Tuesday, July 29, 2014

Yesterday's meaningless swoon left numerous 'working' touts unchanged. If the broad averages are now about to head into new record territory, as we have come to expect, we have a dandy rally target in the Diamonds (DIA) to keep us long for the ride; and then to get us short because, well, because we can.  Of course, we're almost guaranteed to be wrong when we keep zeroing in on potential Mothers of All Tops. But keep in mind that our last such "mistake" held a profit of as much as $1200 per E-Mini S& contract for those who used the 1984.25 rally aggressively and then covered the short yesterday morning.

11 Tips to Beat High-Frequency Trading Algorithms by Rick Ackerman, trader and former San Francisco PSE market maker Think it's impossible to beat high-frequency trading algorithms at their own game? Think again. The prop-desk whizzes at Goldman & Sachs, Morgan Stanley, Citicorp et al. are barely making money these days. Even the Houston Astros are having a better year. The reason is simple: With so many rocket scientists in the game, the mathematical edge in trading has been chopped, sliced, diced and winnowed down to nearly nothing. This spells opportunity for traders who think like traders rather than like mathematicians. Understanding the psychology of trading is something the machines have yet to master. This means you can beat them by out-thinking them. How?  The thing to realize is that winning trades seldom come from the psychological comfort zone.  Indeed, you better "Look out below!" when a stock has been rallying for long enough that bulls are brimming with confidence.  Conversely, when a stock has been falling for long enough that most investors throw in the towel, that's when the true contrarian, ignoring the grinding in his own stomach, must step in to buy 'em aggressively. Keep the above in mind as you consider the following: 1. If it seems too easy or tempting to get long or short, do the opposite. 2. Distrust weak rallies that occur after stops have been run beneath a previous low. 3. Don’t simply bail out of a terrible trade; reverse the position quickly and go with the flow. 4. Look for the bull or bear trap in every enticing trade set-up. 5. Wild price swings driven by news or events paradoxically tend to produce precisely predictable highs and lows. Find a technical system that can identify them, and stick with it. 6. Shun breakouts unless they are

Bears found themselves trapped on the opening yesterday for the umpteenth time since the bull market began, setting up a short-covering panic that turned what began as natural weakness in the broad averages into steroid-powered strength.  DaBoyz simply pulled their bids at the bell, allowing the relative smattering of market orders that had built up over the weekend to have an inordinate effect. Into a bid-less vacuum, stocks dove the equivalent of 120 Dow points, exhausting pent-up orders in about 45 minutes. Once sellers were spent, it was child's play for the smart money to effortlessly squeeze the futures back up to where they had begun the day -- plus a little. Moreover, since there was but a shallow correction from the end-of-day highs, bears remained tactically on the ropes at the close. For our part, since subscribers could have gotten short from as high as 1984.25 based on a Hidden Pivot rally target disseminated last week, some may have elected to swing for the fences by staying short. However, although the trade could have produced a profit of as much as $1200 per contact, the possibility that we were getting the jump on the Mother of All Tops was never more than remote. If you still hold a position, please let me know in the chat room and I will furnish further guidance.  Strictly speaking, a short would have survived yesterday's nasty dipsy doodle if it had been tied to an impulse leg-based stop-loss on the hourly chart.