This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Change charts isn’t a statement. its just another setup option.

I’m not exactly sure if this will be beneficial or not, but it looks promising. Since Richard is now posting videos with androids resisting the sexual advancements of humans, I thought I would break my own rules, and post something market related.

I’ve been experimenting with range charts, and one thing that I’ve not been able to do, is trade breakouts. It does a fairly good job of identifying reversals. The breakouts are probably there too, but unless I get a good retracement, I can’t recognize it quick enough. By the time I see it, the train has left the city - much less the station.

Take a look at a ‘change’ chart. The setting is exactly the same as a range chart - 2 points. The only difference is the construction. For example, if the current bar opens at 2000, a new bar will start at 2002.25, or 1997.75. That may not seem that different on the surface, but it actually is. Some of these bars may actually print with a range of several points. That in itself isn’t surprising, but the picture it paints, seems to be. I’ve cherry picked two examples using the different settings.

It also has a Renko feel to it that Prospectus might like. Identifying flags, and other setups used in a trending market, seems easier with this type of chart.

Rinse Job on the Change chart

Rinse Job on the 5′ chart

Gap on the 5′ chart

Gap on the Change chart

Gap on the Range Chart

I didn’t post the rinse job on the range chart, because like I previously stated, it does a good job on reversals. The problem with the range chart (to me) is that it took so long before it gathered enough steam to power ahead. After the gap, it didn’t appear to do much , and didn’t seem like it would. However, on the Change Chart, you could see the orderly nature of the breakout.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Do you polish the brass on a sinking ship? I know that’s a dumb question, but let me tell you what I’m thinking. The likely winner of the Trading Pimp of ‘07 won’t acknowlege the award. The runner ups are swimming in money anyway. They already have their own Chalice, luxury cars, and a stable of women. Do they really need anything more than Mr. White Folks recognition of the strength of their game?

What I’m thinking is this. I receive no ad revenue, and could care less about blog links, and page views. I’m a man of the people. I remain the only blogger who gives away cash and prizes with zero expectations of future financial gain.

This year I’ve decided to name the Trading Pimp of ‘07, but not award them the grand prize. The prize actually goes to a struggling trader. Since I’m still pimpin’ on a small stage, he/she will be given a one year’s subscription to Technical Analysis of Stocks and Commodities.

Here’s what I need from you. In the comments of this post, tell me why you should get the subscription. You can also nominate other struggling traders. Links to this post will gain favor with the judges. Now let’s help polish the brass on a ship that may be sinking.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The eotpro.com folks have been investigating the strengths and weaknesses of range bar charts. Tradestation doesn’t have range bars, but it does have PnF charts. And, you may or may not know that PnF charts are an extremely close cousin of range bars. The only difference is that a range bar chart will split up a long directional move into multiple bars. This means that most indicators will move over to range bar charts pretty smoothly, while indicators are usually pretty hit-and-miss on PnF charts.

Still, I applied the various eotpro indicators to some PnF charts tonight, and about half of them seem to do really well! And, importantly, the GCycle_Stochastic and GVol_Oscillator seem to be useful. Those are the two main indicators I use in my recent trading.

So, I may investigate that further, since as many of you know I am a big fan of PnF charts. They were a big part of my stock trading setup. For futures, I haven’t been using them as much, except for reference. Maybe that will change…

I spent a couple hours yesterday trying out a new technique for identifying chop. I think this one might actually work. Need to look at a lot more charts, but here’s an example:

The indicator describes whether recent action is up, chop, or down. I’ve highlighted the chop areas on the chart itself to help you see how to read it. I really do think this has potential to be the best chop indicator I’ve seen. Not sure exactly how useful it is, though, because most turning points are identified as choppy until it’s clear that we are actually headed in a new direction. This means, most of the “best” signals (which are near turning points) get filtered out. Maybe I can make it optimistically guess that turning points aren’t chop… a sort of innocent until proven guilty thing. This would mean that it would take longer for it to tell you about choppy areas… but it may be a good compromise.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I copied this exchange between Teresa Lo and a friend (taken from the Ultimate Trading Course).

TLo: One of my friends said to me, “If you’re such a shit hot trader, you should be making money hand over fist.”

TLo: I said to him, The more I trade, the more I know the dangers and the more conservative I become. And the more conservative I become, the more I trade only the scariest and/or fast setups, because I know there is either a reversal or momentum.”

Did you catch that? She only trades the fastest markets, because that’s where its the safest. That’s counter intuitive. From my experience in chat rooms, there are many times that I have sat and watched the market run away. I had no idea where to get in. Invariably, when I did finally jump aboard the runaway train, that would be the top/bottom. You see the experienced traders (those who bank money on most days - Stewie, DT), are taking part.

How do you get the confidence to do that? I would guess it comes from having a solid plan that works. You know where you’re getting out when it doesn’t. My problem was that I didn’t have a solid plan for entering a fast market. Thanks to the UTC, I’m getting one.

I will give a quick example of the most confident act I have ever seen. We’ve all either tried talking to girls while stopped in traffic, or at least seen someone else do it. If the light is long enough (or if they both ignore the green to keep talking for a few seconds), you can guage how strong his game is by her reaction. I was stopped in traffic about five years ago, and I saw a guy that was driving a port-o-let truck try to pick up a girl next to him. I was directly behind him, and the truck reeked. It smelled exactly like you think it would. It took balls to even do it. I don’t know if he actually got the number, but you could tell by her reaction that she was at least, on some level, into him. They say girls like confidence. You have to be one bad mofo, and know it, to run game while you are hauling shit.

Now back to my nerd festival — studying the UTC, and trying to learn how to use Wealthlab.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I signed up for the Ultimate Trading Course, and am pleasantly surprised. It has far more information than I could have imagined.

I don’t use Esignal or TradeStation, so I have been putting it off. I was interested in her discretionary setups to trade the morning action. That in itself was worth the cost, but its only the beginning.

One of the problems that I have faced, in my trading journey, is trying to put it all together. Like most of you, I have a ton of trading books. She has read them, and more. Thankfully, she put it all together in one place.

The only regret I have now is not doing this when I first set out to trade futures. Better late than never.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

You know, when I wrote Friday’s article, I wasn’t planning at all to get into a discussion about artificial intelligence in trading. I was just pleased with the notion that institutional program trading would either (1) never lock out the little guys and gals, or (2) trading would cease to serve its economic function, and would be replaced by something else. Other than an offhand statement that amateurs may be using super-fast AI agents one day, that part of the topic just wasn’t on my mind.

But, Ugly came out almost right away to remind me about the likelihood of eventual computer trading agents that surpass humans in trading ability. The way software tends to go, once that’s anywhere, it will be everywhere soon after. When the bar for the amateur trader is raised, you need to make sure you’re still on the right side of that bar!

Current program trading, to the best of my understanding, is mostly filling complex orders on behalf of humans, at the behest of humans. Then there are the quant funds, which at present occasionally still spaz out. I would expect both of these to continue to get more sophisticated, but they really aren’t in direct competition with the small daytrader.

Look around, though, and you’ll see that more and more scalping black-boxes are coming on-line. They are not too impressive right now (though they at least make a profit, which is admittedly better than most human traders manage to do). These mechanical trading systems will also improve over time, but they still aren’t quite what I think of when I picture the trading agent of the future.

AI Trading Agents

I don’t know what you picture when you think of these hypothetical advanced trading agents. I can tell you what I imagine. I imagine a discretionary trader just like myself, with notable exceptions:

• it spots opportunities faster
• it acts upon those opportunities faster
• it does so across multiple markets, simultaneously, 24 hours a day
• it never trades out of boredom, or revenge, or desperation
• it has a perfect memory of past events and performance, which it can use to continually learn and improve
• …you get the picture by now, I hope

In short, it has more of every quality that I think makes me a good trader. I would kill to have these qualities. As the percentage of traders with these qualities increases, I would expect my trading expectancy to decrease. At some point, my expectancy would drop to 0.

Is it really so hard to see why that is? You can readily see it in today’s markets. If you press the buy/sell button too late (or are too far back in the order queue), you either get filled at a worse price than you wanted or you don’t get filled at all. When you are filled at a worse price, your potential profit decreases, while the risk you take on increases. Your expectancy drops. And that’s assuming all of your analysis was correct, and the order wasn’t fat-fingered, etc. etc. Every time I try to trade while groggy or sick, I make less money. Hell, every time my internet connection gets a little laggy, I make less money. There’s not much room for error, even today.

There are people who conjecture that as a group of faster, smarter traders eats up the opportunities you have now, they will create new opportunities for profit in the process. Do you know who I would expect to find and exploit those new opportunities first? The smarter, faster traders, that’s who. Leaving me in the dust yet again.

There’s nothing special about the fact that we are talking about computer programs… I would expect the same result if I were slower and dumber than most other human traders. Since I don’t seem to fall into that category, based on my performance to date, I don’t fear human traders. But look at the progress of computers in cognitive and creative areas, though… something would have to stop the trend they’re on to keep them from catching up with me and then surpassing me.

I don’t know what that barrier would be, that can stop the progress of technology. I feel it’s safest to assume the trend will continue.

It Only Gets Harder

Up to now, we are mainly talking about computerized trading agents that are somewhat better than good human traders. If you fast-forward a bit, it gets much worse for the poor unassisted human. You see, as computers continue to gain speed and cognitive ability, the divide between them and plain old humans will continue to widen. So maybe earlier you felt like a high school basketball player playing in an NBA game. If you are one of the few very talented, you could probably still compete. Eventually, though, you will feel like my cat playing in an NBA game…. fearful of all the strange action and unable to comprehend what’s really going on.

I can imagine a future market where the only exploitable edges left have more features to consider than the human brain can easily process at once (see any cognitive psychology textbook for more about these limitations). At this point, the unassisted human literally cannot identify the opportunities in time to take advantage of them.

Doesn’t this raise computers into some sort of Magical/Mystical object?

I was really surprised when I saw this claim on Ugly’s comment section. The AI perspective is that there is nothing unique or special about human intelligence, and that its underlying mechanisms can be emulated and improved upon. To claim computers cannot duplicate human intelligence raises the human brain into some sort of magical/mystical object, as far as I’m concerned.

But Unlike Current AI Conquests, the Markets Are Always Changing…

Yeah, and chess is harder than checkers. And poker has more human elements than chess. The next step is always more complicated than the last step, every step of the way. And yet, progress is still accelerating. I mean, the software credibly challenging poker experts today runs on a cheap Apple laptop…

To me, wars and other news events are elements that make the markets hard for everyone to navigate. I guess, the people harping on this are coming from the perspective that humans currently have the advantage when adapting to unforseen elements. If you believe that intelligence on par with humanity can be duplicated, then it must be obvious to you that this will not always be the case.

But, The Markets Aren’t a Problem with a Solution

They don’t have to be. Software exists that is beyond problem solving via pre-set recipe. It has been around for a long time, in the ivory towers. In my opinion, it will become more mainstream relatively quickly. As cognitive and creative capability in software increases, computers will dynamically find and exploit opportunities based on the simple goal to make a profit. Just like I do. To claim that this is impossible makes my intelligence into something mystical and magical, and I just do not believe in that theory.

So, What Can We Do?

Keep up, that’s what. Like I said in Friday’s article, your goal is to stay at least one step ahead of most amateurs. The technology available to the small trader is getting more sophisticated all the time. Take advantage of it. Look at tools like trade-ideas, which help you spot all kinds of conditions in real-time, and their associated features to quantify which strategies seem to be working right now. Look at platforms like tradestation or multicharts that allow you to test and identify all kinds of complicated, cross-market cross-timeframe conditions. And on and on.

Learn some programming basics, so that you can offload as much of your analysis as you can onto your computer. Do this because more and more of your neighbors are doing it, and it’s making them faster and more accurate than you are. Slowly but surely, you will start to lose if you don’t.

Extrapolate far enough, and when most small players are autotrading, in my opinion it’s fairly easy to see that you had better be on board.

Where’s Your Proof?

There is no proof for any of this. I can’t prove that the sun will come up tomorrow, either. Like the magic 8-ball, I just know that all signs point to ‘yes.’ When you think about the future, you usually extrapolate from the present. In the recent threads, Ugly’s been kind enough to provide links to various current activities in this space. Even a little undergraduate work in AI will open up your eyes to what is possible, given time and processing power. This post is just my conjecture. You are free to reach your own conclusions.

Also feel free to leave either agreeing or disagreeing comments below. I certainly don’t have a lock on the future. The more the merrier. It’s fun to imagine the future of technology when the discussion is genuine and light-hearted. Last time, it got to the point that I sat through comments deconstructing my word choices. I will try my best not to participate in that level of discussion again–it frustrates and brings out the worst in me. Let’s try to be civil, and intelligent, this time. Thanks.

You know, ugly was probably the first one to point out to me this argument that computers will soon make human traders obsolete. But, lately I have been thinking that there’s no reason to be concerned.

Ever since I read The Poker Face of Wall Street, I’ve found it enlightening to look at all the various markets as gambling arenas. The book is very compelling in this regard. After all, if the stock market were really primarily for facilitating investment at fair prices, they could just collect all the buy and sell orders and process them once or twice a day at the fair market price (and that’s just one example from the book).

You know, they have a computer program that’s solved checkers (it plays perfectly). Would you bet money that you could beat that program? Neither would I. Would you buy a computer chess game if it didn’t have a crippled mode that you can actually compete with? Neither would I. You don’t hustle someone at a pool table by crushing them right away. Do you see where I’m going with this?

Any gambling establishment will tell you that they need a steady stream of amateurs coming through to keep the pros (and the house) fed. The book has a demographic breakdown of a poker house in one chapter, and it looks exactly like what I imagine the trading demographic is. A large number of people take money from their jobs and mostly lose it at the tables part time. Exponentially smaller groups play professionally at a subsistence level, and a tiny group gets wealthy. A system like that just doesn’t work without a steady stream of amateurs who think they have a chance of winning.

So, that tells me that the big players probably like the game just fine the way it is. They don’t want to collude to crush the amateurs in an obvious and spectacular fashion (and thankfully, I think there are enough big players that they would pretty much have to collude)… they would much rather bleed them dry slowly over time. And, they sure as hell don’t want to speed up/gap everything until it resembles the fabled “efficient” market, because no one can beat that game.

To me, this means that the trading game will always be easy enough for most amateurs to win sometimes. Specifically, they’ll be able to win often enough to keep them hooked. And that means I will always be able to make consistent money by making sure I’m better at it than most amateurs. That doesn’t mean that the game won’t change dramatically going forward. That also doesn’t mean that most amateurs won’t be trading with super-fast, artificially intelligent computer agents one day… but I have a feeling I’ll still be one step ahead of them, when it happens. :-)

Here is the video I promised about my TS matrix setup. Feel free to ask any questions.

I wrote an article about the Box Play. It’s long-winded, but whatever. Decided to go for .pdf rather than make a long post here.

Box Play Manual

I promised loyal reader Alex that I would post something about my stock setup … so…. here are some screenshots.

Watchlist

So, before the open, I go through my top stocks list on this screen:

The radar screen shows signal2noise, the GVol_Osc, and a cycle-adaptive bollinger bandwidth/%b reading. This helps me filter out stocks that probably won’t be interesting to me. I don’t have to review the whole list every night, which is good because I honestly don’t enjoy doing this part too terribly much. When the little squiggly lines don’t squiggle, it’s kinda boring to me. Gotta have some action! (GVol_Osc is an eotpro creation; I coded the other two).

By clicking on one of the stocks, the two charts shown get populated with the price data (that’s the green ‘S’ on the windows, linking them together). The chart on the left is a daily chart with the Madder bias line superimposed in the middle, and the cycle moving average (both eotpro). The chart on the right is a 60-minute chart with pretty much all the ‘main’ eotpro indicators on it, though I prefer GVol_Osc to Shelly’s Volume for use on stocks.

I have been known to also pull up a longer-term PnF chart (with no indicators on it) to see a bigger picture, but aside from that, what you see pictured is how I make my watchlist for the following morning. I whine about it, but it usually only takes about 15 minutes.

Watching

So, just before “showtime”, I put my watchlist stocks (and only my watchlist stocks) on this screen:

For me, the key here is to be very light on indicators of any kind. Now that I’m only playing the open, it’s not so important to me… but when I scan through stocks all day, I want to plays to jump out at me in a pure form… then I will go looking at indicators. If I am hungry to trade and I look at a bunch of indicators, I can construct a story in my head about why they say I should trade. That’s no good for me.

So, on the radar screen, I have signal2noise. This is great for when you have a long list… you can just look at the green ones. Cuts out a lot of wasted effort. I’ve got the GVol_Osc reading. I’ve got the Box Play there, to alert me if a box play sets up anywhere on my watchlist. I have the cycle-adaptive bollinger stats. And, I have the current bid-ask spread. So, I can tell a great deal about what the stock’s up to without even looking at a chart. Between the spread and the volume, I can also tell how many shares I can safely trade. Awesome.

Going around the screen… lower left is a plain daily chart. Middle column is PnF charts on two different scales. Right side is a bare 15 minute chart, which includes pre-market data. Assuming something catches my eye as a possible trade, we move on to….

The Triple Screen

I call this workspace the triple-screen, because I first heard about the idea in Alexander Elder’s books, and that’s what he called it. A few other traders on the web, like The Chart Strategist, use it as well. I don’t really follow the “triple screen” approach as outlined in the books, but I have always like the idea of using multiple data resolutions together (I did a lot of work in college about multiresolution analysis of musical scores, so it’s kinda what I’m used to doing with complex data, I guess).

Now, we’re mostly back to the standard eotpro indicator set again, though I spice it up with some of my own creations from time to time. Pictured here is MRK from today, which set up beautifully with a box play right after I shut the workspace down to focus on ES. Arrgh!

To me, this is important: What I’m looking for on this chart, first and foremost, is an indicator that disagrees with my idea. I already know what I want to do before I get to this screen, so asking if the chart agrees with me is the wrong way to go. Your brain will make it agree, even if it doesn’t. Sad, but true. So, it helps keep me honest to ask why I shouldn’t trade. If that’s a hard question, then the charts must agree with me pretty well. That’s not to say I pass if I can find one thing that looks wrong… this is just to help me find the wrong things, so I can think about them instead of glossing over them.

(all this has to happen in a split second, because I usually only spot the trade a few seconds before I need to be entering it. Also, for most trades it’s part of my strategy to look at the plain bid/ask/last info a little bit to make the final go/no-go decision. That also takes several seconds to assess. So, if there’s no time for the triple-screen, I trust myself and enter the trade first, then check for reasons I should get right back out. That’s not for beginners!)

Anyway, you’ll note that the 3-min chart has the full EOTPro_JMK indicator, while the 15 and 60 minute charts just have the madder line. I got tired of agonizing over what it means when I get a 15-minute signal but no 3-minute signal, for instance. In the end, I decided that I’m trading off the 3-minute chart, and so that’s where my signals should come from. The 15 and 60 also don’t have Fib Extensions, for the same reason. They are there for reference and not entry/exit. I’ve made the same adjustment to my futures charts, and am happier that way.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

I’ve read in a few places recently (including here at MtM) that the reason certain traders blog is to remain accountable. I’m not sure how publishing results with an anonymous name on the net helps one bit.

It seems like your expectancy, and PnL will be enough of a slap in the face. It is for me!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

A physical phenomenom embodying both these formulations of the Drunkard’s Walk is the meandering of a river. Looking at the aerial photograph of any river in the world, you can see that there are places where the river path is more or less random and other places where the meanderings have a distinctive wavelike pattern. The explanation for these patterns is that the river is attempting to maintain a constant slope on its path to the sea, following the path of least resistance for the conservation of energy. The river attempts to maintain the constant slope by weaving to and fro in a manner similar to a skier maintaining a constant speed as he comes down the mountain. Taken in aggregate, the meanderings are not related to each other and are, therefore, random. However, if you are in a boat on any given meandering, it appears to be coherent and you can pretty well predict where the river is headed for a short distance.

THE IMPORTANCE OF PHASE

How does this help us see a Trend Mode? Easy. By reverse logic. In a Trend Mode, there is no cycle, or at the very least, a very weak one. Therefore, there is no rate change of phase. So, if we compare the rate change of measured phase to the theoretical rate change of phase of the weak dominant cycle present in the Trend Mode, we get a correlation failure. This failure to correlate the two cases of the rate change of phase enables us to define the presence of a trend. Because we know that we have a trend, it is easy to set our strategy to a simple buy-and-hold until the trend disappears.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

After my experience with HOKU this morning, I thought a lot about pre-market trading. Spreads are wider and liquidity is thinner. You have to trade limit orders. Why trade pre-market? Because it can be great if you can get in ahead of the general public on something that runs wild at the open. Here’s some thoughts I had:

Before the open, some traders have access to trade things that are moving before the “general public” has a chance to bid for stock. Joe Six-Pack might give a buy market order overnight in AAPL after he reads some news, or sees an impressive run the prior day, or his newsletter says to buy, or whatever. His order waits until the open. If there’s just Joey-6, nothing much happens–order filled. However, if Joe and his other thousand buddies all decide the same thing, there will be a big backlog of buy orders, all to be filled at market. There may be some sellers on the other side that decide Steve Jobs is the devil. They probably won’t be exactly the same amount, share for share. What now?

If there is a specialist involved, they will have to decide on an opening price that best balances the supply and demand. But who wants that? There’s more transaction money to be made in wobbly prices. They will “try” to get it right, but most likely they will under- or over-price the open. Even if they do honestly try to balance the orders, the likelihood that they will get it exactly right to satiate all buyers and sellers is slim. So we expect some imbalance. Even if it somehow gets all matched up, the open brings a flood of new market orders from brokerages and other traders that didn’t have their orders in the market already. This will lead to price movement one way or the other at the open. Supply and demand dynamics change because the crowd has changed. And there’s no way good way to predict which way it will go–at least that I know of. Educate me if I’m ignorant!

If there’s no specialist involved, but just electronic market makers and other ECN participants, then my thought experiment is different. There’s no order backlog. Pre-market and post-open trading differs only in terms of operating hours of most brokerages and market participants. Fewer traders in pre-market means lower liquidity and wider spreads. There’s no specialist to guide prices, just the pre-market “smart money” traders (and me). These few participants wage their battle of supply and demand, with the fallout being price ticks. At the open, the same flood of market orders hits as above, and a new crowd of people joins the scene, altering the supply and demand dynamic, as well as the liquidity and spreads. They bring their own buying and selling pressure to the mix, which could be aligned with the pre-market traders, or it could not. Again, no edge that I know of.

Because you don’t know what is going to happen at the open in either case, specialist or not, I believe it is foolish to enter just prior to the market open as I did on HOKU. The pre-market supply/demand battle has already played out, and the new reinforcements for both sides are about to arrive on the scene. By taking your position before the open, you’re essentially walking out into the open in the middle of the battlefield with your bayonet, ready to defend your position, while the tank divisions are about to come over both hills. You’re probably gonna get blasted.

When would you want to trade pre-market? I can think of a few situations. One, where an overnight trade moved against you (or big time in your favor) and you want to get out at the price quoted, before the market opens and you could get massive slippage. The other is if there is an observed supply/demand imbalance early in the pre-market session, whether caused by overnight news, trader activity, or whatever. Look at my chart on my CBAK trade from 9/26/07:

At the start of pre-market trading, there was a gap, followed by an “OR” breakout. If you were watching then, you could have bought at about 8:45 ET and gotten a jump on the situation. There was a big cushion (+2R profit using the OR low as the stop) by the time the open came, and demand had not let up yet, so you could afford to wait and see what the open brought. The big buffer let you dig a foxhole out of the way of the approaching tank divisions, as it were, and it already looked like your side was going to win. Much better position to be in. Then you sell into the opening pop, after the momentum slows and bank coin. (+6R for this trade by my eyeball). Either way, there’s no edge to getting in just before the open. That’s just dumb to me.

Get in at the front of the pre-market session, or wait until after the open. Don’t be grease for the treads of other trader’s tanks. Comment if you agree, disagree, have supporting or contradicting ideas!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

So far, I am really impressed with this indicator, which I mentioned in my previous post. It uses estimated market cycle periods to derive a signal to noise ratio. I made a histogram out of it, which crosses the 0 line at +6dB, meaning the signal is twice as strong as the noise. Anything less, and it’s much more risky to trade.

I was looking at the action on BBY around 11:00 as a possible double bottom… but since SNR was dropping I stayed out, and I’m glad I did.

It lags the market by about 4 bars, but it moves pretty smoothly, so you can kind-of think a couple moves ahead. Like, if it’s dropping quickly, you might take into account that it might be red soon… and if it’s red soon that means it’s too noisy right now. Make sense?

I’ll be watching it for a few more days, to see if the performance holds up. When the noise level is high, you see a lot of listless chop, like at the tail end of the chart above. I’ve also found that, if you simply _must_ trade the stock, you can move up to a bigger timeframe and see if that’s less noisy. That will usually mean larger stops, which is exactly what a noisy market calls for.