Thesis

So as alluded to in my last post, I am writing a thesis. What about you may ask? Well, as I’ve come to notice from thesis titles, everything you could hope to know about it is right there in the title:

“An Examination of Technical Trading System Profitability in Intraday Foreign Exchange Trading“

If that left anything open to the imagination, here is a section detailing the focus of the study.

I-A. Focus of the Study

    This study examines one aspect of technical analysis that has received relatively little attention from the academic community: the efficacy of technical trading systems (defined below). The target market and time frame chosen for this study are those that technical traders flock towards. The chosen market is the spot forex market, an environment where technical trading exceeds fundamental trading, and the chosen time frame is intraday (minute intervals versus day intervals) since shorter time frames are more conducive to technical analysis than fundamental analysis. Using intraday data is also a more accurate reflection of the trading environment for the average forex trader as opposed to using daily or weekly aggregated data. For comparability purposes, strategies will also be tested on daily and weekly intervals.

 

As you might notice, my personal focus has shifted from when I last blogged. The thesis is based entirely on the forex market, an area that I have only mentioned briefly, if at all, in the past. It is also taking a hard-line, quantitative approach to technical analysis, leaving all subjectivism by the wayside.

 

My current step in the process is to gather as many public trading systems as possible before coding and thoroughly testing them in TradeStation (another shift for me, this time in platform). If you have ever created a trading system, saw one in a book or a blog, or even found one on a fortune cookie, please contact me at celticaces at gmail dot com. Since it’s based on the forex market, obviously all trading systems that use volume won’t work. For those that participate, I thank you in advance and will be sure that credit is appropriately given.

iAlive

Despite an extended hiatus from the blogging world I am still quite alive and still following the markets. Trust. I am in the middle of writing my thesis, and as any of you who has written one knows, it is an arduous and hugely time consuming process. But I was giving it some thought and decided that the blog will be a great venue for exploring different approaches and thoughts as I read, write and research.

More to come, and in a prettier format. This post is being written from my shiny new iPad…because I can. But really I want to see how useful it is as a laptop replacement. Based on the slow hunt-and-peck typing I’ve been doing, I’m leaning towards “no”. But theres no denying that watching Netflix on it is freakin’ badass.

I Come From A Land Down Under

If you haven’t already caught this, there was a nice little exchange on Fast Money last week. Here’s the video for your comedic enjoyment (turn up the volume)

And We’re Off!

Existing Home Sales came in above expectations at 5.24M (5.03M expected) and Bernanke said that the “Economy could grow soon“. The SPX skyrocketed above the 1013 prior highs and is now at 1023. The VIX dropped, temporarily crossing under my bullish line of 24, currently at 24.50 (down 2.31%). My bearish inclinations are dropped and I’m back to temporarily bullish.

Week Market

A little under a year ago, we were bombarded on a daily basis with “record” everything and “I’ve never seen this before” from wizened old traders who used to read smoke signals as ticker tape. Now, we are in the midst of a bounce many have “never seen before”. That leads me to view any indicator with added incredulity, even my own. But this one has stood the test of time. It’s been backtested back to the creation of the S&P500. And the results? A ridiculous amount of money. (I have the stats saved somewhere…maybe I’ll post them later)

What I’m referring to is my bull/bear market indicator. It’s nothing more than the 13 week EMA compared to the 55 week EMA. I originally posted this back in Feb as part of my million dollar contest writeup. If you followed it, you would have gotten rich on the dot-com craze, then gotten out (or even better, gotten short) when the party was over, caught the following recovery, then gotten out (aka shorting more than an oompa loompa) the 2008 financial crisis. Where do we stand now?

Allllllmost…but not there yet.

Yes, maybe following this indicator for the prevalent trend would make you miss out on the sharpest of moves, but in the long run, it has been right more often than wrong.

What do you think, Old Turkey?

 

Ideas of what might be in our future. 70′s crash and monster bounce…

…led to this

 

Or will it be this? 40′s crash with a 51% bounce…

…which led to this

Bull-oney

Them bulls is resilient, I’ll give ‘em that.

So we broke through diagonal resistance, but we’re overbought (as usual) and have yet to breach the prior lower high at SPX 1013. So with tomorrow being options expiration day, Bernanke speaking at 7am PST, and existing home sales at the same time, there’s a lot of uncertainty at the moment. Depending on what the bearded one says about our recovery, it could send the markets in either direction.

The point is, be ready for anything tomorrow, and be especially on guard a half hour after the market open. Here’s the 2hr chart of the SPX before I crash for the night

 

Also keep an eye on the VIX. If it pushes above 28.50 – bear mode; under 24 – bull mode.

Stereotypes

So I just got back from the gym I normally work out at, which the clientele happens to be predominately Asian. I drove home in my Honda, and then cooked up some rice and edamame for dinner, just because that’s what sounded good to eat. Then I finished it off with some tasty mandarin oranges for dessert. Who says that stereotypes aren’t real?? Oh wait…I’m white. Never mind…

Lower High

So today we’re bouncing higher but I recently warned of the resurgence of the bears? What gives, Celticaces?? “Can’t see the forest for the trees”.

As I’ve mentioned before, the market rarely (if ever) moves in a straight line. It jumps and meanders and zigzags along, leaving us to marvel at its randomness and watch the movie Pi to uncover its secrets. One of the fundamental tenets of Dow Theory is (and this is about as simple as it gets) higher highs, higher lows in an uptrend and lower highs, lower lows in a downtrend. Since the high on 8/7, we have since made a higher high and two lower lows. Today we are building up to what I believe will be the 2^nd lower high.

Watch the area of 1005 to 1010 on the SPX for a bounce or breakthrough. If we bounce down, I’m getting heavily bearish, but on a breakthrough, I’ll admit my error and flip the script. No trader is 100% accurate, and the most successful traders are those that can quickly throw aside their personal biases when they are proved wrong instead of stubbornly holding on to a dead theory to convince the world that we are all-knowing all-powerful, and most importantly, right. Write that down, xTrends.

Here’s a quick chart of the 2 hour SPX that I’m watching and some other good examples of “lower highs”

Focus!

Most trading blogs out there seem to have their little niche in the trading world. Dr. Brett over at TraderFeed focuses on trading psychology and quantitative analysis, Tim Knight over at Slope of Hope and mole over at Evil Speculator focus on technical analysis and trading ideas, the e-mini addict over at eminiaddict.com focuses on…well, trading the e-minis. You get the point. Though they occasionally cross genres (and in evil speculator’s case, cross dress), they typically stick to their main area(s) of focus and don’t stray too far.

So, in order to make the most of my ridiculously limited schedule, I’m paring down my focus from “everything in the world of finance” to the following major topics

• General (like this one)
• Market commentary
• Technical Analysis
• Futures trading
• Options trading – with a focus on theta positive income strategies
• System trading & backtesting
• Indicator programming
• Things that are freakin hilarious

My twitter account will be used for live commentary and trades

That’s it for now. But on a quick “Market commentary” note, today’s drop was a significant sign of weakness. The bears are done hibernating…be ready

This video came up on a random google search for “Focus”. It would definitely fall into the freakin hilarious category

High Frequency Trading Video

Here’s a great video I caught about high-frequency trading. Hat tip to Tyler Durden (who someone just told me I look like…the guy from Fight club, not the blogger) over at Zero Hedge

And on a side note, I’m not going to spend much time explaining how busy I am and why I can’t post all the time. It makes for some lame reading, and well, there’s not much I can do about it. I’ll just drop in a nice little post when time allows and hopefully the internet world will get something good out of it. Ok I’m out. Enjoy the rest of the weekend!

High-frequency trading from Marketplace on Vimeo.