Wednesday, January 29, 2014

IPM Trade Matrix - Trade 3 (Part 1)

Market Overview
Since the goal of IPM Trade Matrix is to make trading a system with out emotions and generate consistent results, we will not enter a long trade at this point in time. Please note that a sharp snap back rally might take place over the next few days following Fed's FOMC meeting today and in-line with month end seasonality trends. 

From an Elliott Wave perspective, it seems like the market was tracing out wave 4 over the last 2 days. This will be followed by another decline, which will complete a clear 5-wave impulsive decline pattern. This decline will give way to a sharper rally. The only problem in playing this counter-trend rally is that we don't know what shape it will take because there are 11 different correction patterns. If one want's to play the counter-trend rally, they should use very small amount of capital with very tight stops so that losses do not wipe out gains. In any case, impulsive declines suggest that the trend is turned and the 8/4 test completion will validate the trend change.

Potential target for this decline to end is in 1760s. However, several indices have already completed their 5-wave decline. As a result, not all indices will make lower lows.

From the 8/4 Test perspective, Market has initiated the 8/4 Test. First step is almost complete with the test of 1770 level. Now the second step would be the Test by testing low 1800s. If the test fails and market break below critical levels, we will enter a downtrend. 

Note: If market does enter the downtrend, we would have to switch to the Downtrend section in the IPM Trade Matrix. This would mean that we will enter one more trade by the next IPM Bottom window.  

Trade 3 on the horizon 

TRADE - 1: Summary of Trade 1 (Long) = +2.6%
TRADE - 2: Summary of Trade 2 (Short) = +9.3%

TRADE - 3: Short

Condition: Outside IPM Turn Window (Re-entry)
Trigger: Test of 1810 (SP500), 16120 (DJIA). Decline trigger will be determined based on EW analysis and other proprietary levels once we test these level.
Supporting Indicators:  Next IPM window is a Bottom and is 1-2 weeks away. Clearly impulsive EW pattern

Profit Target 1: N/A
Profit Target 2: N/A 

Stop: N/A
Trailing Stops: N/A
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: N/A 

Risk Reason: No significant risk because upcoming turn date is a bottom.

Applicable Rule: Do not go long or short without trigger to prevent losses by market moving against you.  

Note: IPM Trade Matrix Trades will be posted in the first half of 2014. This is an experiment to understand and enhance the capabilities of this Matrix.

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