smilingsynic trading observations etc.
By Lawrencesmilingsynic’s trading observations, techniques, etc.
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Trading Edges That Last
By LawrenceOnline Series
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(promised SS to repost it for him here)
What I wanted to share last Friday is simple: I have used an 81 period moving average for a long time (I have called it the DMA–daily moving average). I still use it, because it is evident to me that others with more money and influence in the markets do as well. It therefore works.
Based on the DMA, I have come up with longer-term DMAs. A 2 day dma is a 162 (81 X2) sma. A 3DMA. is a 243 and such.
I have gone back months and have found that someone else looks at these levels as well. They serve as support in up markets and as resistance in down markets. If the dma does not serve as support, and the 2DMA is below, price will often test that level next. And if that fails, the 3DMA, and so on.
I am a firm believer in keeping things simple, and I have much less on my charts than I used to. But I now have these, and am glad that I do.
Check it our for yourselves.
Interesting. I have been using a factor of 3 (i.e. 3X 81 for 5′). Or 3X whatever the DMA is for the time frame used. I am forward testing behavior around these levels. No smarts or patience to do backtesting. Thanks for the idea.
ty so much for sharing your wisdom and insights into these mkts LC and SS
SmilingSynic’s Best of Fattail tip of the day:
If the market closes below the daily pivot and the opening range low, expect renewed weakness on the next day.
If the market closes above the daily pivot and the opening range high, expect renewed strength on the next day.
RE SmilingSynic’s Best of Fattails tip…
I have a question RE the opening range LOW, what’s it based on?
– 1st 5min bar
– first 30minute range?
and is the Pivot the PP value calculated as of yesterday’s close or is it the pivot generated by the current day’s action?
Thursday’s pivot was based on Wednesday’s price action. Therefore, the pivot is based on yesterday’s close.
The OR low in the observation on fattail was based on 30 MINUTE OR/.
I personally now use a 5 minute.
I have the newer file of the summary on hand. Need to organize the material a bitas it is in Word format so I need to cut ans paste them part by part here.
If you need volunteers, I am available.
Fattail tip #2: if the market does not retrace at least 50% on a trend day by the end of lunch, around 1:30 EST, odds are that the market will price a new extreme after 3 PM, if not before.
Reprint from SS’s Journal
1. On an ADU, the target level is often hit after 3 pm
2. If the day’s range expansion is completed early, and price action creates a spike and ledge formation, odds are for a end of day sell off after 2 pm.
3. On a morning gap, look for a gap fill, but if the day’s high reaches a level that represent twice the previous range from the close,
the gap will probably not be filled. Gaps + significant range expansion ==> open gap at end of day.
4. If the market has made a strong intermediate move up (down) over several days, a close below (above) the daily pivot suggests
an end of the swing, for the time being.
5. A huge gap that represents the previous day’s high (low) plus (minus) the previous day’s range may prove to be an exhaustion gap.
Reprint from SS’s Journal
6. A small morning range (from 9:30 to around 11) suggests an immient intraday breakout (me–a large opening range suggests intraday congestion)
7. If the VWAP is taken about by 2 or more points, the intraday trend has likely changed. Until then, the VWAP should be seen as support in an uptrend, or as resistance in a downtrend.
8. If the market closes below the daily pivot and the opening range low, expect renewed weakness on the next day.
If the market closes above the daily pivot and the opening range high, expect renewed strength on the next day.
9. If the market closes above (below) the opening range high, expect the next day to open slightly higher (lower) and then test the pivot.
If the pivot serves as support (resistance), then a retest of the previous day’s high (low) is likely.
10. If the market does not retrace 50% on a trend day by the end of lunch, around 1:30, EST, odds are that the market will print a new low after 3 PM, if not before.
Reprint from SS’s Journal
11. ES rarely make its daily low/high around 11 AM. A low/high made around that time should be considered a swing low/high that will likely be taken out by the close.
12. When the market closes just above the previous day’s low, that means a lot. Such signature close may portend a rally the very next trading day from S1 or previous day low.
13. On the first day after an intraday failure at the pivot point, S1 is the minimal target.
14. When the market is strongly trending above R2 or S2, and there is no pullback after the early move, the day’s high or low will be made after 3 PM.
Reprint from SS’s Journal
15. “Once the initial MM process is over, then another kind of bots kick in doing their jobs. They are the VWAP bots. They are a special kind of MM bots,
except that they do not simply react to order flow. The goal of these bots is to net positive 95% of the time every single trading day. Actually they are gunning for 99% of the time.
Many of these bots watch the key price level, moving averages, momentum indicators like human. But instead of using these stuff the way they are described in books, etc. available in public, they do that in reverse. It is an over simplification, but they stay true to this principle – price discovery means small losses on the way and then hitting hard and press for more once it is to their advantage. This very idea was actually taught to all human MM, locals, etc. in the old days. The implication here is that w. spring and w. thrust are now golden. They work way better and show up way more often intraday. Why? the bots did the “discovery” job for us to see if they can create more liquidity (i.e. run the stops), and if they fail to do so, they will press onto the other direction as hard as they can. Faster and merciless relative to the locals in the S&P pit.”
This one looks familiar =)
Reprint from SS’s Journal
16. A gap up (down) of 2 to 3 times the average 15-min range is more likely to get filled today than several years ago, as long as there is no renew buying (selling) after the initial gap.
Reprint from SS’s Journal
17. “To illustrate what bots do,
a. The bots were raiding the price up at PP today to discover stops
b. It is a burst of buy orders across all big caps and futures
c. Once VWAP is breached but not quite 2 pts higher, they unload in size to the buyers thinking PP held
d. They do not chase the price down to PP, just trigger some tight stops so price slided down to PP
e. The process repeat itself again – more buyers step in, more unloading by bots
f. Bots cover their shorts below PP and above S1 by hitting the offer while the price going lower”
Reprint from SS’s Journal
18. The rest of a trend sell (buy) day depends on price action between 1:00 pm and 2:00 pm. If the attempted retrace gets weaker by the hour, we will see new low (high) after 3:00 pm.
19. During a true trend day, 11:00 to 11:45 will likely form a low/high before the market continues the day’s trend. If we are having a range bound day instead, then we will close within OR and not expanding to the upside more than 3 – 4 pts.
20. Failure at PP this morning has to be confirmed by a close at or below ORL.
And it is very important to me because it can mark the end of this run up.
Reprint from SS’s Journal
21. “Gaps are footprints of MM function. They are created in the first place due to imbalance of order flows at mkt open.
For some countries and/or stock exchanges, MMs are forced to take the other side of the mkt at certain quantities before they can move their bid/ask further away. At open, they have the rights to move their bid/ask further away from previous close by fixed rules and formulas.
e.g. stock XYZ closed at 100. Then at open, you have 1 mil sell orders at mkt. and 10K buy orders at mkt. What should you do as MM?
Follow the rule book to the T, of course.
If the mkt is allowed to open at the highest bid, chaos is ensured. Why?
Most of the time, the limit bids will be so thin, the MMs will at most bid at each level the minimal requirement to fulfill their duties, and lower their bids again and again, until, some outside papers stepping in to buy in size. In this case, MMs will go bankrupt in no time.
So, the rule books usually give them ability to adjust the open lower per # of big blocks.
e.g. every 100K bias at open, their obligation to bid can be lowered by say $1. Then in the example, they are still forced to bid $9 lower, but at huge size. They are the ones stepped in to take the heat right there.
Inventory is now built.
Once the imbalance is gone – and that a void is created where not much more sell orders are arriving, what do you think the MMs would do?
Of course they have to post higher bids AND higher offers so that they can distribute their risk to the buyers who step in a little later.
Hence, gap fill.
The same logic on inventory built up is applicable for longer time frame, just that the MM firm has to be very well capitalized.”
Reprint from SS’s Journal
22. A gap opened outside of previous day range is likely not to fill, because the previous day high/low will probably act as support/resistance.
23. 50% of down days have their highs printed between 10 AM and 11. 25% of down days have their highs printed during the first 30 min.
24. Rarely does the market not touch the VWAP for three hours.