Wednesday, April 30, 2014

IPM Trade Matrix - Trade 9 (Part 1)

Market Overview

Today's market action was choppy around Fed's meeting, which was very much expected. Fed did not announce anything new and continued its taper at $10 B. Although it seems like a regular tapering pattern, the impact of this taper will soon become pronounced. As funds dry up, buying power will go down.

Yesterday, a ending diagonal pattern was published on the blog in DJIA. This pattern is still in play and its possible that tomorrow morning we might see a spike to complete the pattern. Overall, market patterns are looking more and more complete in different indices:

DJIA: Ending Diagonal pattern is nearing completionRussell & Nasdaq: Have completed minimum requirements for this rallyGDOW: Needs one last rally, which should end below early April high. If this rally goes above early April high, we will re-evaluate.

Overall, it is a very exciting time in the market. There are ending diagonals and Head & Shoulder patterns cropping up in the market. Following charts shows both the ending diagonal in DJIA and H&S in Nasdaq.

Both of these patterns, if completed, would mean much lower prices. 

From a fundamental point of view, lower prices make sense. However, we have recently seen an increase in bearish calls from well-known market analysts. This chorus of bearish analysts concerns me, as they are mostly wrong. But then again, if things are really bad, good analysts have the responsibility to highlight them.

Therefore, caution is warranted. If the trade triggers tomorrow, we will have our stops in place to avoid being against the trend - in case market does an about turn and starts rallying (which is a very low probability).

IPM Trade Matrix 2014 Trades

TRADE - 1: (Long) = +2.6%
TRADE - 2: (Short) = +9.3%
TRADE - 3: (Long) - Non IPM Trade Matrix trade -0.2%
TRADE - 4: (Short - 1/31/14 to 2/5/14) +7.25% 
TRADE - 5: (Long - 2/11/14 to 2/22/14) = +9.8%
TRADE - 6: (Long - 2/22/14 to 3/07/14) = +11.7%
TRADE - 7: (Long - 3/18/14 to 4/11/14) = -18.1%
TRADE - 8: (Short - 4/23/14 to 4/28/14) +11%

TRADE - 9:

When: Outside of IPM turn window in a downtrend - Date info e-mailed to subscribers
Next IPM Turn Window: Bottom 
Trigger: SP500 = 1864 (Conservative), 1881 (Aggressive), DJIA = 16420 (Conservative), 16520 (Aggressive), GDOW = 2505 (Conservative), 2519 (Aggressive)
Supporting Indicators: 8/4 Test completed to the downside. Downtrend in effect.  

Profit Target 1: -
Profit Target 2: -

Stop: SP500 = - , DJIA = - , GDOW = -
Trailing Stops: - 
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: - (Entry = - , Exit = - , Risk = - )
Risk Reason: Risk is high because we are outside of the IPM turn window. This makes it difficult to time the turn exactly.

Applicable Rule: 
  1. Sell (1/2) at profit objective 1 to minimize draw-down
  2. No Trade in opposite direction
  3. Do not go long or short without trigger to prevent losses by market moving against you.  
  4. Observe stop-losses to minimize draw-downs
  5. If stops are hit ==> Wait on the sidelines for new opportunity near IPM Turn window

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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