Sorry, Richard, just saw your post. I don't study or trade the China stock market at all. I have no idea if it has the same internal dynamics as the US market. I don't even know where to get the market data for China. My guess is there are probably significant differences between different markets, but that is just my guess.
not a bad call to buy dip last Thursday
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Sorry, Richard, just saw your post. I don't study or trade the China stock market at all. I have no idea if it has the same internal dynamics as the US market. I don't even know where to get the market data for China. My guess is there are probably significant differences between different markets, but that is just my guess.
Attached chart shows recent signals.
During the second week of April, a few buy signals were generated between the 1820-40 range. Another buy signal was triggered today at around 1858. (Recent buy points are now shown in a darker shade.)
It seems that buy signals have been generated a lot more frequently during the past few months compared with last year, although sell signals remain relatively infrequent (around once every few weeks). I don't know what this means. Does it indicate the market is in a range bound consolidation period with no clear directions, or the market is jittery? Whatever the case, I decided to follow the signals only when they are quite a few points away from each other, that is, I would average down or up, whereas I feel it's pointless to keep adding to a position at essentially the same entry point.
During the second week of April, a few buy signals were generated between the 1820-40 range. Another buy signal was triggered today at around 1858. (Recent buy points are now shown in a darker shade.)
It seems that buy signals have been generated a lot more frequently during the past few months compared with last year, although sell signals remain relatively infrequent (around once every few weeks). I don't know what this means. Does it indicate the market is in a range bound consolidation period with no clear directions, or the market is jittery? Whatever the case, I decided to follow the signals only when they are quite a few points away from each other, that is, I would average down or up, whereas I feel it's pointless to keep adding to a position at essentially the same entry point.
Updated chart from yesterday. No new signals, but I have changed the most recent sell point on April 3rd into orange color, just to get some perspective.
Market has been choppy, and I have been taking some profits off table along the way. One way to do that with option is, as the option contracts get closer to the OE dates, and as they become more in the money assuming your trade is profitable, one can roll them out to a further date and to a strike closer to the money, this will in effect both cut down the position size and take partial profit, yet still leaves plenty upside potential.
There is really no correct answer to how the risk and reward should be balanced, one just has to do what works for him.
Market has been choppy, and I have been taking some profits off table along the way. One way to do that with option is, as the option contracts get closer to the OE dates, and as they become more in the money assuming your trade is profitable, one can roll them out to a further date and to a strike closer to the money, this will in effect both cut down the position size and take partial profit, yet still leaves plenty upside potential.
There is really no correct answer to how the risk and reward should be balanced, one just has to do what works for him.
Somebody asked me a question about SPY options. I am not familiar with this forum and its messaging system, and somehow that message got lost into the mysterious cyberspace.
The answer is, SPY options are pretty liquid. You trade it the same way as you trade options of any individual stocks.
The answer is, SPY options are pretty liquid. You trade it the same way as you trade options of any individual stocks.
Upon reviewing prior signals on the latest chart, it is apparent that I have a lot more buy signals (black dots) than sell signals (red dots). The red indicator line is noisy and volatile, whereas the blue line is much cleaner and gives a lot fewer signals. But it does miss some of the 30 point pull backs. This, and the buy signals sometimes being too early, are two things that can be hard on the stomach 
Got a couple more buy signals at 1865-1870 range. Again, I am not exactly sure what this means, and I am not buying at every signal, since some of them are essentially the same. Possibly, the numerous buy signals at certain levels indicate buying power providing support at such levels in the market.
On a side note, I trade S&P because I calculated these indicators from a broad-based pool of stocks. Therefore, it makes intuitive sense that these indicators would correlate better with a broader based index. This assumption was confirmed by data analysis as well.
Trading options has many advantages over stocks. However, one thing that works against us is time. Time is not on our side. For example, for near the money SPY options that are several months out, theta is about -.02, and delta is about 0.5. That means the underlying issue would need to move in the right direction by about $1 per month give or take, for your contracts just to break even. Time decay is even greater during the last month before option expiration. Another factor that may work against us is the decrease in volatility, as seen time and time again in a bull market.
I am saying this because recently I feel bruised from the lack of action in the market. Having said all that, I am willing to pay a price for all the good things about options. But that is just me. It would make perfect sense to me if someone else prefers to trade futures or ETFs.
On a side note, I trade S&P because I calculated these indicators from a broad-based pool of stocks. Therefore, it makes intuitive sense that these indicators would correlate better with a broader based index. This assumption was confirmed by data analysis as well.
Trading options has many advantages over stocks. However, one thing that works against us is time. Time is not on our side. For example, for near the money SPY options that are several months out, theta is about -.02, and delta is about 0.5. That means the underlying issue would need to move in the right direction by about $1 per month give or take, for your contracts just to break even. Time decay is even greater during the last month before option expiration. Another factor that may work against us is the decrease in volatility, as seen time and time again in a bull market.
I am saying this because recently I feel bruised from the lack of action in the market. Having said all that, I am willing to pay a price for all the good things about options. But that is just me. It would make perfect sense to me if someone else prefers to trade futures or ETFs.
Updated chart. Again I like the sell signals a lot better, as they are few and far between, yet a lot more accurate. I wonder if I am getting noisy buy signals because we are in a bull market, therefore invisible hands are coming from everywhere to buy whatever dips there may be? If we were in a bear market, things may reverse? Either that or I just have not found an appropriate filter yet....
updated chart as of EOD yesterday.
The blue line rose above 10, indicating a coming pullback, although I cannot tell exactly when. But a sell signal has not been triggered yet. I am not being greedy and trying to squeeze out every last drop of juice, but I have nothing better to go by. I have backtested lots of popular indicators, and I have seen people trying to guess tops and bottoms based on how much the markets have moved, all I can say is those are not very reliable tactics.
The blue line rose above 10, indicating a coming pullback, although I cannot tell exactly when. But a sell signal has not been triggered yet. I am not being greedy and trying to squeeze out every last drop of juice, but I have nothing better to go by. I have backtested lots of popular indicators, and I have seen people trying to guess tops and bottoms based on how much the markets have moved, all I can say is those are not very reliable tactics.
For any kind of detection or diagnostic system, there is always a balance between sensitivity and specificity. In a perfect world, you would like to see 100% sensitivity and specificity. That is, whenever you make a call, you are always correct, and you do not have any missed calls. In reality, that does not happen.
If one intends to increase sensitivity, he may end up with decreased specificity, that is, he will pick up lots of false signals. Whereas if he wanted to increase specificity, he may end up with decreased sensitivity, that is, missed signals. The only thing one can try is, based on existing data, draw the line somewhere for him to get the best combined results.
Real trading examples can be seen in the chart I posted above. Point b was a buy signal given in last December, after the red line spiked to 21.4. Point e was May 15, close to the bottom of the 20-something-point drop that day, when the red indicator rose to 19.5. Retrospectively, the red indicator just cleared the threshold of 20 in last December to trigger a buy signal, whereas it missed a buy opportunity last week by a hair.
But 20 is not a magic number, no more special than 19 or 21. My point is, one has to be prepared for the possibility that his system may give a false signal or miss a signal, even though when that happens, it may still not be the end of world. For example, if the buy signal in last December had been missed, and one had been shorting the market into January, market eventually did drop to point d, which was lower than the initial sell point a, and much lower than the second sell point c. The roller coaster ride would have been stomach churning, but the guy could still have come out with a nice profit. This may be attributed to the possibility that a weak signal (therefore missed) indicates a weak market movement in that direction. However, I cannot prove that with confidence, and it also could have been pure luck, therefore there is no guarantee that one can be as lucky again next time he misses a market turning point.
Hence the reason I keep reminding myself how important risk management is. I don't think there is a single correct answer to how one manages his risk, be it position sizing, loss-cutting, hedging or some other strategies, whatever works for him.
If one intends to increase sensitivity, he may end up with decreased specificity, that is, he will pick up lots of false signals. Whereas if he wanted to increase specificity, he may end up with decreased sensitivity, that is, missed signals. The only thing one can try is, based on existing data, draw the line somewhere for him to get the best combined results.
Real trading examples can be seen in the chart I posted above. Point b was a buy signal given in last December, after the red line spiked to 21.4. Point e was May 15, close to the bottom of the 20-something-point drop that day, when the red indicator rose to 19.5. Retrospectively, the red indicator just cleared the threshold of 20 in last December to trigger a buy signal, whereas it missed a buy opportunity last week by a hair.
But 20 is not a magic number, no more special than 19 or 21. My point is, one has to be prepared for the possibility that his system may give a false signal or miss a signal, even though when that happens, it may still not be the end of world. For example, if the buy signal in last December had been missed, and one had been shorting the market into January, market eventually did drop to point d, which was lower than the initial sell point a, and much lower than the second sell point c. The roller coaster ride would have been stomach churning, but the guy could still have come out with a nice profit. This may be attributed to the possibility that a weak signal (therefore missed) indicates a weak market movement in that direction. However, I cannot prove that with confidence, and it also could have been pure luck, therefore there is no guarantee that one can be as lucky again next time he misses a market turning point.
Hence the reason I keep reminding myself how important risk management is. I don't think there is a single correct answer to how one manages his risk, be it position sizing, loss-cutting, hedging or some other strategies, whatever works for him.