The E-mini S&P traded last at 2947.50, -10 points as of May 3, 2019. The Equity Management Academy's proprietary Variable Changing Price Momentum Indicator (VC PMI) artificial intelligence has activated a short signal based on the close of 2947.25 at 10:30 am (PT).
The signal has activated the first target below 2933, Patrick MontesDeOca, CEO of the Equity Management Academy said in a podcast, and if you have multiple positions, the second target is the mean of 2917. If the E-mini closes below 2917, it will activate the 2906 level of support (Buy 1 or B1) to the buy 2 (B2) level at 2888. The signal right now has activated a 95% probability that a reversion to the mean will occur back to 2917. This is the highest probability signal that the VC PMI provides.
Stops: Three Choices
In terms of a stop, we don't want to use a standard, straight stop. We teach our subscribers to use stops to manage their risk. For this trade, you can choose the conservative risk of a close above 2948 using the 15-minute bar.
A more aggressive approach is to wait for the close, so you can use a market-on-the-close stop. However, if you do this, you are taking the risk of carrying a position to the end of the day. When you are looking at a 95% chance that the market will revert back to 2917, it gives you the flexibility that if you want to carry the risk to the end of the day, you can. You have two levels for possible stops. If you have multiple contracts, you can put a stop on one contract and hold the other to the close.
The VC PMI's artificial intelligence also gives you the flexibility of a third stop; a catastrophe stop, which you want to have on any signal. I recommend, if the market moves 10 points, you want to get out; on the E-mini 10 points is $500.
The flexibility of the artificial intelligence gives you three choices of stops, all on the close. They are not straight stops. Ninety percent of people use straight stops, and they are usually taken out automatically. The market will go through, take out the stops, and then revert, which is why the VC PMI recommends waiting for the close, even if the market goes through that level, which the market did in this case at the sell 2 (S2) level of 2948 by making a high of 2949. That gives you the setup, so this bullish trend that was activated on the close at 7:30 above the S1 level has been completed. Now the pattern has reversed and activated a short signal. As a trader, use the highest probability that the VC PMI provides - so execute a trade at the S2 level, which is exactly what this signal is offering now.
The VC PMI Automated Algorithm
We use the proprietary Variable Changing Price Momentum Indicator (VC PMI) to analyze the precious metals markets and several indices. The primary driver of the VC PMI is the principle of reversion to the mean ("Mean Reversion Models of Financial Markets," "The Power of Mean Reversion in Factor-Based Investing"), which is combined with a range of analytical tools, including fundamental logic, wave counts, Fibonacci ratios, Gann principles, supply and demand levels, pivot points, moving averages, and momentum indicators. The science of Vedic Mathematics is used to combine these elements into a comprehensive, accurate, and highly predictive trading system.
Mean reversion trading seeks to capitalize on extreme changes in the price of a particular security or commodity, based on the assumption that it will revert to its previous state. This theory can be applied to both buying and selling, as it allows a trader to profit on unexpected upswings and buy low when an abnormal low occurs. By identifying the average price (the mean) or price equilibrium based on yesterday's supply and demand factors, we can extrapolate the extreme above this average price and the extreme below it. When prices trade at these extreme levels, it's between 90% (Sell 1 or Buy 1 level) and 95% (Sell 2 or Buy 2 level) probable that prices will revert back to the mean by the end of the trading session. I use this system to analyze the gold and silver markets.
Strengths And Weaknesses
The main strength of the VC PMI is the ability to identify a specific structure with price levels traders can execute with a high degree of accuracy. The program is flexible enough to adjust to market volatility and alerts you when such changes take place, so one can adjust strategies accordingly. Such changes include when the market breaks out of a consolidation phase or a trend accelerates. Such volatility usually happens when the market has produced a signal at the S2 or B2 level, and the market closes above or below these extreme levels.
The day trading program then confirms that a higher fractal in price has been identified, and the market will move significantly higher, although the same principle applies if the market falls significantly. By the price closing above the S2 level, it indicates that the buying demand is greater than the supply. This means that the market has found support for the next price fractal. Conversely, the price closing below the B2 level indicates that the selling pressure has met demand greater than supply at the extreme below the mean, and prices should revert back to the mean.
The basic concept of the VC PMI is that the program trades the extremes of supply and demand based on the average price daily, weekly, and monthly.
The strongest relationship we find in the algorithm is when the daily price is harmonically in alignment with the weekly and monthly indicators. We call this "harmonic timing." Such an indication produces the highest probability (90%) that the price will revert from these levels to its daily, weekly, or monthly average.
To learn more about how the VC PMI works and receive weekly reports on the E-mini, gold and silver, check out our Marketplace service, Mean Reversion Trading.
Disclosure: I am/we are long SPXS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.