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Michael Filighera
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Michael's history with financial markets dates back to 1979 on the Pacific Stock Exchange Options trading floor. Michael has traded in the US, UK (London Traded Options Market), Netherlands (Amsterdam's European Options Exchange), and Germany (DTB). He is also an internationally published... More
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  • Quiet Days Can Be Profitable Days - Chart $NQ

    Quiet trading days can be profitable trading days. Pre-holiday markets look to have kicked in on Wednesday with the beginning of Passover this week and the long "Easter" weekend coming up. There were long periods of no direction with choppy trade being the pattern.

    I don't think anybody really likes choppy range bound trade. In fact I think it frustrates many as they sit and have stops triggered in both directions. One trader who called me on Wednesday decided to blame himself by saying, "no matter which direction I choose it comes back to bite me in the ass." I can't blame them for the feeling, but the problem may not be that the trader is wrong about direction or how to trade. Maybe it has more to do with "market awareness" and knowing how to 'tweak' your strategy to fit what the market is giving. This is a very important process to learn and master.

    (click to enlarge)Let's take a look at the $NQ and Wednesday's trade. What was apparent before the opening, how did the markets leave trading on Tuesday's close? What are my expectations with regards to market direction, intensity of the move(s), which strategies will I use, which risk management profile will I employ? What indicators will I look towards for signals? How will I 'tweak' my strategies to fit a changing market mood? This is part of my daily process that I do pre-market. Please don't be naïve in believing you can just switch on your screen and jump in without any preparation.

    A major premise every day trader needs to embrace and accept is not caring why the markets are going higher or lower. Not caring that sometimes, as in Tuesday's turn off the low back to the highs, the markets make sudden thrusts in the opposite direction for no apparent reason other than more buyers than sellers or vice versa. Don't misunderstand, I didn't say not know why. There is a big difference between not knowing and not caring. It is easier to trade knowing at what rate the index arbitrage traders are flooding in to the markets with buy and sell orders. I don't have to care why they are choosing to buy and sell when they do and by not caring you can trade the number.

    Reduce the equation down to its most common denominator. That is always going to be a number. Whether that is pertaining to your profit target, stop loss level, number of contracts to trade, or indicator. Now you can start to effectively build your market awareness.

    At any given time there are many factors in operation - many signals being generated that produce volume and direction. It may be momentary or it may be for several days. As I've talked about previously, each and every trading day there are day traders, position traders, and arbitrage traders within the equity, treasury, precious metals, and commodity markets most running algorithms trading in a microsecond, that is dividing a millisecond by the way. A blink of an eye takes 300 to 400 milliseconds. There are 1000 milliseconds in each second so a blink of an eye occurs in approximately one third of a second. The modern human brain hasn't developed enough to consciously process stimuli in microseconds. That doesn't mean our brains are not capable just not developed enough. However, having said that there are trading firms spending way more money then I'll ever see in my lifetime to be ahead of the pack by microseconds. This is why I also always say, "I just want to be a gnat on the elephants ass. Let the hunter shoot the poor elephant."

    There are derivatives on just about every listed product under the sun. Options on equities, futures, and commodities have expanded daily volumes as the additional traders hedge and balance positions - how you may ask? By adjusting what is commonly known as the Greeks, which are: first order - delta, vega, theta, rho and lambda, and second order - gamma, vanna, vomma, charm, veta, and vera. Yes, there a several I've never heard of and I'm an ex-market maker. In any case the greeks are the quantities (numbers) that measure the sensitivity of price of derivatives to a change in the underlying parameters which the value of an instrument or portfolio's risk sensitivities, risk measures, or hedge parameters are dependent on.

    Learning to trade the "number" is an astounding concept that human beings have a lot of trouble with. Talk to a statistician about this. Understanding the odds and probabilities is important. Not understanding them may ultimately defeat you and force you out of the game. Understanding how various types of traders can affect an underlying. Understanding that computers don't have emotions, they operate mechanically at break neck speed. Understanding the laws of probability.

    Check tomorrow's post as I continue the discussion on market awareness and "trading the number." Today's chart is again the $NQ but through the eye of the Falcon and under the microscope. This is where I basically dissect the first couple of hours, check it out for trades and discussion.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 16 9:46 PM | Link | Comment!
  • Nothing Goes Straight Up Or Down, Following The Bouncing $NQ

    The bulls and the bears went at it again on Monday, with the media giving today's fight over to the bulls. I dare say that the reality of today's trading was more a function of running algorithms than someone being bullish or bearish. Don't get me wrong I still believe there is a certain amount of bullish or bearish opinion that helps or hinders a move, but the main driving force behind the moves remains algorithms. Algorithmic traders number in the thousands and are often day traders, options traders, arbitrage traders, or futures traders. Scattered around the global financial centers the ball gets tossed around the world by the biggest players in a myriad of markets. Traders react to signals generated by a growing list of indicators such as momentum and moving average oscillators, large options trades, or if the bonds are higher, if the dollar is lower, if gold is up or down and so forth. There are so many variations of and on signals in force at any given moment that it is simply not accurate to say that the market is bullish or bearish.

    It felt on Monday that the traders may have come out of Friday's options expiration shorter than when they went in and expected, (hoped, prayed) for a "crash" like downslide. It got tiresome listening to all the moaning and complaining from the shorts, but eventually they get a breath of air just before the next whine-fest began as prices got 'goosed' higher into the closing bell. As a suggestion in avoiding missing some solid winners, (the NQ popped $30 in the last 30 minutes on Monday), when the whine-fest begins either hit mute, hang-up or turn off the live feed.

    As a position trader I feel their pain. Becoming fixated on a fast sinking PnL leaves a very negative pall over oneself. I've been there and done that! And don't be fooled even the deepest pockets get noticed when a position is going against them. As an ex-market maker I can attest to the "jonesing" like feeling that comes up when you don't have several options positions in play. That quick jump to the scan tab on your TOS platform sends a quick jolt of endorphins to your brain, but then you hear an audible from the Eagle - 'long set up NQ' and noticing that the ATR trail indicator has confirmed it as you hear 'long NQ'. You take the offer buying a two lot as Trade Manager takes over the trade's risk management as the ATR guides it to a $22 winner. Now for the honest part - the Eagle and the ATR are a fine combination in capturing mega winners. In all fairness not every signal generated is a winner, but the winners dwarf the losing trades when the above combo is in sync. Ok, here's the challenge - if you want to become a successful trader you will have to become engaged and trade. This is one reason why I adhere to and have much success with 'trading often and trading small'. You don't need to have a pissing contest with the other traders behind the bid/ask on your screen. Everyone is anonymous and computers don't care why anybody is buying or selling. Here again don't get me wrong 'size is something' and egos can and often do expand and contract with how much you got and how long you can sustain a losing position. Trade will still go to volume more often than not so no need to play the 'tough buy' and get taken out of the game. I for one enjoy the game too much to risk that - I enjoy trading and following the markets. I totally enjoy the luxury of not having to get all maxed out because the market is sliding lower or surging higher. I enjoy having the ability to jump on board and either trade it for the intraday trend (several minutes to an hour or more) or the intraday trend swing (several seconds to several minutes).

    Having the right tools does make all the difference in achieving that. I will continue to say ' if you can't beat them - join them' - and I don't want anybody else to beat them either. Let's face it whether or not the broader indexes belong trading at the levels they are just doesn't factor into my equation from the opening bell to the closing bell. Having said that please don't play the fool and not believe you don't need to pay attention - there are always binary events lurking and some build up much more anticipatory momentum than others and produce serious explosions of volume and direction. Not having to defend a position and having the correct signal generator and risk management tools in place is awesome - and that you can take to the bank.

    Check out today's chart of the $NQ_F through the eye of the Eagle for Monday, April 14, 2014.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 14 11:23 PM | Link | Comment!
  • Never Short A Dull Market, Or ...
    Never Short a Dull Market or What Happens When You Host a Party and Nobody Comes - the Volatility Indexes

    Have you ever gone to highly anticipated event and wished you were anywhere else? That is what the markets were like on Monday. Stuck in neutral with nobody left to push prices in either direction. Other than Bonds and Nat Gas which continued to build downside momentum the balance of what I watch and trade went nowhere fast.

    The U.S. trading sessions were very narrow and without volume. Volatility continues to get crushed with several of the volatility indexes and ETFs moving to new 52 week lows. The Euro gave a nice trade first thing on the opening of U.S. trade but reached the highs around 1.3265 and proceeded to trade in a 10-tick range much of the balance of the day. Gold dipped briefly below 1300 but failed to attract any attention or trigger any sizeable stops with prices then moving back above 1300. Bonds took a breather from Friday's bounce higher and remain the area where near term strength is still expected.

    Current expectations remain in place where a correction for the broader equity indexes increased in probability on Monday - a bounce in Treasuries should continue and be lead by the 10-year Note. The Euro is still looking weak and running out of steam for an additional push above 1.33. At least not until a further break down carries prices below 1.32 to begin and ultimately into the support zone at 1.26 to 1.28.

    Volatility Indexes

    The way volatility works in the markets can move contrary to what most think in that "normally" when the market moves into a period of uncertainty which can produce a increased sense of movement risk. Upside fear is almost non existent with downside fear being the force behind most spikes in volatility and the respective indexes.

    A trading friend called me on Monday wondering why the VIX , VXX, and UVXY were all down along with the broader indexes. "Shouldn't they be higher today?" My answer was yes and no - trading strategies have increased exponentially with the advent of more sophisticated algorithmic trading programs.

    Each day volatility programs determine what the daily (intraday - high to low) moves should be. For example, the current level of the VIX suggests that the SPX will have an intraday range of approximately $12 - however, that didn't occur on Monday - in fact it was half that coming in at about $6. Therefore prices were adjusted via selling to reflect what actually was going on. It remains important to remember that this can easily change on Tuesday. Should the intraday range for the SPX expand look for volatility indexes to move higher.

    S&P 500 VIX Short-Term Futures Index -
    • Summary -
      • The S&P 500 VIX Futures Index measures the movements of a combination of VIX futures and tracks changes in the expected volatility based on 30 days forward. The index maintains an average weighted settlement date of one month by rolling a portion of the position from the front month to the next month out, which is done on a daily basis.
      • The VIX is a measure of the expected volatility of the S&P 500 over the next 30 days. The VIX is not a traded index, but does have listed futures and options. The VIX futures reflect expectations for the level of the VIX on the settlement date of the contract.

    There are several ETFs and ETNs that are tied to the VIX :

    • VXX
      • The VXX tracks the VIX and offers exposure to a daily rolling long position in the first and second month VIX futures contracts to reflect the implied volatility of the S&P 500 index at various points along the volatility forward curve. The VXX future also rolls continuously throughout each month from the front month to the next month out.
      • UVXY
        • The Ultra VIX Short Term Futures ETF looks to produce a return that is 2x the return of the VIX for a single day. This can and has produced a situation where the returns over periods other than one day will not be as correlated to the amount or even the direction of the target index.

    The charts below of the VXX and UVXY show both probing the bottom of their ranges. UVXY has dropped 65% since reaching a high of 90 on June 21, 2013. This index is extremely oversold but don't be mislead here - the UVXY has been oversold since July 3rd. The VXX has followed a similar pattern dropping from 23 to 14 during the same period and is extremely oversold.

    The oversold readings within the volatility indexes and the overbought readings within the broader indexes continue to suggest a period of correction and consolidation is coming up next. (click the chart to enlarge)

    (click to enlarge) (click to enlarge)

    Indicator Warehouse

    Indicator Warehouse has in my opinion the best platforms available covering a wide range of traders from novice to expert.

    The Diversified Trading System from Indicator Warehouse offers cost effective products that allow a trader to enter into the "chaos" and trade more effectively.

    Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility. Automated stop-loss management and position sizing eliminates most of the problems most individual traders have. Day trading and position trading both require (actually demand) good risk management. Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades.

    A newer member of the money management tools available from Indicator Warehouse is the Profit Finder - System Back Tester. When implemented it allows the user to:

    • Immediately know the impact of parameter changes.
    • Automatically reads all of your DTS entries and exits
    • Calculates the profit/loss of each trade
    • Performs a wide number of essential intelligence boosting calculations instantly
    • Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators

    The last two points above are valuable tools to use. It will show you where some "tweaking" is needed to improve results through the back testing feature.

    My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames. As traders these types of moves can be a bonus for day trading or position trading so again don't get caught up in the "what's the catch." Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System. Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms. Our goal remains to assist traders to make greater profits during all types of markets. Sector and money rotation is another tool.

    The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA). In the near future I will be adding options strategies to the trading list.

    Here is an updated (7/31/2013) list of the markets where I have found that DTS (all three birds) are producing numerous signals. Continue to bear in mind that there are days when trading opportunities are not as plentiful. These are days when not trading is likely more profitable than attempting to "force" a trade":

    • DJIA future (e-mini available) - highly recommended for experienced traders
    • S&P-500 future (e-mini available) - highly recommended large intraday moves.
    • Russell 2000 future (e-mini available) - highly recommended can lead in either direction.
    • NASDAQ 100 future (e-mini available) very highly recommended and dominated by AAPL, AMZN, NFLX, GOOG, and TSLA
    • US$/Euro futures (e-mini available) - very highly recommended - easy to trade afterhours as well.
    • V (Visa) - stock and options - recommended - large swings in both direction likely
    • MA (MasterCard) stock and options - recommended - $600 stock - large swings likely
    • GS (Goldman Sachs) - good two way volume -
    • AAPL (Apple Computer) - highly recommended - Options trading as well
    • GOOG (Google) - highly recommended
    • LNKD (LinkedIn) - solid intraday range
    • NFLX (Netflix) - solid intraday range
    • TSLA (Tesla Motors) - highly recommended
    • 30-yr Treasury Bond future - highly recommended
    • 10-yr Treasury Note future - solid two way trade
    • TLT (Treasury Bond Long ETF) - very active
    • TBT (Treasury Bond Short ETF) - very active (moves inversely to TLT)
    • Gold (futures and ETF - GLD) very active - not suitable for all traders
    • Silver (futures and ETF - SLV) - very active - not suitable for all traders
    • EURO FX (futures, mini and micro contracts available) very active suitable for all account sizes

    Disclosure: I am long VXX, UVXY.

    Aug 05 6:28 PM | Link | Comment!
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