Tuesday, April 8, 2014

IPM Trade Matrix - Trade 7 (Part 9)

Market Overview:

So the market continued its decline and again brought us into the negative territory. To be honest, being red hurts. But we already knew that the model's accuracy is rated at 95%, which means that after 6 positive trades, potential for a losing trade was very high. 

Historically, every year market experiences an instance where a market turn occurs outside of the IPM turn window. For example:

2010: Market bottomed in early February & made a higher low during IPM turn window. Market continued to rally.
2011: Market topped in early May & made a lower high during IPM turn window. Market continued to decline.
2012: Market topped in mid September & made a lower high in October. Market continued to decline.
2013: Market topped in mid April & declined to trigger sell signals but did not continue its decline. In fact, it started rallying.
2014: Market topped in mid March & declined to trigger sell signals. Lets see what happens next?

One thing common among all of the above mentioned scenarios was the action in one critical indicator. When the market declined, that indicator was bearish and when market rallied, that indicator was bullish. So far, this indicator is still bullish. Therefore, the assumption is that market will soon rally. In any case, one thing to note is that the market typically makes a lower high during IPM turn windows. Therefore, there is a very good chance that market will at least provide an opportunity to mitigate some of our losses.

If the above analysis materializes and the market continues its rally, we will adjust the IPM Trade Matrix logic to include this scenario. This will enable the IPM Trade Matrix to effectively work in those 5% mistimed situations.

Moreover, although stops were hit in SP500 & DJIA, stop level has not been hit in GDOW. Longs will be exitted when Global Dow's stops are hit.

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
Long TNA at 82.45 ==> 82.1 (added longs on 3/19, 3/20, 3/25, 3/26, 3/27) 
More longs were added based on IPM Turn Window risk reduction. Trade was initiated on 3/18/14 based on IPM Trade Matrix Trigger. 

  • 4/1/14: IPM Trade Matrix has been updated and future trades will include a new fail-safe to ensure trade entry near the break-out and reduce uncertainty.
  • 4/8/14: Based on recent market action, we are making another tweak to the IPM Trade Matrix. This tweak will capture those instances where market might top/bottom ahead of the turn window. This would allow us to manage risk more actively and prevent us from exiting the market near the bottom.   

When: Bottom within IPM Turn Window - Date info e-mailed to subscribers
Next IPM Turn Window: Top / Bottom 
Trigger: SP500 = 1865, DJIA = 16409, GDOW = 2455 (will be a signal for full long)
Supporting Indicators: Up trend based on 8/4 test

Profit Target 1: 1915-1920
Profit Target 2: 1960
TNA target is separate. It might be hit early. If profit target is hit, aggressive trailing stops will be used & we will discuss it on the blog. 

 New low outside of IPM turn window based on Elliott Wave structure. Provisional Stops: SP500= 1840, GDOW = 2450, DJIA = 16125
Trailing Stops: SP500= 1866, GDOW = 2485, DJIA = 16330
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: 0.0% (Entry = 1865 , Exit = 1866 , Risk = 0.0% )
Risk Reason: Geo-political uncertainty. Approaching 1st Quarter results. 

Applicable Rule: 
  1. Sell (1/2) at profit objective 1 to minimize draw-down (aggressive trailing stops at profit objective)
  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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