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Tom wrote:
>
> Mark replied:
> > or sell before a 20% move for the next 2?
> >Here I am! this is me in front of the train. But a train I know well and.....<snip>
> >Why not mix and match? You could build a system like that.....
Mark and Tom,
Interesting post. I have spent quite a bit of time building trading
models based on these concepts, using the following:
volatility contractions
ADX contractions
Proprietary mathematical representations of emotion and psychology.
Building frameworks with these as a starting point, often yields
reasonably accurate results in predicting breakouts which will quickly
exceed standard deviations of +3 or -3 the current price.
As you say, the problem is that it's hard to figure out which way
the freight-train is going to go. :) At first I figured that trading
with the mid and short-term trend would yield more profitable results.
Strangely enough, at these times, trend is no help in determining the
direction of the spike. (Although a trend may reel a counter-trend
market spike back in.) Rate of change and/or Momentum also yielded
no advantage.
I believe this is beacause at this point, we are dealing
with so MANY different technical traders all trying to do things at
the same time, and there are so many psychological and emotional
factors at work, direction becomes problematic.
The only entry techniques that I found to be effective, were long
volatility option straddles or strangles, or just waiting for the
initial futures breakout to occur, and then piling in on any kind
of retracement. You'll miss a nice initial move occassionally using the
later technique, but it's safer (relatively speaking. :) ).
Exit strategies are simple enough:
If Price blows through the nearest major sup/res levels, hold.
If price stalls at major sup/res levels, exit or take profits.
If price shows major expansion bars, exit the trade.
If momentum, ADX, or volatility peak to new highs, exit the trade.
If Price exceeds 3 standard deviations for 3 days, exit the trade.
That's all I've been able to do with these set-ups so far. :)
Walt Downs
CIS Trading
http://cistrader.com
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