I want to refer to our August 8, 2019 *Seeking Alpha* report, "E-mini S&P 500 Activated Buy Trigger From The Extreme Below The Mean." The report said that the Variable Changing Price Momentum Indicator (VC PMI) automated algorithm recommended going long the E-mini S&P 500 from 2,878. We recommended that you use the buy 2 (B2) level of 2,845 as your protective stop and your first target would be 2,889.

The report clearly gave use a definite trigger to enter the market and where to place your stop. The goal is to provide self-directed traders with a way to trade the market on a more mathematical basis and a more automated basis using an algorithm based on technical analysis.

"I have been working with the VC PMI for 13 years," Equity Management Academy CEO Patrick MontesDeOca said. "I see a clear structure that it defines for you."

The automated algorithm and the artificial intelligence give you a sense of direction for the market in terms of an average price and two extremes above and two extremes below the mean for a given market.

For the weekly structure, the chart here is from August 6 with the market trading at 2,870. It told you to go long at 2,878. Since that signal was triggered, the E-mini came down and activated the 2,878 level by making a low of 2,872.50. It closed at 2,939.50 on August 8, 2019. The signal was given on the 7th at 2,879.75 close. We recommended that you use the target zone of 2,889 initially. On the 8th, the market ran up to 2,943 and met the target from the entry point and the exit point. It did stop us out. It produced a very nice average return from a long of 2,878 to 2,889 in just a day.

## The Coming Week

Courtesy: TDAmeritrade

With the market closing at 2,923.75, the market closed above the average price of 2,918. It therefore gave us a bullish trend momentum coming into this next week. The fact that the market closed above 2,918 means it activated the targets above, the sell 1 (S1) level of 2,938 to the sell 2 (S2) of 2,955.

The alternative is that if the market were to close below 2,918, it would activate a bearish trend momentum. When the market hits the trigger, it activates a target and a stop automatically. The target is the B1 level of 2,900, which will be activated if the market closes below 2,918. Always your stop is the pivot above, which in this case is 2,918.

The VC PMI gives you as a self-directed trader the ability to interpret the data on a daily, weekly and/or monthly basis, so you can decide how to manage your account for day, swing or position trading.

"I don't recommend anyone do all three in the same account," MontesDeOca said. "The best way to manage the three trends is to trade the three trends separately."

The goal is to keep the system simple, practical and efficient.

For next week, the market is trading around the average price. As a day trader, don't do anything until the market shows us whether it is going to trigger a move up or down. Wait for the highest probability trades, when the market comes down to B1 (a 90% chance of a reversion back up to the mean) or to S1 (a 90% chance of a reversion back down to the mean). The B2 and S2 levels have 95% probabilities of the market reverting back to the mean. Use this information starting Sunday night to use the VC PMI as a GPS to find the highest probability trades for you to make.

The chart shows the VC PMI in action and a perfect reversion to the mean formula from the S1 level of 2,938 to B1 of 2,901: a 33 point profit ($1,650) on the short side from the 8th to the 9th, and then during the 9th, another 14 point profit ($700) up.

**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 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 which price level 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. The price closing above the S2 level 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.