The S&P 500 stock market has been under strong rotation since mid-2014. Rotation in the stock market is when the trend changes direction from an uptrend to a downtrend or vice versa. But the really exciting part is that after strong rotations in the market similar to what we are experiencing now, the stock market always makes massive moves to profit from shortly after.
Depending how the price moves during market rotations individual traders, CTAs, hendgefunds and even algorithmic trading systems can generate large profits. But price action must be favorable to meet every ones risk/reward rules.
Unfortunately during the second half of 2014 the stock market rotation moved in a way that did not generate many trades. But no trades are better than losing trades so it’s not the end of the world, and the good news is there will always be more trades.
But what I want to show you here is how the current price action of the stock market we are experiencing is identical to what we saw in 2010 and again in 2011. Also keep in mind that if equities are going to have a another big move it will generate other opportunities in precious metals, energy sector, and commodities. ETF’s are what I use to take advantage of these large moves with my ETF trading newsletter.
2015 is going to be a BIG year for traders
and algorithmic trading systems!
These consolidations (pauses) in the stock market have led to substantial rallies in the stock market of 30+% gains over a six-month period and its looks like it will happen again.
My algorithmic trading system has struggled during the strong rotation of recent but so have most CTA’s and other money managers. There is not doubt that it has been hard to profit with these swings in the market because of how they formed.
When this phase of the market completes and a new trend emerges traders and algorithmic trading systems will excel and be highly active again just like they were in the first half of 2014.
https://thegoldandoilguy.com/wp-content/uploads/2015/02/corrections.png625849adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2015-02-18 20:55:512015-02-19 18:24:452015 Stock Market Forecast And Your Trading Plan
Recent price action in the stock market has many traders on edge. With the market closing below our key support trend line last week, the market has now technically starting a down trend.
While trend lines are a great tool for identifying a weakening trend and reversals in the market, I do not put a lot of my analysis weighting on them.
Most of my timing and trading is based around what I call INNER-Market Analysis (Market Stages, Cycles, Momentum and Sentiment). Using these data we can diagnose the overall health of the market. Knowing the strength of the market we can then forecast short term trend reversals before they happen with a high degree of accuracy.
In this report I keep things clean and simple using just trend lines. During the last three weeks we have seen the price of stocks pullback. And because 2013 was such a strong year for stocks most participants are expecting a sharp market correction to take place anytime now.
So with the recent price correction fear is starting to enter the market and money is rotating out of stocks and into the Risk-Off assets like gold and bonds.
Stocks tend to fall in times of economic uncertainty or fear. These same factors push investors towards the safety trades (Risk-Off) high quality bonds and precious metals. As more money goes from risk-on to risk-off, stocks will continue to fall and the safety trades will rise. The move by investors to select the safety of gold and bonds compared to the volatility of stocks will result in these risk plays to moving in opposite directions.
Let’s take a look at the chart below for a visual of what looks to be unfolding…
How to Trade These Markets:
While these markets look to be starting to reverse trends, it is critical that we understand how the market moves during reversals and understand position/money management.
Getting short stocks and long precious metals in the long run could work out very well, but if you understand the price action that typically happens during reversals you know that the stock market will become choppy and we could see the recent highs tested or possibly even a new high made before price actually starts a down trend. And the opposite situation for gold and bonds. Drawdowns can be huge when investing and why I don’t just change position directions when the first sign of a trend change shows up on the chart.
Price reversals are a process, not an event. So it is important to follow along using a short term time frame like the daily chart and play the intermediate trends that last 4-12 weeks in length. By doing this, you are trading in the direction of the most active cycle in the stock market and positioned properly as new a trend starts.
What I am looking for in the next week or two:
1. Stocks to trade sideways or drift higher for 3-6 days, then I will be looking to get short. Again, cycle, sentiment, and momentum analysis must remain down for me to short the market. If they turn back up I will remain in cash until a setup for another short or long entry forms.
2. Gold remains in a down trend but is starting to breakout to the upside. I do have concerns with the daily chart patterns for both gold and silver, so next week will be critical for them. We will be using some ETF Trading Strategies to take advantage of these moves.
3. Bond prices (not yields) look to be forming a bottom “W” pattern. They have had a big run in the last few weeks and are now testing resistance. I think a long bond position is slowly starting to unfold but if we look at the futures price charts for both bonds and gold, they have not yet broken to the upside and have more work to do. As mentioned before ETFs are not really the best tool for charting but I show them because they what the masses follow and trade.
https://thegoldandoilguy.com/wp-content/uploads/2014/01/Gold-Stocks.png530700adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2014-02-02 12:24:142014-03-03 13:37:43Is February a Risk-On or Risk-Off Trade: Equities or Gold & Bonds
My last post I talked about how “The Market You Trade Is Not Random“ which is what originally got me interested in trading. Let me continue with this series of how algo trading turned into my dream job and income stream.
In part one of “How Algo Trading became My Focus, Passion and Income” you saw how my 15+ years of trading evolved from trading only, to teaching and coaching others, and then writing financial newsletters to provide thousands of followers with video analysis, trading tips, and the occasional trade idea.
During that time it became clear that teaching and providing the masses with trading strategies that would provide a consistent stream of income year after year was much harder than I expected because of the way humans function as explained in part 1 of this report.
Seven years ago in 2006 is when I caught the algo trading bug. It was the day I saw an interview on CNBC about a trader who converted each strategy he had into algorithms and had incorporated each one into a powerfulalgo trading system. It was this hands free trading idea I was sold and set out to convert my trading strategies into an algo trading system of my own.
Having an algo system that trades and profits in up and down market conditions without having to look at the charts or pull the trigger on entering and exiting setups sounded so good I was determined to build my own.
Within a couple of hours of Googling the terms automatic investing, algorithmic trading, and algo trading type search results I had answers to my list of basic questions. Once I knew what trading platform I should use, some basic guidelines on what to look for in a trading programmer, and the main do’s and don’ts about algo trading I was ready to start calling my list of programmers. By the end of that day I had myself a programmer ready to start my project and I was fired up!
12 Algo Trading Strategies in One Automatic investing System for Individuals
Fast forwarding to today, hundreds of version of each of my algorithms, and 4 programmers later I now have my own automatic investing algo trading system that naturally expands and contracts with the stock market using cycle analysis, volatility, trends, price patterns, volume and sentiment to invest in the S&P 500 index.
This all-in-one system has 12 of my best trade setups and strategies for the S&P500 index. No matter the market direction (up, down, or sideways) and no matter how volatile or lack of volatility it has there is an algorithm strategy taking advantage of the stock markets price fluctuations because we specialize (live and breathe) to make money from this highly liquid index..
Do not diversify. Specialize.
“Diversification is a protection against ignorance.
It makes very little sense to those who know what they are doing”.
Warren Buffet
Know that the number #1 problem investors struggle with is themselves because of the emotions, lack of focus, and lack of commitment us as humans have. And no matter how hard you try to make you’re trading rules simple to follow and execute you will always stray from what you should be doing from time to time.
Your will typically break your rules during a losing streak or highly emotional time in the market when it’s either overbought or oversold and you do not think your systems next trade will be a winner. Because you fall off the wagon at these critical points which happen to be the most important times for your system to make money in most cased you sabotage yourself and watch missed opportunities pass you by and you investing performance drop dramatically.
In the next part, you will learn about some really cook stuff and just how to take advantage of algo trading systems and how much money you can make on a monthly and yearly basis with zero investing/trading input.
Stay Tuned For Part III – How You Can Make Money With Algo Trading …
Chris Vermeulen
http://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.png00adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2013-12-10 16:37:172014-03-04 12:29:33How Algo Trading Became My Focus, Passion & Income – Part II
I just want to touch on two things… the market and my new charting with NinjaTrader
Today’s video covers the SP500 in a little more detail along with natural gas and precious metals.
It is a big day for the financial sector (banking stocks) and if they turn around and rally expect the SP500 to post some solid gains.
Precious metals may keep selling off. Trend is still firmly down.
Natural Gas is looking lofty… I am starting to drool over a short play or inverse ETF play for that. I am keeping my eye on it.
Financials are on fire this morning, they did gap lower but have posted some big gains this morning. Anyone who got long in the past three days with me should be at breakeven or in the money now. Let’s hop this is a key pivot low and prices rally/grind higher into the holiday season/year end.
Below is a daily chart of the SP500 index using the NinjaTrader platform. Over the last few months as you likely know, we have been completing our fully automated SP500 trading system so that it will be available to our followers. Over the next month we will be phasing all our charting analysis, tools, indicators and systems to run on the NinjaTrader platform. Reason? because NinjaTraderRocks! and supports all our custom indicators and automated trading systems much better than what we are using now.
Anyways, back to the chart below… As you can see there is potential for the SP500 to pullback several percentage points. As long as it stays above our blue support line and short term high volume zone we will remain long the market adding on dips.
Talk soon,
Chris Vermeulen NinjaTrader Partner
http://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.png00adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2013-12-04 12:08:162014-03-04 13:13:36Advanced Automated Trading Systems & Indicators with NinjaTrader
Pre Algorithmic Trading System Analysis: This week has been a little wild as stocks pulled back due to headline news. The two big drops which took place on heavy volume sent market participants into an emotional state liquidating their long positions on fear of a collapse. Even though the stock market shows no sign of the trend reversing down, traders are jumpy and quick to lock in gains with any negative new. Sounds like a “Wall Of Worry” to me.
Taking a look at the ES mini futures chart below which is a ten minute intraday chart. It is clear the recent pop in price is testing high volume resistance as seen on the chart with the blue horizontal bars.
Also the previous pivot highs and consolidations on the chart highlighted in red also confirms there is price resistance at this level. Thursday’s rally is likely ready for a little pullback or sideways consolidation at this point based on this information.
If we take a look at the Barchart Market Momentum index which is something I follow closely because it tells me when stocks have moved to far too fast in either direction. In simple terms, the market is either overbought or oversold when this chart reaches either extreme.
When the market closes with this indicator in the overbought or oversold zone, you should expect a pause or 1-3 day reversal in the opposite direction.
But keep in mind, when the trend is up, the only high probability zone to focus on is the oversold. We want to buy dips within an uptrend, and take partial profits or tighten our stops when the stock market is over extended to the upside. This is exactly what members and myself did today, locked in some profits and tightened our stops, well my Algorithmic Trading System told us to do it…
Logical Market Analysis Combined with Automated Algorithmic Trading System
Reviewing the charts for high volume resistance levels, previous pivot highs and lows, and a close eye on the Barchart momentum index like we just did in this report is only the tip of the iceberg when it comes to complete market analysis.
There are many other things one should analyze for precision market timing of the broad market. The stock market has several different forces at play which move price and using a type of analysis which I call INNER-Market Analysis allows us to capture all the market moving forces within one indicator. This February when my book is published on INNER-Market Analysis and algorithmic trading systems all this information will be available if you would like to learn more.
Some other areas of the market which must be analyzed are trends, active cycles, volatility, volume flows, and market sentiment to name a few.
Over the years I have been converting the way I analyze the market into an algorithmic trading system that catches each overbought and oversold market condition on specific chart timeframes. I have also implemented position and money management rules for the algorithm to trade in my brokerage account completely hands free which I must admit is the coolest feeling thing to experience.
What is an algorithmic trading system? A trading algorithm is nothing more than a bunch of rules which you create (your trading strategy) converted into a computer language so a financial charting platform can run your trading strategy automatically. Everything is done for you including the trading. The only thing the system creator needs to do is monitor the algorithmic trading system for technical issues and possible tweaks here and there.
Take a look at the 30 minute algorithmic trading results
Since Oct 30th the S&P500 index has been chopping around and shaking traders out of their long and short positions with intraday price whipsaws (nominal new highs and lows which runs the stops of the average market participant). The index is only risen by 1.2% in the last 23 days while my algorithmic trading system which trades the S&P 500 index futures (ES Mini) and/or (3x Leveraged ETFs UPRO & SPXU) has been pulling money out of the market at an incredible rate.
Remember these trades in the example chart above are just two types for algorithms trading within my system. There are 12 algo trading strategies covering all market conditions automatically managed in one complete solution.
Conclusion About Using an Algorithmic Trading System:
Trading or investing for that matter is no easy task. And I know firsthand that even if one has a proven winning strategy it’s almost impossible follow the rules and catch every trade setup generated. I do not know how many times I see perfect setups about to unfold and then miss them because I was reviewing other charts, sending an email, going to the washroom or grabbing a bite to eat.
These missed opportunities along with a few other reasons I will explain in my next post, is what got me started programming my trading strategies to do exactly what I showed you here.
I will admit, it has been a major learning process, ridiculously expensive to create and I can safely say that I now know several of the main stream programmers available. I also know who can make miracles happen and who cannot.
This post is to share with you some new and exciting things unfolding based around my index trading strategy. Over the next week I will share my story of how algorithmic trading became my focus, passion and automated income stream and how you can do it also.
Chris Vermeulen
http://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.png00adminhttp://www.thegoldandoilguy.com/wp-content/uploads/2014/11/tgaoglogo.pngadmin2013-11-21 23:30:532014-03-04 13:38:31When To Trade? My Algorithmic Trading System Shows You
