Category Archives: Risk

Daring to Be a Bear This Week (Trade Walkthrough)

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I’m making an adjustment to my posts from now on where instead of simply speculating about future market direction, I’m going to offer a trade idea and plan.  (insert customary disclaimer, educational purposes only, blah blah, I can’t make you buy or sell, use the plan at your own risk, etc. etc.)  So let’s get to it.

The Context: As some of us are painfully aware, the S&P500 has been making higher lows and lower highs since the low of September 12th resulting in a triangle-like pattern.

161009 - SPX


Lighten Up, Francis

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I’m in no mood to be a hero against Janet “anti-Christ” Yellen this week, so I’ve lightened up considerably, having gone from 70 positions to a mere 45 and a 150% commitment (vis a vis my buying power) to 100%. I want the little three-foot beast to get out of the way before I try to do anything cute with the market. I’m laying relatively low until Wednesday blows over.

RL Track Records 2012-2016

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Today we are going to do something different: often we receive enquiries from prospects that would like to know about the type of returns that can be obtained using the Retracement Levels models. We know from incubator accounts traded with real money and also from backtesting of our models that certain type of results are possible and are certainly above simple BUY & HOLD returns, however for a number of reasons it is not possible to provide this information to our clients because:

a) trading is so personal and each trader inevitably blends his own bias into our systematic strategy/model, so in the end not all traders will follow our system to the letter

b) most traders will fail even if you give them all the tools and support to be successful, because trading is very difficult, it requires capital, stomach, self-control, far-reaching intelligent/strategic thinking and unfortunately it’s hard to find all these qualities in one single individual (that is also why we want to use computers to trade or to support our investment decisions).


Market Volatility Now In “Fragile Zone”

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Further to my post of December 3, 2015, the price of the SPX:VIX ratio has broken below a critical level of 100.00 and has fallen into, what I call, the Fragile Zone.

I named it this because, as you can see from the ratio chart below (where each candle represents 1/4 of a year), price has now encroached into the last major bearish candle of Q3 of 2011, and has also fallen below the 60% Fibonacci retracement level taken from the 2009 lows of this ratio to its highs of 2014.

A hold below 80.00 could see the SPX plunge, particularly if this ratio drops and holds below 60.00. The declining Momentum indicator is hinting that further weakness is ahead for the SPX…as I mentioned here, with respect to the E-mini Futures Indices.