The Dual Blades 4D Trading Technique By @Bogeygolf
Asset class modeling, Macro analyst, Bonds & Equities, Currencies & Commodities
Seeking Alpha Analyst Since 2011
Robert P. Balan runs Predictive Analytic Models, #1-rated trading unit at Seeking Alpha. PAM trades Swiss HF funds using Federal Reserve, US Treasury, and term (money) market liquidity data flows as basis for trading decisions. He is domiciled in Zurich, Switzerland.
Robert Balan has 5 decades of experience in the financial markets. Education in Mining Engineering, Computer Science & Engineering, M.S in Quantitative Finance, and training in Economics led to a commodity analysis career during the commodity boom of the early 1970s. Robert made a switch to global macro focus in the early 1980 when the commodity bull market waned, with specialization in foreign exchange. Robert wrote a very high profile daily FX analysis while Geneva-based (Lloyds Bank Int'l) in the mid-1980s (the first FX commentary with a real global readership, "most accessed" in the Reuters and Telerate networks from 1988 to 1994).
He worked for Swiss Bank Corp and Union Bank of Switzerland (precursors of today's new UBS) as head of technical research in various finance centers (London, New York, and subsequently, head of prop trading at SBC in Toronto ) from the late 1980s to mid-1990s. A stint at Bank of America as head of global technical research followed in late 1990s to the early 2000s.
Robert returned to Switzerland in 2004 as head of technical research and strategy, and FX market analyst for Swiss Life Asset Management in Zurich. Robert wrote FX analysis and capital markets commentary for Saxo Bank (Denmark) in the early 2000s. He joined Diapason Commodities Management (CH) in Lausanne in 2008 as senior market strategist, and subsequently Chief Market Strategist, utilizing fundamental macroeconomic drivers and structural/technical data in modeling asset price and sector movements.
Robert wrote a book on the Elliott Wave Principle in 1988, which has been hailed by the London Society of Technical Analysts as best ever book written on the subject. Robert is a member of the National Association for Business Economics (NABE), U.S.A.
Equities entered a congestion zone last week (9/14 to 9/18) PAM navigated an Irregular Elliot Wave Pattern during a highly volatile transition between bullish and bearish seasonal and liquidity analytic model signals.
We had an ensemble of bullish votes entering the week:
(1) short term oversold RSI-2,
(2) strong SOMA flows at beginning of the week
(3) Fed day run-up bullish edge
(4) NDX and SPX below money flow and short term real rates regression (Stephane.C)
(5) SPX and NDX below gamma neutral levels (RM13)
(6) rate spike into fed day (IPPY04 model),
(7) supporting bank reserves rate of change
We had bearish votes as well:
(A) MACD down trend and weak breadth
(B) transition from bullish to bearish seasonal liquidity models SPX 5y Ave, TCB
(C) options expiration at which the market makers “stripped the Robinhood neophytes of much of their trading capital” (gelstretch) because on Sept 2nd retail option traders bought a record number of call options an MM were motivated for those calls to expire worthless
(D) institutions rolling option hedges for the election “funds are setting up strategies to accommodate their year end objectives” (gelstretch) meaning MM want to sell puts to them at low prices
How would a Traditional Trader Navigate this setup?
A traditional trader would take go long as the market bounded and get stopped out at the bottom of the range when it did not work. The after taking a loss, traditional trader would hesitate to go short because his ego is bruised from getting stopped out with a loss.
I use the storm trooper blooper from the original movie to represent the traditional one directional trader.
Metaphor for Dual Blades 4D Technique
I’m using Ahsoka Tano’s dual white light sabers to represent the 4D method of taking both long and short trades to navigate this Irregular. You’ll have to watch Clone Wars to learn why Ahsoka uses white blades instead of traditional green (light) or red (dark side).
She’s the only “Jedi” to survive the Order 66 purge and she played a critical role in the rebellion and thrived after the Battle of Endor. She was trained by Anakin Skywalker and she’s the only one to thrive through Old Republic, Empire, and New Republic.
EWP for Dual Blades
4D Dual Blades technique used EWP to identify potential patterns for both bullish and bearish breaks in the market. By taking both long and short trades this week PAM was open to letting the market price action in TNX, SPX, and NDX tell us which way it would break. Analytic models pruned the tree of potential EWP down to a few high probability outcomes.
Refer to September 14 2020 in PAM: Trade Summaries for the trade details
“RB: We are fast approaching a situation where the rally from last Friday's low approaches maximum risk. The market is completing a full five wave sequence, and we should be expecting a correction to the rally soon. Also if my analysis is wrong, and we just completed the wave C of a bearish irregular, then the market will not do mere 50 correction but could proceed lower even further."
"Therefore we put a temporary potential hedge. “
The price action resolution left us with this forecast.
Why 4D Dual Blades Trade Technique Works
The long trades acted both as a form of risk management for the shorts, but they also had a target of the top of the range. So the longs were a high probability trade setup and we’ve already looked at the bullish ensemble votes above. But 4D approach enabled us to take on high probability shorts at the same time. The trade setup added to shorts when price broke the bottom of the box. That is, price told us which way the resolution of the irregular would take.
This is a form of anti-Martingale position management. Now the short are not going to be a 2 week swing trade, instead PAM is using a Reach Exit Technique by setting limit order below the market to close out the shorts on a panic sell-off.
Then in the long blade will be the only trade left and will be managed on a separate time frame during the reversion. By having Dual Blades active, it keeps PAM active on both sides of the box with risk management. This leads to a form of trade I call High Win Rate Trading, which mean the trader takes a series of modest winning trades in a row both long and short.
This is the opposite of trend following which takes a series of whipsaw losing trades in an effort to get a huge win. That huge win has to pay for all the losers. Dual Blades technique flips this around and scales into the winning short trade in this case, and then reverses back up with the long trade.
Waivers:
This is not a trading or investment recommendation. It is a dissection of PAM's 4-D Trading Method, and its intention is to make clear some aspects of the trading strategy that have not been discussed in detail. I won't be responsible for any consequence for the use of any of the narratives in this article.
@bogeygolf
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