Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Bang! Margin Weighted DATR (by Trade Flight Plan)

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A couple months ago, we posted our last analysis of the dollarized
daily average true range (DATR) across the most popular futures
instruments.  With the incredible moves in the markets lately, it's time
for another update.

At the suggestion of another sloper (excellent suggestion by the
way), we revised our analysis to reflect margin weighted
dollarized average true range (mwDATR).

We show the mwDATR as a percentage.  This is the return on investment
percent (ROI) possible in a trading day, based on the dollarized
average daily moves of each futures instrument relative to the initial
margin/performance bond requirements set by the exchanges.  Brokers can
differ in their margin requirements, but we use the exchange margin
requirements for a common baseline.

As an additional nifty feature, we now use Google docs to share this
analysis, so you can further slice and dice to your heart's content. 
Liquid futures instruments favored by retail traders are highlighted in
yellow.

The margin weighted results are interesting, with the most popular
big indexes ranking toward the bottom.  The Euro, oil, gold, and the
Russell are at the top of the list.  For example, oil has been moving an average of more than $2,000 per contract each trading day.

We firmly believe that in putting our capital at risk every day, the
instruments we trade must be worth the effort, must be liquid, and must
respect repeatable trading strategies.  The opportunity exists for
astute traders to make a small fortune each day.  Of course, this
extreme bang for your buck can work both ways.  We cannot stress enough
the discipline, focus, and diligent trading rules required to trade
these instruments.

Click on the image to access the Google docs electronic spreadsheet.

Originally published on Tradeflight.com

What will /ES Do Next?: Volume Profile (by TradeFlight.com)

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First, we express our gratitude to all the heroes that made unimaginable sacrifices for us and our country, and to defenders of liberty and freedom.

Now, those who follow our blog know that we do not like to make forecasts
on the future price direction of the instruments we trade.  Huh?  How
can any trader generate revenue without forecasting price direction?

To clarify, obviously, we do make forecasts each day when we trade. 
But, we don't remain stuck on a long term view.  In other words, we truly
confess we have no idea what /ES will do in the next 30 days.  We are
quite content observing Tim and others make their startlingly bold and
accurate predictions!

However, what we do know is that /ES follows supply and demand
areas.  When /ES breaks through a level, and then retests to prove it's
legit, the odds are good it will migrate to the next support or
resistance level.  Then, we try to trade a bounce that can turn into something bigger.  To that end, we find volume profile analysis useful
in our trades.

Here's our latest snapshot.  If you were /ES, what would you do?


ESVolDist

We see two possibilities, 50/50 odds from our perspective, but a nice
move either way.  The best part is that /ES will tell us what it wants
to do through its price behavior on smaller, intraday chart timeframes.

On Friday, the relentless bulls took /ES right to a 50% retracement
at 1105s, just below the prior resistance at the 1110 level.

If /ES can break above 1110s, we see the next potential resistance
level up at 1150s, a nice 40 point move.  Mind you, if it breaks 1110s,
it's not an automatic entry for us – we'll probably wait for a
retracement, watch /ES starting trending North, and then buy a pullback.

On the other hand, if /ES can break below prior support at 1075s,
then it's possible we can see a Southbound run all the way to targets
down at 1004s/1005s.  Again, we would wait for a pullback after breaking
below 1075s and then sell if /ES starts to develop Southerly
tendencies.

Of course, it's Summer and always possible that /ES will just remain
stuck right here between 1060s and 1110s.  Therefore, proper risk
management and scaling out techniques that book partial profits are
essential.

Bang For Your Buck 2.0: Revised DATR (by Trade Flight Plan)

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A few weeks ago, we posted an analysis of dollarized average true
range (DATR) for many popular futures instruments. Now, that things
have settled down after the crash (or have they), we wanted to see how
dollarized volatility and daily range potential has changed. Here's the
latest. The daily true ranges and contract volumes are averaged over
the past 20 days.  Popular futures contracts are highlighted in yellow as reference points.

Datr

Special thanks to FZ and M, fellow futures traders and analysts who
spotted the data feed issues associated with contract volumes in our
prior post. This latest analysis corrects those issues.

A
final note as we approach May options expiration…
Using a database of SPX closing prices going back 20 years (our personal
trading almanac), we are mindful of S&P 500 price behaviors going
into every options expiration week. May opex week has been bullish
60-70% of the time for SPX over the past 20 years.

This is not
necessarily the case for opex week every month. Of course, there are no
guarantees, just history (we suspect Fujisan will have a few things to
say about the 1150 level on SPX). There's a tremendous amount of
economic and political turmoil going into this week that is causing your
host, the good Dr. Knight, to lick his chops.

Buying the Enemy? (By Trade Flight Plan)

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GS tanked last Friday when news broke of the SEC fraud complaint.  GS fell 20 points from highs near 185 and then recovered slightly, losing something like $10 billion in market value on a single day.  We have no idea who or what to believe, but several articles over the weekend are suggesting at least $1 billion in penalties, legal settlements, the kitchen sink, and whatever else analysts, journalists, and traders can muster.

Retail traders enjoy a good GS joke now and then, but hey, if you can't beat 'em, join 'em.

Interestingly enough, GS announced net quarterly earnings of $3.46 billion today yesterday.  A quick check of front month May options reveals nice high implied volatility (IV), even after earnings, given the uncertainty surrounding the SEC case.  In fact, May options currently have higher IV than June.

What if GS just traded right here in this range?  Earnings are over, the market is still digesting news of the SEC's case, and no one knows what will happen next.  The market hates uncertainty and GS can certainly still tank from here.

But, what if GS stays right here in its range?  Selling front month May volatility while buying June affords an interesting double calendar with a roughly 1:1 risk reward ratio.  In this case, a May/June 155 put calendar combined with a 170 call calendar paints an interesting profile.

2010-04-20_1557

Now, we do not officially recommend this trade or any other trade.  To be clear, this double calendar example is only provided for educational and entertainment purposes.  It is an exercise in observing option volatility.  And, GS can certainly experience a gap up or gap down situation in the coming days which could render a spread like this unprofitable before a trader could take action.  A spread like this should also never see the light of the next options expiration week in May.

But, it will be fun to watch what this does in the next 1-2 weeks if GS stays in a range and May implied volatility contracts more quickly than June IV.

Bang For Your Buck: Dollarized ATR (by Trade Flight Plan)

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With the S&P 500 and major equity indexes doing nothing more than
continuing their slow grind higher, futures traders are enjoying nice
intraday ranges and weekly swing trades on a variety of currency and
commodity instruments while ES traders are lucky to see 10 handles (40
ticks) in a day.

So on days the ES is slow, what futures instruments provide
volatility and trading range opportunities?  We analyzed some of the
more popular futures contracts favored by traders based on their average
20-day volumes.  We ignored futures contracts that did not trade at
least 1,000 contracts consistently for the past 20 days.

To approximate intraday volatility potential, we take a look at a 20-day moving average
for daily average true range (ATR).  Since not all futures
contracts are created equal, we then "dollarize" the ATR of each futures
contract based on tick size and tick dollar value.

For example, the British Pound (6B) is known to be a volatile futures
contract with nice ranges – a daily average range of 166 pips! 
However, the Euro futures contracts (6E) offers larger dollarized
intraday ranges since each 6E pip has a dollar value ($12.50) that's twice as
much as 6B (only $6.25).

We highlight some of the most popular futures contracts to see how
they stack up against others.  The results are interesting, with some
instruments moving more in a day than ES moves in a week. Since there's
no point in trading any instrument that lacks sufficient volume and
liquidity, click here to launch a view sorted by average daily contract volume.

DATR

DISCLAIMER
To be clear, this is NOT a recommendation or endorsement to trade any
futures instruments.  Click here to read our full disclaimer. 
It is simply a study in dollarized daily ranges.  It is critical to
grasp several points:

  • Larger dollarized ranges involve greater risk.
  • Different futures contracts CANNOT necessarily be traded using the
    same setups and techniques as ES.
  • Futures can neglect all kinds of perceived technical levels.
  • Futures can cause inexperienced traders to lose more capital than
    they realize is at risk.
  • Different futures instruments trade during different market sessions
    and can behave completely differently during various times throughout a
    24-hour trading day.
  • Futures contracts can suffer stop runs and unacceptably wide bid/ask
    spreads, especially those with less liquid trading volumes.
  • Past performance and any statistics are no guarantee of future
    results.
  • Any trades without proper risk management will eventually cause
    harm.