about trading is stacking edges. If you don't know what an edge is in trading then we REALLY need to talk! 

An edge is a quantifiable/statistical advantage with a certain asset class, a trading strategy or you yourself, as in you can focus incredibly well for example. 

When you can stack multiple and complimentary edges together, you can come up with some really powerful trading systems. 

One of the most important tools in my tool kit, is categorizing the market regime. If you've read any of my emails lately then you are well aware of what I'm referring to. 

Categorizing the market regime gives you valuable information about how the market is trading and you can then apply the appropriate trading strategy to the market instead of trying to use what worked 2 times last week (out of 10) or for the past few years. 

This market is completely different than that market, and it warrants a completely different strategy. 

The Vol...

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Backtesting Mastery

I hope you have been benefiting from these posts. 

I realize that for many traders, they've never experienced a highly volatile bear market like this. Well no one has experienced it like this, just like any other bear market, this one is different.

However there are characteristics of all bear markets that are the same. That means that there are systems to trade and generate income during these markets, just like there are ways in roaring bull markets. 

Ironically my trading has grinding nearly to a halt during this period. 

For most traders, who still have their accounts and didn't completely blow up already, the volatility is very enticing.

These massive intraday swings are something we haven't seen before, and for traders who don't understand position sizing, they see 5% even 10% intraday moves, not realizing that they could make big money with 0.5% or 1% if they had the appropriate strategy and more importantly sized positions correctly. 

Do you know how your...

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Alex Barrow and I Chat About Markets and Impending Lockdown

market regime video Feb 15, 2021

We've been busier than normal this week in doing some deep research on the characteristics of the Bear Volatile regime. 

We are working hard on it over here, collecting the statistics and I'll be working on putting it all together into a big report. It's important to be prepared with what to expect. 

In other news, Alex Barrow, CEO of Macro-Ops and I jumped on a call to chat about the impending lock down, government/military/security response and markets.

Have a watch, leave a comment, ask a question

 

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Characteristics of other Bear Volatile markets compared

backtesting market regime Feb 15, 2021

We have been heads down over here digging deep in to finding a bunch of different characteristics of some of the most violent Bear Volatile regimes in history and how they compare to what we are looking at in this current market. 

This is all generated from doing the backtesting with the tools you learn in the Systems Building/Backtesting Mastery Course

We are keeping the price of the course at 50% discount for email subscribers exclusively, so take advantage of it during this chaotic market. 

On to some results...

Let's look at 2008 month to month basis. This was the monthly chart so this represents the data of a whole month






Observations

1) Mid January and February was the beginning of the Bear Volatile regime. We saw a break lower out of a sideways volatile market.

2) The Volatility for each month is much larger than the realized change per month. This shows that there is high noise to signal ratio in a bear volatile regime. 

3) Long Downside Candle...

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Traveling Through The Market Regimes Of The Global Financial Crisis with Grant

basics market regime sqn Feb 15, 2021

Grant wrote this as he is currently doing substantial research on categorizing the characteristics of all market regimes historically. We got to talking about the 2008 Global Financial Crisis, as it's the closest parallel that we have to how much it shook everything and everyone.   

We are putting together an extensive research report on that, but I asked him to put together a step by step summary of how the S&P 500 traveled from Bull Quiet, to Bear Volatile and back again. This is just a brief taste of the report we are producing.   

Details about the report are forthcoming.  

Take it away Grant....  

Grant here to provide insights on one of the most elusive market regimes... the dreaded bear volatile market. We will be going through some of the most famous bear markets in history and sharing our insights and research. (Can bring up that we will be producing a report for purchase) The first of our bear market study will be the Great Financial...

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Decision Point Time

First off, I got a buuuuunch of questions about yesterdays email regarding Prop Trading. Let me address some of them here then we'll get in to my thoughts on the market.

I used $100k example, but I think you can start with a prop firm for a couple thousand dollars. Or you could do $1 Million dollars too, I'm sure. Just wanted to make sure that you didn't instantly eliminate yourself because I said $100k.

Next, why wouldn't you just do a hedge fund? You certainly can but hedge funds are a lot more work with raising money, hiring attorneys, accountants, regulation, compliance, software, fund raising and it's as much about managing relationships with your investors (if not more) than just trading. You can continue to manage money even if you are losing money, and still charge a management fee.

With prop, you just trade. If you make money, you get more money. If you don't make money, you don't get more money, you lose it. 

So if you can make money, consistently, with lower risk,...

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Take The Easy Trades

market regime strategy Feb 15, 2021

In yesterday's email we talked about the price action on S&P500 Emini daily chart and contextualized it by the market regime and the likely scenarios. 

The Double Top setup in a Bear Quiet market regime is a higher probability setup than a double bottom in a Bear Quiet market regime and Bear Volatile regime for that matter. 


The risk range was the best we've seen in weeks and it was a natural place to pull back some, which it did. 

What's great about this trade is that tight risk range allowed for very nice position sizing. Once of the few setups in a while where that was the case, making it quick and easy. Not exactly a common occurrence since this bear vol regime kicked off. 

Now this is where it gets annoying.

Even though it was the smallest risk range trade on that chart in over a month, using our 1% risk model, you could've traded 1 ES Emini contract per every $500,000 in your account. 

Or you could've traded the E-Micro S&P 500 contract and...

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