The ACD Method
- Thread starter sbrowne126
- Start date
on a more serious note mkt down over 2% on spy, gold was down as well as crude and copper. When gold is down along with commodities this is a classic risk off trade. Was watching today taking my own advice, there is an unfilled gap on the 60 minute chart on spy. Will see if we get down to 118.41, gap fill and possible reversal. It is quite possible we test 10/4 lows as we can see the govt can't agree what day it is plus Europe. Question is what it the catalyst up don't see one at the moment.
Never look for a narrative to get long or short. Look at price action. Price action was decent today all things considered. I think the monthly A down is a possible target but that is not much downside. Far more upside here for risk assets, particularly in oil.
If I were going to get short, it would be via a spread, not short SPY. One of the spreads I highlighted was the long SPY/XLF spread. There are countless others. Look for the edge king!
I completely agree, its just that some of the more advanced things will confuse people. Everyone has a specific way of trading and I leave some things out. My point was that generally we had a risk off day, there is always risk in a position. I personally am not a big fan of spread trading meaning pairs. I know what you are saying its just not my style. I think every oex stock was down today except comcast. Don't let me stop you where pairs are concerned its a very viable business, perhaps you could explain how risk is reduced via pair/spread trading.
Hi guys,
One screenshot that Mav shared a few days ago and the insistence to focus in strong products and avoid weak ones, push me to spend some time this weekend customizing a few screens to try to find out quickly what's hot.
I just put together the SPDR Sectors in one screen and a bunch of ETFs (indices, tlt, gld, slv, oil..) into another. Once at home I found almost everything out there was making A downs except Materials and Energy and put on a long in the former which played very well.
In hindsight there were better things for an intraday swing, but I had no ACD levels in those to stablish a sensible stop, and given that I can't help myself from overtrading, I'd rather do it following the system.
Attached it's a screenshot of the sectors screen in case it helps or anybody has some advice.
One screenshot that Mav shared a few days ago and the insistence to focus in strong products and avoid weak ones, push me to spend some time this weekend customizing a few screens to try to find out quickly what's hot.
I just put together the SPDR Sectors in one screen and a bunch of ETFs (indices, tlt, gld, slv, oil..) into another. Once at home I found almost everything out there was making A downs except Materials and Energy and put on a long in the former which played very well.
In hindsight there were better things for an intraday swing, but I had no ACD levels in those to stablish a sensible stop, and given that I can't help myself from overtrading, I'd rather do it following the system.
Attached it's a screenshot of the sectors screen in case it helps or anybody has some advice.
Let me be a little more clear about this. I'm not talking about pair trading ala Don Bright playing mean reversion. I'm talking about making a "directional" trade. That direction is expressed through a relationship between two products. Now why I am suggesting this to you? One, there is little to no edge trading the SPY as a stand alone product. There is always a far weaker product when SPY sells off and a far stronger product when SPY rallies.
The reason I'm advocating a spread here is because in "my opinion", we are in no man's land. We are most likely at or near the bottom of the trading range. However, the tape is by no means strong and longs down here are risky. So my suggestion in light of these conditions is to put in a trade that at these levels will offer you what you want out of the market with a better risk to reward ratio. In other words, if SPY indeed goes higher, your trade can still make money. And if SPY goes lower, you will make money. In other words, finding alpha!!!
I'm not talking about buying Coke and selling Pepsi. I'm talking about using ACD or whatever technical means you use to make decisions and creating a position that is directional in nature but offers more edge then simply getting short the SPY near the bottom of a trading range.
Does this make sense?
yes it does, by the way I appreciate the effort and am always open to learning new things. You are right I am thinking in terms of relative correlation. It seems like everything is macro correlated right now. I guess the idea would be to find the stronger performers in a weak bunch. I would think long appl short xlf would make sense here.
Right, now you're thinking!
Here is what I'm trying to get you to do. Nominal price is worthless. Everything you do in life including trading is a relative value proposition. Who you marry, what you eat for dinner and what you decide to watch on TV tonight. Too many people get caught up in watching price go up and down like a yo yo and they end up chasing their tale and never making any money. The idea is to understand price action by looking at relationships in the market.
Let me give a more simple example from my daytrading days. Back in the day when I traded listed stocks, I was a tape reader. Now even though I wasn't trading pairs per se, I usually was long strong stocks and short weak stocks. But the primary driver in my decision making was watching how a stock responded to a change in tick in the S&P futures. If I was long BBY I watched it very carefully how BBY ticked up and down relative to a change in tick in the futures. And vice versa when I was short a stock. So even though I was not spreading BBY against SPY, I was acutely aware of the relationship.
The guys at my firm that took home checks from trading understood the "relationship" between stocks and futures. The guys that didn't take home checks simply looked at nominal price movement. Everything I do now is about price relationships. This is what ACD is for. Using the ACD levels to identify relationships in the market. What is the ES doing relative to bonds, to oil, the dollar or even AAPL. The idea is to capture the essence of that relationship either directly by saying, getting long Crude Oil, or expressing that idea through a spread.
In my opinion, most of the guys on ET, about 90% of them, don't make money trading because they see the market in a vacuum, not in relationship terms. They are too focused on watching just one product or they get hypnotized by watching the product they are trading go up and down the way a cat watches a toy at the end of a string swing back and forth. If you don't understand relative value, all you are doing is pawing at the toy watching it go back and forth.
Average ET Trader
Let me further add to this what I told Shan on here some time back. One of the things you'll see me do on here a lot is point out strong stocks on down days and weak stocks on up days. This is the most obvious way to identify price action. Today for example I pointed out VMW and IOC late in the day. I suggested to Shan to try to identify those stocks early in the day and you will find them easier to trade then trying to swim with everyone else with the current.