Riding the Inflection Point

[maximumpossiblesuffering]

Account value down a modest amount overall because of unrealized losses on option positions.

Only had 1 scalp today. BA returned a 22 tick profit. This was a very educational trade that caused me to watch how BA traded in 5 second increments for the rest of the day. I saw a minor bullish signal in BA with the spread quite wide at between 20 and 30 cents. Instead of trying to split the difference between the bid and offer, I placed a order for 1 cent more than the bid. I got filled instantly. Surprised, I entered a sell order bettering the offer by 1 cent and again got filled instantly. Perplexed, I wondered if the algos took off for a 3 day weekend! I made 22 ticks in a little more than 30 seconds. Sure, it was small size, but at a theoretical earnings rate of roughly $3000 per hour, I could learn to live with it. I decided to simply watch BA the rest of the day in an attempt to gain a sense whether “Retail market making” was a viable strategy, not that yet another trading strategy was needed. Wasn’t expecting to see extended price moves today, so I would not be missing much. As it turned out, after some early chop, today would have been fine for scalping. My conclusion is that it is best to use my increased knowledge of the workings of the inside market to augment basic scalping strategy for price improvement and to get a better sense of order flow. In a earlier post, I talked about trying to identify and front run large orders in situations where they are more likely to be lurking. However, watching the inside market today has given provided another powerful tool.

ZB is finally correcting. It appears precious metals and certain currencies such as the Canadian Dollar are being affected by this. It would be interesting to see if equities markets will be affected should ZB continue to sell off. However, if trade negotiations go well, my guess is the US equities market hits new all time highs almost no matter where US interest rates go.

I am fully satisfied right now that my trading plan has significant positive expectancy. In addition, I am maintaining reasonable discipline. Next week, I will continue to intraday scalp equities, although with larger size. For option trades, I will more aggressively look for trading ideas and take those setups are in line with my outlook that also provides an additional edge through favorable term structure and or skew.

Nice new... trading path:

 

[maximumpossiblesuffering]

I will implement the following three ideas into my trading plan: Weighted trade sizes, conditional expected range, and strategy tagging.

The more variables that are in agreement, the higher probability of profit and greater the potential move. Or is it? I have noticed very high probabilities when multiple technical signals line up. However, these are rare and although single signals are not as reliable, great trades can still result for these “lesser” signals. Upon writing this, I realize this is an area to explore at a later time and it is likely more profitable to take single signals rather than waiting for rare multiple signals.

To help me confidently allocate a portion of a intraday trade for a bigger move, I will mark my charts with the expected daily high and low for a potential up day and the expected high and low for a potential down day before the market open. I will use the daily ATR for up days and the daily ATR for down days. In the alternative, I can take the daily ATR for the last 21 days and subtract 20% for up days and add 20% for down days to account for historical differences in daily trading ranges on trend days according to whether the equity has a up day or down day. I can also calculate IV and skew, but a rough number is fine for my purposes as my perceived context for the day is overriding and it may evolve during the trading day.

In order to make it easier analyze the various parts of my equities trades that are allocated to different strategies, I will use a unique size on my entries, if possible, and definitely on my exits. Over time, this will help me better allocate my capital to better performing strategies. For example, a opening trade that consist of multiple strategies or time frames will have a share size that ends in “0”. A S/R exit strategy will have a share size that ends in “1”. A range expansion exit will have a share size ending in “2”. A day trade exit will have a share size ending in “7”. A reversion to mean trade will always be a separate trade and have a share size ending in “4”. A market making type of strategy will be always be a separate trade and will have a share size ending in “5”. The last closing trade of the day will be considered the close of a day trade, regardless of the last digit of its share size. Of course I could use a worksheet, but it is easier to analyze if it is already on my trading records. In addition, I have the idea of posting my daily trading results for a brief time that includes specific details on my trades, making it easier for others to follow which strategies are being used.


Preparing a “Massive Attack” on Wall Street:

 

[maximumpossiblesuffering]

Account value up .3% on closing my GC calendar spread and long EUR puts remaining from a calendar spread that saw the front strike expire on Friday. I lost 24 ticks overall scalping equities today. I had a daily shortfall of $402 and a daily account performance shortfall of 1.2% from my goals due mainly to my not taking signals of 3 eventual winners.

Attached below is a screenshot of my account performance and some marked charts showing one of my missed trades and my first trade of the day. Note: The realized PL of -$547 was the closing out of the long portion of the EUR calendar spread. The short portion expired worthless on Friday which was not considered on Friday in my general PnL announcement.

Future calendar spreads will be based almost exclusively on weekly options to better match my investment horizon and to more quickly gain desired delta exposure or theta decay.

I am wondering how much of my trading should be discretionary and how much should be mechanical. I felt conflicted between the macro environment today and the fact many stocks on my watchlist at the time were mixed relative to their opening prices. I did adjust my trade size according to my uncertainty. However, I must realize when trading 30 second bars and watching the inside market, a major trade entry consideration is order flow. Sure order flow can change on a dime, but the fact I did not take several profitable signals seems to show the power of orders needing to be filled and my strong tendency to overthink.

 

[RRY16]

Time to lever up and get more buying power, steer this circle jerk out of spinmode.

 

[maximumpossiblesuffering]

Account value down .2% on a tougher scalping environment. I am long a new GC calendar spread in OTM calls because of term structure inversion and my mildly bullish outlook on gold.

It seems equities have been waiting for the Fed’s interest rate decision. Looking at my watchlist however, there were plenty of opportunities to make good money either long or short today. One of those stocks was VLO, a major crude refiner, that was in play again due to crude price movement. Some stocks started strong then weakened. Some stocks started weak and strengthened throughout the day. I need to find a more reliable way to identify and trade those stocks that are more likely to have a significant move. There have been some good opportunities around lunch hour on tests of the RTH opening price. However, at least today, there were several stocks that were well below their opening price during lunchtime that came on strong later in the day. Regular TA would have been a useful tool to get in early. Perhaps I should consider a time threshold after which I assign less weight to the opening price indicator. I’m thinking of around lunchtime to apply this time threshold.

Tomorrow is likely to see a tight trading range until the Fed interest rate decision. ES has a bit of a volatility term structure inversion implying to me the market considers the Fed decision to be a significant event. In my opinion, there more risk to the downside if the Fed does not cut interest rates than to the upside if they do cut. If fact, it is plausible I fade a Fed decision fueled market rise tomorrow for at least a quick scalp.

 

[maximumpossiblesuffering]

Account value about unchanged where my intraday scalping profits were offset by unrealized losses in my open GC calendar spreads.

After waiting for the Fed interest rate decision, I decided to look for long positions because of the surprising lack of a rally on the interest rate cut. In other words, I was looking for the market to reverse it’s initial move no matter the direction. I made an average of 30 ticks on HD and 53 ticks on FB for total scalping profits of 83 ticks. Missed long entries on NVDA, AXP, and MA. I would not have been able to carry all of these position simultaneously because of not enough buying power. I made a ridiculous mistake in retrospect by selling my positions before the close even though I was bullish on the idea I could get back in on a price correction. Should have followed by gut.

Tomorrow will see a lot of rate decisions by leading Central Banks. It seems almost certain they are looking to ease further. A test at previous highs in US equities seems inevitable and if we don’t see this happen this week, then maybe next week.

 

[maximumpossiblesuffering]

Account value up .3% over the last two days mainly on my gold calendar spreads. Now flat.

My trading performance has stagnated recently, but my crosshairs are getting closer to the target.

I have been studying average daily ranges of weekly and daily bars with applying the condition how each period ends relative to its open. Basically I am trying to capture as much of a daily or weekly range as possible while risking as little as possible. Unfortunately, there have been too many trades that have resulted in a loss in what turned out to be “noise”. The sweet spot of a solid win percentage, risk to reward ratio, and signal to opportunity identification rates remains elusive to me, but applying a broader view for my entry and exit points should help.

Will be watching ES to see if last week’s low will hold. Even without the latest trade setback, it seemed the market was ready for a breather. Assuming ES breaks last week’s low of 2985 convincingly, the next major support is in the 2820 area. There is a gap based on US RTH between 2944 and 2958 that should easily be filled next week assuming ES does indeed selloff. Latest US economic numbers have been encouraging and spot trucking loads have been the highest in several months. Hopefully the improvement is more than shipper trying to beat potential tariff increases before the holiday season.

It is time for the Dow to “Get down”:

 

[maximumpossiblesuffering]

Account value down .14% realized on a positive delta ES position. I am flat. There were no trades yesterday.

ES was below its RTH open but I wanted to be long delta. NQ was under performing ES, accounting for beta differences, thus indicating risk aversion but I wanted to be long delta. NQ and ES both broke through a pivot point to the downside but I wanted to be long delta. I think I’m am the Chuck Norris of trading, where I don’t need to listen to what the market is saying because the market need to listen to what I’m saying? Really? Someday, hopefully soon, I will figure out who’s opinion is really worth listening to.

I am at risk of having a losing month with 4 trading days to go. Fortunately, even if I lose this month, it will be the next to last losing month trading I will ever have.

Guaranteed.