Tuesday, July 7, 2009

July 7th, 2009

Trading RM produces quite a few proprietary oscillators using historical data. These oscillators’ help traders determine not only the environment they are currently in, but also assists traders in capitalizing when conditions are different than recent history and allows them to see the change in the markets.

Today, the market changed.

One such oscillator, the “Going Big” oscillator showed a huge variance in the number of stocks trading to the downside… which by itself means little, but not only were more stocks down, the percent they were down compared to the percent the stocks trading to the upside were up was very significant. And sure, this is nice and many can see such, but when a variance like this occurs, you know the downside pressure is immense and no sense fighting the action. As such, traders got short, traders got puts, and most importantly, traders got paid.

Another oscillator, which helps the Trading RM traders, goes thru the S&P movements and provides data as to the movement of the S&P Futures. Granted we trade stock and options, but knowing what the market is doing is crucial. The “Future(s)” oscillator has been in a range for the last two months, as the market has, showing little movement. This generally means the market is very stock selective and while there is opportunity, it is not overwhelming. Today was also a bit on the slower side, compared to last fall, but bigger for recent history. Furthermore, “Future(s)” didn’t oscillate within the day, rare, it went one direction… this is great for intraday traders showing there was a trend to follow. Great!

Moreover, the “Range” oscillator popped a bit today. The market has an intraday range, and as an intraday trader, the greater the range, so goes the opportunity for profits (or losses). Since the market was topping in late May / early June, the intraday ranges have been tighter… well, today the oscillator started to pop a little. And while any one can view the daily ranges, it is quiet helpful to know early in the day what historical data will suggest for the remainder of the day. Now, this information doesn’t mean tomorrow will have an incredible range, like any chart/oscillator, when it pops, it is time to start paying attention

So, that was today, what does this tell us for July 8th?

Great question; First, when the “Going Big” oscillator is heavily one-sided, in either direction, history shows traders, going forward, it is time to get with the direction of the market, preferably the biggest movers, and not fade anything looking for a reversal. In addition, when there is steep one-sided direction, options opposite of the market (today calls) have more difficulty with vol.

Which coincides with the “Future(s)” oscillator, today was a very good trend. History would suggest, when the oscillator doesn’t oscillate, the coming days provide bigger moves in the same direction… as well as, faster action (stock moves will likely start to happen quicker, be ready).

Which leads us to the “Range” oscillator; as stated above, the “Range” oscillator started to pop, and when it does, traders take heed. Suggesting ranges are bigger might not mean a lot to some traders, maybe blatantly obvious during the day, but it does have a history of showing a change early… which allows traders to use this information to their benefit.

Perhaps, it means what used to be ‘chasing a stock’ might not be now because it is going to move further.

Perhaps, it means traders need to have looser stops because the stocks might whip more.

Perhaps, it means traders should have tighter stops because when they are wrong, they will know immediately.

The point is the “Range” gives traders information to incorporate into their game plans and styles, and the more information coinciding with one another, the more ability traders have to react appropriately.

Second, since three oscillators are starting to tell the same story, Trading RM fully believes something is brewing. As traders, we factor in levels, volume, news, etc. Having the oscillators tell us the trading is picking up, direction is one-sided for the first time in awhile, and the range of the trades are growing (rapidly) we conclude it is time to be prepared to get aggressive. Sure, there are dozens of trading styles, but being aggressive all the time isn’t necessarily a good one, so picking times and spots to start getting involved heavily is great knowledge.

And last, since Trading RM has been running the oscillators for a good amount of time, the historical data suggests the market is not looking to fade the opening gaps as much. Yes, it still happens, and yes the gap can fill a little, but the combination of oscillators above and the “Gap DaP” are showing the futures are starting to pick the direction of the market more often and the market pays attention to such direction.

As the days go by, Trading RM will start to provide daily information with regards to these oscillators and others. Hopefully, they will begin to provide information which is useful to your trading, since it is useful to ours.

Good luck and Great Trading.

blog comments powered by Disqus