The ACD Method

[justrading]

Yes, time stops are more effective then price stops. As I mentioned earlier, time and variance are more important then price. And btw, I'm assuming most of you know this but I'll say it again just in case, our A levels and our ATR take into account volatility. I don't want you guys thinking I snuck something new in there. LOL. ACD is a VOLATILITY based methodology. That is what we are using. That has ALWAYS been the case. Just covering the bases here...

I'm sure our Keeper of the Book, the Hon. Robert Yanks will correct me if I'm wrong, but there were extensive discussions on this back in the day when Shan was active here. That set me on the path to having dynamic A levels entirely dependent on the volatility of that particular day.

I seem to be spending too much time on currencies, but the nature of the beast has me thinking that if too much of the daily range is contained within the A Up and A Down, then I leave myself little to trade. Not my bread and butter, that is still daily charts, but I am experimenting with a system that will have trades lasting from hours to a week; getting in in a timely fashion matters in a shorter time frame, or at least I think it does.

 

[Maverick74]

I'm sure our Keeper of the Book, the Hon. Robert Yanks will correct me if I'm wrong, but there were extensive discussions on this back in the day when Shan was active here. That set me on the path to having dynamic A levels entirely dependent on the volatility of that particular day.

I seem to be spending too much time on currencies, but the nature of the beast has me thinking that if too much of the daily range is contained within the A Up and A Down, then I leave myself little to trade. Not my bread and butter, that is still daily charts, but I am experimenting with a system that will have trades lasting from hours to a week; getting in in a timely fashion matters in a shorter time frame, or at least I think it does.

Here is some food for thought....the best way that I found to optimize intra-day trading was actually through longer term trading. In other words, take a core macro position and use the intra-day levels to optimize price.

Example. Say you are long 2 ES on a 30 day number line trade with an upside target of the QTR A up which is still 40 handles away let's say. And today you get a failed A up in the ES on a pretty big range day. Peel one of those ES off and buy it back on the close. ES ends up failing at the A up and settles back in the middle of the OR. You pull 8 handles out of that and just like that, you lowered the cost basis on your macro trade. This is the best way I found to optimize both the macro and the intra-day together. Currencies work absolutely BEST with this technique due to their mean reversion nature.

 

[Maverick74]

First off, you have no idea how much you have influenced my career. I know I have said this before several times but thank you once again.

I guess I dont write much because I feel I am behind the curve than most here and I may not have much to contribute. Previously, I was tracking 4 markets while building my model and even that was too much for me so I scaled back towards the end of last year and now I am trading just petroleum flat price - heat and rbob, tracking cracks and calendars to assist. Thats my world and I am happy with it. I still have much to improve upon but I like having this niche and until I become very comfortable with this market, I dont see myself moving on to anything bigger.

I see you and others here discuss markets in a much broader sense and I dont understand much of what is being discussed - especially currencies. But I read everything because some day I hope to understand it.

In summary, my trading career is mostly built upon what I learnt here and while I read everything that is said here, I feel the markets I participate in at this time and the way I participate in them is too narrow for it to be of any value to anyone here. I take very specific trades based on intra-day, weekly and monthly ACD. I have wanted to share some specific observations, both purely technical and market specific and I have started writing them here many times but always scratched because of this reason.

Thanks logicaltrader. I'm happy that you found a lot of value here. Let me point something out. There are a lot of lurkers here. And a lot of people who would benefit from your posting. Anything you share will benefit numerous people who are doing exactly what you are doing but nobody is talking about it. They may never post to thank you for your contribution but rest assured, what you post here will be absorbed by the many readers of this thread, many of which who never post.

 

[Maverick74]

Let me say something else. Let me speak about the value of putting your thoughts out in the open. I've been on this site for 13 years. And over the years I've used this forum as a journal, news depository, a place to rant, a place to ask questions and a place to experiment. I wouldn't be the trader I am today if I never put my thoughts and ideas out in the open. Ideas are very powerful, but they become even more powerful when they can get exposed to scrutiny. If my ideas were never challenged, if people never questioned them, if they were just accepted, they would never hold any value. I cannot, I repeat, I cannot emphasize just how important this concept is not just in trading, but really anything in life. If you believe something to be true, put it out there. See what the universe thinks about your idea. Let it withstand the punishment of the critical mind and the harsh word. Then when the dust settles, look at what's left of that idea. And there you might find your gem.

 

[logicaltrader]

Thanks Mav.

Here is the first observation I wanted to share. This applies mainly to intra-day ACD and specific to my markets (I havent tested any others). Typically, a failure or confirmation of A levels is very evident. However, petroleum products are very physically driven and there are times when after confirming an A, the markets will reverse. I have taken my stop during these times when the market starts to consolidate behind the A levels and reversed my position. The target in this case is usually the other end of the OR which more than makes up for the loss. Days like these often do not make it to the other A level. This does not happen that rarely so it is one of the trades that I will attempt because at the time of taking the reversal trade, it is as good as a failed A trade with a reasonable stop.

I have also classified a new trading idea. This has been discussed here so its not really new but I have coined the term (in my own model) called an ADR Up/Dn or failed ADR Up/Dn. These work very well intra-day when market runs up or down right at or before open, at a very steep slope without giving anyone any chance of getting a good entry. Then stops on a dime exactly a few ticks around the ADR and does a complete reversal. Many times to the other ADR but usually at least to the other end of the OR. The earlier and the faster this move up or down is, the better the chances of an ADR failure. The later we get to the ADR the more the chances that we will blow past it or consolidate and close between the A level and the ADR which makes the trading the next day in the same direction a good bet because you can go home with a portion of your position still on, anticipating a continuation and also any pullbacks overnight would be defended at the ADn or AUp level.

The concept of time in these markets is extremely important and thats one of the things I learnt here that has helped me a great deal especially with the weekly and monthly.

 

[Maverick74]

Thanks Mav.

Here is the first observation I wanted to share. This applies mainly to intra-day ACD and specific to my markets (I havent tested any others). Typically, a failure or confirmation of A levels is very evident. However, petroleum products are very physically driven and there are times when after confirming an A, the markets will reverse. I have taken my stop during these times when the market starts to consolidate behind the A levels and reversed my position. The target in this case is usually the other end of the OR which more than makes up for the loss. Days like these often do not make it to the other A level. This does not happen that rarely so it is one of the trades that I will attempt because at the time of taking the reversal trade, it is as good as a failed A trade with a reasonable stop.

I have also classified a new trading idea. This has been discussed here so its not really new but I have coined the term (in my own model) called an ADR Up/Dn or failed ADR Up/Dn. These work very well intra-day when market runs up or down right at or before open, at a very steep slope without giving anyone any chance of getting a good entry. Then stops on a dime exactly a few ticks around the ADR and does a complete reversal. Many times to the other ADR but usually at least to the other end of the OR. The earlier and the faster this move up or down is, the better the chances of an ADR failure. The later we get to the ADR the more the chances that we will blow past it or consolidate and close between the A level and the ADR which makes the trading the next day in the same direction a good bet because you can go home with a portion of your position still on, anticipating a continuation and also any pullbacks overnight would be defended at the ADn or AUp level.

The concept of time in these markets is extremely important and thats one of the things I learnt here that has helped me a great deal especially with the weekly and monthly.

When dealing with products like energy and also FX (both tend to mean revert hard) you really want to lean on the number lines hard. For example, I still contend when gas or oil is in a strong number line confirmation, the follow through on A ups is there to the ATR. When we are in a choppy number line the follow through is much more suspect. Also pay attention to your macro levels. If we are making a hard A up intraday on Tuesday and the weekly A up is right above the intra-day A up, you usually will see that confirmed A up give back it's gains. I know it can get complicated. But when I look at the levels(at the end of the day) in hindsight I almost always see the macro culprit that got in the way of follow through.

With oil I also track the A levels on all the calendar strips. Usually when you see strong confirms on the strips, there is follow through on the outrights. To make this even deeper, I watch the levels of implied volatility on oil. Markets tend to move hardest in the direction of the trader on the margin which is the short gamma trader. So when vol is high, I assume he is present because economics dictates that he be there. Any strong move will lead to hedging in that direction. On the inverse, when vol is low, I assume the marginal trader is long gamma (it's his optimal position), when strong moves happen he needs to fade it. Therefore there is less likely there will be follow through.

This is how you combine economics, finance, game theory and strategy into trading.

 

[logicaltrader]

Thanks.

When dealing with products like energy and also FX (both tend to mean revert hard) you really want to lean on the number lines hard. For example, I still contend when gas or oil is in a strong number line confirmation, the follow through on A ups is there to the ATR. When we are in a choppy number line the follow through is much more suspect.

I know you asked if everyone was OK with number lines and I started framing my questions but scratched it more than once. So this time, I will go through with it. Often I see when it is not a runaway day but we have a confirmed A intra-day, there is a move back towards the A levels and it almost seems like there is a fight right towards the end for the close to be above or below the A level. I have coined this the "Battle of the As". I have not yet figured out the correct close for refined products. A part of me says that the platts close is more reliable than the exchange close because it has to do with where we are in the shipping cycle, refinery utilization etc (the physical aspects) but havent gotten to researching it enough. Still lagging behind in my number lines because of this. Any thoughts on this?

Also pay attention to your macro levels. If we are making a hard A up intraday on Tuesday and the weekly A up is right above the intra-day A up, you usually will see that confirmed A up give back it's gains. I know it can get complicated. But when I look at the levels(at the end of the day) in hindsight I almost always see the macro culprit that got in the way of follow through.

You are absolutely correct. The earlier we are in the macro session, the more the chances of an intra-day confirmed A failing a macro level and giving up its gains. And this becomes clear usually in hindsight . I have also been told that I need to keep a watch on chicago and group basis. When basis is strong in the prompt, the board seems to go the other way. I am still working on my real-time visibility into these.

With oil I also track the A levels on all the calendar strips. Usually when you see strong confirms on the strips, there is follow through on the outrights.

I track the front 3 months in the curve at this time. How far forward do you think I should track? I am also tracking the front 2-3 cal spreads, the prompt cracks and the prompt gas/heat spread. This portion of my model isnt that mature yet but I am already seeing some valuable assistance for outrights based on the limited observations I have so far.

Markets tend to move hardest in the direction of the trader on the margin which is the short gamma trader. So when vol is high, I assume he is present because economics dictates that he be there. Any strong move will lead to hedging in that direction. On the inverse, when vol is low, I assume the marginal trader is long gamma (it's his optimal position), when strong moves happen he needs to fade it. Therefore there is less likely there will be follow through.

This is how you combine economics, finance, game theory and strategy into trading.

Way behind the curve like I said. This blew so far over my head, I couldnt even see it. Like I said, I have a long ways to go but thanks for this, my weekend couldnt have been more productive.

 

[DT3]

Let me begin. The AUD strengthened after the recent FOMC. I was long GBP.AUD and EUR.AUD, I got stopped out from one and closed the other before it hit my stop. I use wide stops that I measure in ATR. Is there some reason the Aussie would strengthen after that FOMC press conference? I don't want to keep making the same mistake. Anyone?

The only reason I can think of is because AUD is a commodity currency right? The fed meeting was very dovish which means lower rates for a little longer and beyond that I got the impression that even when they do start raising rates its going to be very gradual. So lower rates means weaker dollar, higher gold prices, stronger AUD. At least that's my take on it.

 

[justrading]

The only reason I can think of is because AUD is a commodity currency right? The fed meeting was very dovish which means lower rates for a little longer and beyond that I got the impression that even when they do start raising rates its going to be very gradual. So lower rates means weaker dollar, higher gold prices, stronger AUD. At least that's my take on it.

I did not make that connection, but given that the dollar and gold are inversely correlated, it makes sense. Thanks, much appreciated.

 

[Maverick74]

Thanks.



I know you asked if everyone was OK with number lines and I started framing my questions but scratched it more than once. So this time, I will go through with it. Often I see when it is not a runaway day but we have a confirmed A intra-day, there is a move back towards the A levels and it almost seems like there is a fight right towards the end for the close to be above or below the A level. I have coined this the "Battle of the As". I have not yet figured out the correct close for refined products. A part of me says that the platts close is more reliable than the exchange close because it has to do with where we are in the shipping cycle, refinery utilization etc (the physical aspects) but havent gotten to researching it enough. Still lagging behind in my number lines because of this. Any thoughts on this?



You are absolutely correct. The earlier we are in the macro session, the more the chances of an intra-day confirmed A failing a macro level and giving up its gains. And this becomes clear usually in hindsight . I have also been told that I need to keep a watch on chicago and group basis. When basis is strong in the prompt, the board seems to go the other way. I am still working on my real-time visibility into these.



I track the front 3 months in the curve at this time. How far forward do you think I should track? I am also tracking the front 2-3 cal spreads, the prompt cracks and the prompt gas/heat spread. This portion of my model isnt that mature yet but I am already seeing some valuable assistance for outrights based on the limited observations I have so far.



Way behind the curve like I said. This blew so far over my head, I couldnt even see it. Like I said, I have a long ways to go but thanks for this, my weekend couldnt have been more productive.

For refined products I do use 3pm central time primarily for continuity purposes. I want all the prices to be compared at the same time. I track the various calendar strips and the first 3 months on the outrights as well as the wti/brent spread, the cracks and the widowmaker for natty.