Tuesday, August 23, 2011

Trading Algorithm Summary - Bottom Picking (PTP-4)

Recently, a friend asked if we can provide real-time updates about the Trading Algorithm signals. Unfortunately, with school and work, it will be difficult to post real-time Trading Algorithm signals until unless we have enough subscribers or if we decide to take up trading as a full-time profession.

However, in order to honor this request, I have decided to post a Trading Algorithm Summary (shown below) once or twice a week. It will help readers in making trading decisions based on important trading and stop levels.

Market: Bear
Defining Level: 1204
Trend: Down
Defining Level: 1290
4/8 Trend Change Confirmation (Up to Down): Yes
Current Trade: Short from 1195
Profit Objective 1: 1159                                                   Trailing Stop: 1171
Profit Objective 2: 1124                                                   EW Stop: 1145
Status: Exited Short @ 1124 for 4.5% profit
Next Trade / Model Based Approach: Pick Bottom (50% capital – to minimize risk)
Stop: 1121          Risk: Less than .5% of capital
Risk Associated with trade: HIGH (Bottom picking in a Bear Market is dangerous)
Turn Window: August 23 (+/- 4 days) รจ
We are in the turn window
1-       Market bottoms in turn window
2-       Market tops in turn window
3-       Market double bottoms and breaks out
4-       Market double tops and breaks down
Observations:  Markets have entered the turn window. Pessimism is evident from surveys, growth forecast downgrades and news articles. Markets have sharply declined over the past few days, creating a double bottom scenario. Bullish non-confirmations between transports and industrials. Markets can double bottom over here. Therefore, pick bottom with a tight stop. With such a low risk and huge profit potential, this risk is worth taking.

Note: Trading Algorithm goes hand in hand with the Market Matrix, Inflection Point Model and Market Barometer. Therefore, it should not be assumed that UST generates buy/sell signals purely based on these levels.

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