2009-12-21

2009 - A year in review

year of missing opportunities - Looking back on 2009 and lessons learned

Now that 2009 is coming to a close and holiday season is upon us, it is a good time to look back on year just gone by. Usually I run my year from April – March but I felt it would be a good idea to put up a page for year end review by me and other fellow traders.

This year (ending March 2010) would be special for me as I would complete 3 years of active trading without blowing out my accounts completely. They say that if you can survive for 3 years on your own, you can probably last as an independent trader. Also interesting to note is the equity curve, which after a tremendous jump in 2007-08 has remained practically slow sloping upwards. I thought about this point and I put it down to missing opportunities – the more I learned, more I was confused in various strategies and more I missed opportunities. When I knew little, I could trade with my method and not get confused by additional knowledge. Therefore since July 2009 I have started going back to my own trading style which I am comfortable with and stopped getting distracted by desire to try every thing under the sun. I believe trading is about mastering a few systems and methods instead of trying to fight in all arenas. My fellow trader AO has provided an interesting 38 point journey of a successful trader. It is worth looking at that every now and then to see where you really are. Also the journey does not end at point 38, instead one can easily lose discipline and fall back a few steps or even at the start of the queue.

Another important change I adopted during this year from Mid June 2009 was to start a disciplined daily Home Work process with track record. Some of us regular traders publish our daily analysis of the markets we trade. I run a special book for these trades and this book has been the most successful book since the day it was started with not a single losing month. So far I report the results on 1 lot basis. From next year, I will start reporting the results on two lot basis to better capture the real performance (one lot for first target and second for runner position). The disciplined home work process helps me tremendously not only in the short term/day trades but also to manage my longer term positions.

I have also learnt to my peril that my trading style does not suit scalping/fast moving intra day trading and therefore I have stopped looking at any strategies which require quick entry and exit of positions. I neither have that sort of attention span nor mental setup to execute such strategies. With that aspect in mind, I put a decent stop loss on each trade giving trade time to breathe. Larger stop loss does not mean excessive risk. It simply denotes smaller position size per trade as per money management rules (not more than 2% – 5% risk per single trade). In my longer term trades, I still prefer to trade breakouts and building positions as the trade moves in my direction.

In hindsight, I had some good calls in 2009 but due to “conflicting signals from multiple systems”, I ended up exiting earlier OR even missing my trade signal completely. I had good call In December 2008 on Silver outpacing Gold and later on in January 2009 about start of Gold bull move. But I did not capitalise on the full move in either of them ignoring my system. In early summer, I had good fortune to catch the bull move in British Pound which I rode a long way for good profit and bear move in USD which I exited bit early. I suffered from “conflicting signals” in summer 2009 and exited many of my established longer term positions early without realising the true potential. I attribute this failure to “too much learning”. Keep it simple still works and I am determined to use that in the coming years.

I also made the mistake of trading counter trend and trying to turn bearish too soon on the markets. I think it was a mistake to try to pick up tops and bottoms in a strongly trending markets. Instead it is worth to be patient and wait for the trend to signal change.

For the coming year my business plan remains similar to before. I will have 50%-50% capital allocation to Homework Trades, and Longer Term trades. Risk per single trade would be 1%-2%. My analysis would be predominantly based upon my own system which is a combination of technical analysis and Elliot wave theory. I will be avoiding scalping and scalping based systems. In addition, I will be trusting my instinct much more and avoid the temptations to close trades early. I believe exciting opportunities will materialise in 2010 and we will be ready to make use of them.

Happy Trading.

2009-11-30

HOME WORKS (December 2009)

General Markets

Oh! the weather outside is frightful (London), and the fire is so delightful (Dubai), and since we have no place to go (Markets), let it snow let it snow let it snow. It does look like to be a good year in making.

The new homework page is here. The links have been updated on the site. Please remember to post your comments on this page. Also please remember to subscribe to comments via email on this page if you have been a passive follower. You can also subscribe to all comments on the site by adding http://feeds.feedburner.com/vs-trader-comments RSS feed to your favourite reader like Google reader.

November was a reasonable month overall and another green month for the homework book making it 6th green month in a row. There is real virtue in this process.

Click here for HW Trades result so far. I strongly believe that this process which we have started has strong long term benefit to improve our trading performance and to teach us the discipline of planned emotion free trading.

Happy trading.

VS

2009-11-01

HOME WORKS (November 2009)

General Markets

Make way for the November Rain. I think October lived up to its reputation and every one had a wonderful trading month (I for one was on vacation).

The new homework page is here. The links have been updated on the site. Please remember to post your comments on this page. Also please remember to subscribe to comments via email on this page if you have been a passive follower. You can also subscribe to all comments on the site by adding http://feeds.feedburner.com/vs-trader-comments RSS feed to your favourite reader like Google reader.

Click here for HW Trades result so far. I strongly believe that this process which we have started has strong long term benefit to improve our trading performance and to teach us the discipline of planned emotion free trading.

Happy trading.

VS

2009-09-30

HOME WORKS (October 2009)

General Markets

All the leaves are brown and the sky is grey, make way for Rocktober! October, for better or worse, has a reputation in the trading circles. And I feel after a green September, there is a lot of pent up energy in these markets to blast off either way. The only sad aspect is that I wont be trading most of it as I will be away during bulk of October.

Anyways, the new homework page is here. The links have been updated on the site. Please remember to post your comments on this page. Also please remember to subscribe to comments via email on this page if you have been a passive follower. You can also subscribe to all comments on the site by adding http://feeds.feedburner.com/vs-trader-comments RSS feed to your favourite reader like Google reader.

The daily home work discipline is paying off good dividends. September Homework book performance (measured on 1 lot basis to capture efficiency, not absolute monetary results) has been best on record so far (4 months to speak off but hey! we just started). Click here Click here for HW Trades result so far. I strongly believe that this process which we have started has strong long term benefit to improve our trading performance and to teach us the discipline of planned emotion free trading. So even though there might not be much Homework from my side in October, please continue to make this process a success.

Happy trading.

VS

2009-09-19

The BORING BANK

Can a public sector utility bank be a solution to the banking crisis

Most articles you read on current financial crisis today point the figure of blame squarely at bankers and their greed with low respect for risk. It may or may not be 100% accurate accusation but the root of this issue points to the uncomfortable marriage of public deposits and investment banking industry. We loath banks for their greed and bonuses and at the same time we cannot function without them. This create the vicious circle where banks end up becoming too big to fail, and end up taking tax payer bailouts. If the come out stronger after bailout – they receive the wrath of anti capitalists for making money on account of tax payers and if they end up failing further, more tax payer bailouts are required as they are “too big to fail”.

Many would point to separation of Investment bank/retail bank or more and stringent regulation etc but I feel that it could be a papering over the cracks. The fact is as that as long as deposits are guaranteed by the tax payers/governments it implicitly puts a floor under a bank failing and therefore it will inevitably promote excessive risk taking as the cycle progresses and we will remain in this cycle of boom and bust.

Can there be a simpler solution?

Just as protecting the country’s borders is public sector enterprise (army/navy/air force), protecting public is public sector enterprise (police and fire brigade and in most of Europe – health care). Why can't protecting the public’s savings be a public sector enterprise. I can think of the following outline of a bare minimum “BORING BANK”

  • Ability to deposit money (branch, electronic)
  • Ability to withdraw money (branch, ATM, debit card)
  • Ability to make and receive payments (electronic, cheque, branch)
  • Ability to receive monthly account statement (postal or electronic)
  • Peace of mind on safety of money by an absolute government guarantee.

I propose that such BORING BANK can be placed in a public ownership. All the deposits to this bank would be backed by 100% guarantee of the government. A typical private sector bank uses the deposits to make further loans and that is how, using fractional reserves, they can leverage the depositors money and earn profits. And that is where the risk lies for a bank.

The BORING BANK would pay depositors interest at some discount to prevailing short term benchmark rates (which in today’s world would be close to zero if not zero).

The BORING BANK will not make any risky investments – not even overdraft facility on the deposit account, will not offer mortgages to public and will not do anything remotely similar to an investment bank. It will be a bare minimum, no frill deposit bank not even offering foreign currency transactions. The deposits will count towards borrowing by the Government.

Or in other words, deposit with BORING BANK is akin to buying a Government Bond, which anyone can do today, just that it will be much simpler with wider access and can be part of day to day life of people.

BUT, the key change after introduction of BORING BANK would be that there would not be any guarantee on deposits with private sector banks and no tax payer funded bailout. Also the regulation on the banks could become lighter and they would be allowed to take as much risk as their internal risk control (and depositors) allow.

Private Sector banks would still operate but without explicit government guarantee. They will still be able to take deposits from willing customer but in full knowledge that the deposit is not guaranteed by government. This would increase the deposit rates paid on such deposits with private sector banks. Customer would still rely on private sector for credit cards, mortgage, foreign currency transaction, insurance, investments and other risky transactions and any other borrowings the customer would need to go to such private sector banks.

I think such a move will ensure that the cost of capital for the private sector bank would move to a reasonable risk adjusted level and since private sector banks would be competing for capital, it will ensure that excessive risk taking would be curbed.

Government would be spared the huge cost and risk of providing the deposit guarantee and future bailouts. If a private sector bank fails it will be similar to any other private sector company failing.

so how much such BORING BANK will cost

I did a back of the envelope calculation

Adult population of UK who will be the likely account holder = 50,893,318

Assuming 1 employee per 1,000 account holder = 51,000 employees Appox.

Assuming average cost per employee = £100,000 per year (on generous estimate considering average household income is only £30,000)

Total Personnel Cost = £5.1 bln

Assuming all other costs = 2 * personnel cost gives TOTAL COST FOR BORING BANK = £15.3 bln per year.

I would say this is much better deal to tax payers compared to the £1.4 trln bailout money already on hook and will be money well spent. Considering that this BORING BANK is providing a bare minimum services, I am sure the cost can be much lower. Someone with experience of running a bank can comment on this aspect.

Conclusion

What I am talking is not unique. The process is already in place. If you want absolute security on your money, you have the option of buying government bonds from Debt Management Office (DMO). Just that the process is not easy for every one and cannot be used for day to day purposes. What I am proposing is a radical change to extend remit of DMO to convert into providing the services required by the BORING BANK and extend its reach to all population and at the same time remove the costly government guarantees on private sector bank.

Make no mistake, I am not calling the end of private sector banks or investment banks. I am merely asking them to operate on pure private sector basis – paying the true cost of capital for funds they play with. After that, if someone earns a bonus of £100 mln good luck to them! They deserve it.

Can this solution work? I think it can. It is not about removing competition but promoting competition. Just like we have National Health Service does not mean that private sector insurance/health care is dead in UK. And just because we have police does not mean some one with extra security requirements and money to pay for that cannot hire a private security company.

Same way with the BORING BANK, any one who needs better returns on their capital will turn towards the private sector banks with full knowledge that they are taking risk with their capital. Same way people invest in stock market or even start a business. Rest of us who just want to sleep well without worrying about their savings or unnecessary tax payer bailout wastage can leave the money in the BORING BANK.

I would like to know what you think on this and also why such an idea cannot fly?

2009-09-13

When they are only half way up they are neither up nor down!

GOLD (GC) S&P500 (ES)

goldvsnp130909 The markets are always divided into two camps, bulls and bears. The bear camp for a long time has been calling the top in the stock markets and wants to see S&P500 dropped much below the March 2009 lows whereas the bull camp is calling for bears blood. In between we have analysts who have created an alphabet soup of recovery (or expected recovery) U, V, W, L are quite common.

There is a case by bears for “Grand Super Cycle” of stock market reaching an end and a catastrophic drop coming in not so near future to take out all excesses since the Industrial Revolution. Bulls seem to discount that as “gibberish” and keep putting their faith (and money) on unstoppable expansion of global economies (barring timely set backs but not catastrophe) as human race has managed so far since the day they walked out of African plains as apes.

A minor flaw in Bear analysis is that it relies on S&P 500 as measured in US Dollar terms. This is good for few years but for longer term data, the effects of inflation, deflation and other effects starts creeping in distorting the picture. For the danger of valuing a market in a debasing currency, just look at the performance of Zimbabwe Stock Exchange. It might look great in local currency terms but would be pathetic if you take into account inflation and foreign currency terms.

A reasonable alternative would be to pay attention to S&P500/Gold ratio, assuming (and a separate discussion required on this assumption) GOLD as stable store of value. I had written a note about this subject late in March 2009 here discussing the S&P500/Gold ratio. There I posed the following questions

a) Stocks are very cheap relative to GOLD (i.e. at the level they were nearly 20 years ago) and time to buy stocks.

b) Stock have dropped like stone and there is no faith left in these pseudo measure of wealth and time to pile into "real" assets like GOLD.

c) At least one of S&P or GOLD is overvalued relative to the other and therefore an inflexion point can be in offing.

Since then the ratio has started heading up, after hitting low in March 2009 indicating a faith in Stocks (over Gold). However over longer term perspective the current trend in S&P50/GOLD ratio is down (since 2000). On Elliot Wave perspective, the 5-3 wave correction appears to be over and therefore there is a point in the case that March 2009 was indeed the longer term bottom for the stock markets (in Gold terms) and even if a severe correction is in pipe line, the current direction points to stocks outperforming GOLD for some time (until the ratio is 1.81 – 3.125 range). That could mean Gold is due a severe correction and/or stocks are due a severe ride up (at current price of Gold, it implies S&P 500 at 1810 at least – taking out its all time high).

These appear certainly “mind boggling” at current stage but just to get the perspective, imagine this analysis in 1984 when the ratio was .45 and people who were long S&P short Gold made 12.10 times return in GOLD terms. I (accidently or by good fortune) was able to ride a very small part of this curve in 2007-2008 being long GOLD, short S&P500 and still managed to do very well in that trade.

So what appears as next steps: There are the following trades:

i) Sell Gold, Buy S&P500  and put stop loss at S&P500/GOLD ratio of 0.86

ii) Buy Gold, Sell S&P500 and put stop loss at S&P500/GOLD ratio of 1.81

iii) Buy GOLD, Buy S&P500. Even in the severe down turn in stock, this trade has only lost 4% since 2000 peak.

iv) Sell Gold, Sell S&P500. This is opposite of trade iii) and therefore with inverse performance.

Like before, I still do not have a firm bias as to which trade to take but I know that there is money to be made in this trade if traded correctly. I will take a cautious position on trade ii) with some hedges built with options in case it goes against me. I would also like to do more analysis on this subject. I could only get data up to 1984. I am sure the truth is out there if I try harder to get data going back a lot further but my laziness is getting better of me. Any readers want to present a table of closing numbers for GOLD and S&P500 for years before 1984?

2009-08-31

HOME WORKS (September 2009)

General Markets

Come September, here we are again. The summer is over – at least the vacation. The last bank holiday in England is drawing to a close and next one is far far away in cold winters. Markets are rife with excitement about returning herd of holiday makers and possibilities of better volume trading days. Also there is talk abound of sustainability of the recent rallies witnessed practically unbroken since March 2009 and there are bound to be some nervous bulls and eager bear causing havoc.

Traders, I hope every one had a good and relaxing vacation. Some of you are still enjoying the sun and we eagerly look forward to your return!

The home work page for September is here. Please remember to post your comments on this page. Also please remember to subscribe to comments via email on this page if you have been a passive follower. You can also subscribe to all comments on the site by adding http://feeds.feedburner.com/vs-trader-comments RSS feed to your favourite reader like Google reader.

As usual, please click on “comments” to add your home work or read other comments. The “post your home work” link is updated to take you to this page now.

Looking forward to working and sharing with you and continuing this process we have started!

Happy trading.

VS

2009-08-26

Winter of discontent or Santa Claus is here again?

key levels – indices, Grains, OIL, Currencies, Bonds, Metals

WARNING – I could be spectacularly wrong here. Do not follow blindly and jump out on signs of trend reversing. 

It has been an exciting summer for many and as far as markets go, it was quite a choppy session. However a clear pattern is visible in all developed world markets (and much earlier in the Developing World – India/China/Brazil etc) and that of an abundant return of confidence.  Markets have rallied without a significant pullback since March 2009. It is bit tough to find a fundamental reason for such strong recovery when the underlying economy is still on crutches but who said markets are rational.

Autumn and Winter 2009 could be a great period for current trend as the Markets are now setting up into a vacuum zone as Oscar calls it.

Starting with a bullish stance in June 2009, I flattened my positions and took a bearish stance for rest of the summer expecting a correction which so far did not materialise to the extent I was expecting. Recent price action leaves me flat on my positions once again looking for next set of trends to build on.

A NOTE OF CAUTION – it could very well be a summer low volume play and the markets could very well reverse drastically on down side and the whole bull market hoopla turns out to be an pouncing opportunity for bears who return after summer vacation. After all the world has not changed much and there are still several reasons to start selling. Caution is required going into early part of September. Also I do not see this as start of a secular bull market, instead I see it as last legs of the current trends. Possibly we will have new chapter/direction later on the in the year.

S&P500 (ESu9/z9)

The case for bulls is quite strong and I feel we are in the final leg of the up move from March before a long term correction/pullback sets in. My key projection level on upside range from 1066 – 1229. A very wide zone I agree but some are key milestone targets where I will be tempted to watch the action (or move stops higher).

Current Position – Small Long (1025 area)

Bias – Build Long position on breakouts and pullbacks. 972 key level to watch on downside with stops below that level.

Nasdaq 100 (NQu9/z9)

Nasdaq has been much stronger compared to S&P500 and if the bull market is continuing, it should likely to benefit more on the upside. But given the same reason, Nasdaq had been butting against the key sell level (1633) for a long time and it should remain above this level for me to comfortable about the longevity of the bull market. So NQ will be my key barometer on this breakout market. My projections are 1633 – 2040 range (again very wide) but I have some intermediate levels to keep an eye on.

Current Position – Small Long (1635 area)

Bias – Build long position on breakouts and pullbacks. 1560 is key level to watch on downside with stop below that level.

Nikkei 225 (Japan)

The benchmark index of Japan has seen the mother of bear market and has seen decades of decline. In some sense Japan has witnessed the effects of a bubble burst and deflation, things which western world is panicking about today and also most central bankers are trying to avoid. There are however signs that finally after decades of savings, Japanese consumers are waking up to spending. Any global turn around should help.

My current projections on Nik225 are 12000-12384-13000. Break below 9600 will negate this analysis. I do not have any trades on.

CORN (ZCz9)

On my EW analysis, the current bear markets in Corns appears to be over and 300 level in Corn should act as good floor to build positions on. Fundamentally, there is abundance of Corn crop but I feel that is already priced in the markets. Inflation fears and rising crude oil should support Corn at these levels and possible shoot it higher. However end of bear market does not always mean start of next bull market and very often Elliot Waves are not accurate in exact levels (they are good for direction though). In terms of my trading plan, I am starting with key level long dated call options (360/470). Failure of a key short level at 344 could help me come into the trade properly.

Current Position – Flat

Bias – Start with longer dated options on key levels. Look for a short setup failure before getting long with stops below 310.

Wheat (ZWz9)

Wheat on the other hand does not confirm that the down move is over, though it is at support level here. Some of my silly (it seems now) see wheat all the way down to 317 level. I am not prepared to back such a bold bet as of now but instead I would look to sell breaks below current lows. Can act as a good hedge against the corn options.

Current Position – Flat

Bias – Small Sell breaks below lows (485) or watch for action along with Corn/Soybean

Soybean (ZSx9)

The most volatile and exciting of the grains complex is also the most fickle. Best used as a leading indicator for other markets or short term trades. So far I do not see any long term trends. 1180 are likely near term targets if the bullishness continues but none worth putting a fat trade on. Best to be traded on day by day basis.

Crude Oil (CLv9/z9)

Like other commodities complex, crude oil has also shown the return to bullish momentum since bottoming out at $35. From the EW perspective, the Crude should be heading to 88 – 95 region. The pattern with negate on the breach of $58 level on the downside. However given that crude is now trading at 74, the risk rewards are 1:1 on such trades and not worth putting a big position. Need to wait for next big wave. I will continue to trade on day by day basis if opportunities arise keeping the broader direction in mind. The whole energy complex except Natural Gas (NG) is setting up for this bullish formation and worth keeping an eye.

Dollar Index (DXu9/z9)

US Dollar appears to be heading for completing its last wave of down move which can take it all the way down to 72 – 75 region. Considering we are around 78-79, there is not much risk:reward in left in long term trade so worth playing on the downside on short term basis. If DX moves up to 82 I will need to think of a different scenario but until then I am not a dollar bull. Mostly on sidelines watching the fun. 

Along with Dollar, I feel GBP is another currency to sell in coming days and month. It seems to have topped and has a long way to go down.

T-Bonds (ZBu9/z9)

Bonds are one market which is sticking out like a sore thumb. If the world trouble are getting over, the interest rates should start heading up, especially the long term interest rates. And for a long time, I am of the view (which had been quite profitable) that the long term bull market in govt bonds is OVER. But current setup points that most bonds (T-Bonds, German Bunds and even UK Gilts) are looking up. The central banks are keeping the market distorted. Banks are also buying bonds instead of putting the money in economy to repair the damaged balance sheets and keep cushion. Or they are simply setting up for a juicy short somewhere up there. In all cases, I am on sideline watching them wearily. Hopefully some clue will emerge soon.

Gold (GCz9)/Silver (SIz9)

Gold and Silver markets have been consolidating in a range for better part of this year. Best is to play them on range breakout basis. For Gold, I am watching 966/900 level. Breakout above could lead it to 1220/1350 level. Breakout below could target 840-740 area.

Silver is in similar predicament and similar levels to watch for breakout are 15.40/12.40

Cocoa (Cz9 on liffe)

Cocoa is setting up for upside breakout once again. Buying dips and breakouts with stops below 1700 is the plan currently.

2009-07-31

HOME WORKS (AUGUST 2009)

General Markets

Traders, I hope every one had a good and relaxing vacation. Some of you are still enjoying the sun and we eagerly look forward to your return! The chat room is bit quiet in summer.

The home work page for August is here. As mentioned earlier, this page is now integrated with DISQUS – a great new ways to manage your comments. Few advantages of DISQUS integration are:

  • You can rate the comment
  • You can reply to comment in a threaded structure
  • You can submit your comments via email instead of coming to this page or site (though this should not discourage you from visiting this blog I hope).
  • You can link your home work comment to your twitter account to “tweet” it to the world.
  • You can also connect via your facebook ID if you wish.

There are lot more features which I have not explored in full. Please let me know your comments and suggestions to improve the way we collaborate on home work.

As usual, please click on “comments” to add your home work or read other comments. The “post your home work” link is updated to take you to August 2009 page now.

I had a wonderful time doing and following home work and it has really helped my analysis skills. I have been posting my home work trades results online. The account was positive for the month of July as well!

Looking forward to working and sharing with you and continuing this process we have started!

Happy trading.

VS

2009-07-28

REVIEWS

Books, Videos, Sites etc.

As requested by Dee here is a page where reviews and suggestions can be put for readers to review. So please keep this page as bookmark.

The format is same as home work page. Reader can put a suggested books/link as comment to this page. Now that we have DISQUS, the comments on a particular review item can be put in the form of threaded structure keeping all relevant comments under one thread. New thread can be opened by simply creating a new comment.

Happy trading!

2009-07-13

DISQUS integration

Dear Friends,


I have heard and seen a lot about DISQUS as provider of comment aggregators and discussion manager and so I decided to integrate this blog with disqus.

For future posts you will have option to put your comment via the blog page or via the community page on http://vs-trader.disqus.com/ . We can have comments in thread forms as well as subcribe via email. Integration with facebook and twitter is also possible though I have not explored that aspect.

Please try out putting comments on this page and on the community page and note your expriences. This way we will be ready when the next home work page comes up in August 2009.

Happy Trading,

VS

2009-06-30

HOME WORKS (JULY 2009)

General Markets

Traders, the home work page for July is here. As usual, please click on “comments” to add your home work or read other comments. The “post your home work” link is updated to take you to July 2009 page now.

I had a wonderful time doing and following home work and it has really helped my analysis skills. I have also started posting my home work trades results online. The account was positive for the month of June!

As usual, you can subscribe to post comments via any blog reader software (like Google reader). Select the drop down option on the right hand. Also when you post comment, there is an option to subscribe to follow up comments via email.

Happy trading.

VS

2009-06-21

Correction! What correction?

S&P500 (ESu9)

Sell up to 932, Stop above 957, Target 810-780

Fashion is like swine flu, easy to catch and difficult to understand and it tends to take over a clear mind. Recall when you last heard the "green shoots" and now it seems every one is talking about it. So much so that the real meaning of "green shoots" when it was first used is almost forgotten. We are talking about the impressive spring 2009 recovery in world markets and Indices have not looked back after hitting their lows in March 2009 (in case of Asian/Emerging markets the lows were since in Oct-Dec 2008 period). The rally has taken many pundits by surprise. They were talking it down all the way up, first calling it a bear market blip, then a bear market correction and then a bear market rally. But markets needs no pundits and the rally did march on. The green shoots were firmly in ground.

Now that most pundits have become a firm believers in those green shoots that they are overlooking their lawns. The green shoots appear to be overgrown and need a good mowing.

The rally which started in March 2009 appears to be halting at key technical levels as the supply of good news seems to be drying up. The weekly S&P500 seems to indicate a double top. Also the MACD on daily charts have started showing signs of fatigues.

The markets are divided in two camps, those who missed the rally and waiting for a chance to jump on and those who were lucky enough to climb at start and looking to get out with fat profit. And there is no doubt that a lot of money is sitting in low yield "safe" accounts and that wall of money can hit the market any time.

Given this outlook, I still believe in the rally which started in March 2009 and if the money on sideline start coming back into the market on pullbacks, we can soon see next wave (wave 3 which is usually the juiciest) of this bull market. But for that to happen a healthy correction is needed.

I expect a pullback to 810 - 780 region on S&P500. This would likely to bring down the cyclical PE ratios near enough to the lows of the previous bear cycles. If market could hold this area, the next bounce up should take us to 1126-1234 region. However if the green shoots get burnt by excess fertilizers or scorching summer sun, March lows could easily be taken out. This indicates that these markets are delicate and nimble trading is required.

I am positioning myself for the pullback with a cautious shorts, hoping to hop on to the next bull wave soon. It would be interesting to review the situation when we are in the next buy zone. Since this trade is technically a counter trend trade (the major trend is still bullish), a safe way to play this is also via options (850/810/770 Sep 09 PUT). If a profitable position is created and pullback materialises, 810 puts can be sold and then shorted to create a risk free butterfly.

ZS-TMR : Thirty Minute Rule (Opening Range Play) Analysis : Now it is time for grains!!

My Development as a Commodities Trader: Thirty Minute Rule (Opening Range Play) AnalysisThere may be more meal in Grains TMR - especially in this volatile environment!


Few weeks back I did some preliminary analysis work on past 1 month data on Allan's TMR (Thirty Minute Rule - Opening Range Play) which was mainly based on trading E-Mini S&P500 during the opening range. Since then we are taking TMR trades on ES every day and it seems to generate good results and a profitable outcome. The discussions and results are summarised in the link above.

Taking on from that, I started investigating TMR on grains once I saw another smart fellow trader Quin talking about it. The results were astounding (**** past performance is no guarantee of future results ****) on past data analysis. Soybean has been very volatile lately and my analysis indicated that it would be quite profitable to apply TMR rules to Soybeans and other grains markets.

Traditionally Grains and Commodities, Bonds and Currency markets suit better for breakout plays (breakouts are not always fake-out - reserved for a future post sometime) and therefore it would seem logical that TMR might play better on Grains.

A word of caution here that Soybean has been very volatile lately and therefore the results could be bit exaggerated. However as commented on the original TMR post I have modified strategy which gives best possible Profit objective for 5 pt stop based upon past data. So I believe as volatility reduced, the profit objective will start reducing as well. Also I noted that it
could be best on Soybean markets to leave a runner on with trailing stops OR a fib/ATR based target in line of breakout. So by applying some of the "refinement techniques" the results from ZS-TMR can be enhanced further. I leave those to the individual trader's skills.

Results:
--------
a) Best results were achieved for 12pt Profit Objective 5 Pt Stop resulting in 45.7 pts per month with 43% success rate.
b) For a low pain quick trades, 3/5 generated good returns of 29.5 pts per month (with 81% success rate).

As always, TMR trading is bit boring and requires a lot of discipline. The reported results do not include slippage and commission which will eat into the profits and increase the loss. For
successful TMR strategy the platform should be fast to avoid slippage and commission should be lowest possible.

ZS TMR

Max P&L

Date

Open

30 Min High

30 Min Low

30 Min Range

TMR

5 PT

BEST EXIT

20-May

1182

1189.5

1176

13.5

S

16.00

1,160.00

21-May

1157

1172.75

1155.25

17.5

L

1.00

1,173.75

22-May

1184

1184

1170.75

13.25

S

6.75

1,164.00

26-May

1164

1167.25

1156.25

11

L

20.25

1,187.50

27-May

1195

1199.5

1189.5

10

L

1.25

1,200.75

28-May

1186

1195.5

1184.25

11.25

L

2.00

1,197.50

29-May

1192

1193

1185.75

7.25

S

10.50

1,175.25

01-Jun

1203.5

1219.75

1202.5

17.25

L

7.25

1,227.00

02-Jun

1215

1215

1209

6

S

8.50

1,200.50

04-Jun

1195

1199.75

1193

6.75

L

32.25

1,232.00

05-Jun

1213

1229.25

1211.5

17.75

L

4.50

1,233.75

08-Jun

1221.5

1235

1217

18

L

4.50

1,239.50

09-Jun

1241.5

1245.5

1232.5

13

L

3.50

1,249.00

10-Jun

1243.5

1254

1238.75

15.25

L

1.50

1,255.50

11-Jun

1260

1266.5

1256.75

9.75

L

24.75

1,291.25

12-Jun

1262

1262

1246.5

15.5

L

3.25

1,265.25

15-Jun

1221.5

1228

1213.5

14.5

S

16.50

1,197.00

16-Jun

1217

1219

1206.5

12.5

S

19.00

1,187.50

17-Jun

1197

1201.25

1188

13.25

L

13.75

1,215.00

18-Jun

1207

1213.25

1202

11.25

L

12.75

1,226.00

19-Jun

1219.75

1222

1201.75

20.25

S

26.25

1,175.50


WIN % 5 PT

PO

P&L 20 D 5 PT

24%

17

4.8

33%

16

40.0

33%

15

33.3

33%

14

26.7

38%

13

37.1

43%

12

45.7

43%

11

37.1

48%

10

42.9

48%

9

33.3

52%

8

36.2

57%

7

37.1

62%

6

36.2

62%

5

23.8

71%

4

28.6

81%

3

29.5

86%

2

20.0