No longer available.
Graphic 1
---------
Below is Graphic 1: the Visual Graphic for June 1995 Bonds for May 2 1995
(20, 10 and 5 day Overlays)
Above is Graphic 1: the Visual Graphic for June 1995 Bonds for May 2 1995
(20, 10 and 5 day Overlays)
Graphic 2
---------
Below is Graphic 2: the Visual Graphics for June 1995 Bonds for May 2 and 3 1995
(5 day Overlay only)
Above is Graphic 2: the Visual Graphics for June 1995 Bonds for May 2 and 3 1995
(5 day Overlay only)
Graphic 3
---------
Below is Graphic 3: the Visual Graphics for June 1992 Bonds for April 6,7,8 1992
(5 day Overlay only)
Above is Graphic 3: the Visual Graphics for June 1992 Bonds for April 6,7,8 1992
(5 day Overlay only)
Figure 4
--------
Breakout Trading
The RULES for a Basic Breakout Day Trading Strategy
(for demonstration purposes only)
1. To be considered, a market must be in a bracket and no position held.
2. A breakout LONG is triggered: when price has crossed above the upper bracket limit
Stop price is the upper bracket octant.
If the stop is not hit, then exit on close.
3. A breakout SHORT is triggered: when price has crossed below the lower bracket limit
Stop price is the lower bracket octant.
If the stop is not hit, then exit on close.
Responsive (Opportunistic) Trading
The RULES for a Basic Responsive Day Trading Strategy
(for demonstration purposes only)
1. To be considered, a market must be in a bracket.
2. A responsive LONG is triggered: when price has entered the
lower octant and then turns up,
crossing through the lower octant.
Target price is the middle of the distribution.
Stop price is the larger of the near lower bracket limit or volatility.
If neither target nor stop is hit, then exit on close.
3. A responsive SHORT is triggered: when price has entered the
upper octant and then turns down,
crossing through the upper octant.
Target price is the middle of the distribution.
Stop price is the larger of the near upper bracket limit or volatility.
If neither target nor stop is hit, then exit on close.
Figure 5
--------
Octant For Protective Stop on April 8, 1992
Step 1: Sort through the April 7, 1992 Visual Graphics
Select a balanced/bracketing market. We find:
== T-bonds June 1992, on April 7, are balancing on 5 day Overlay.
Step 2: Choose the type of trading: breakout or responsive.
==Responsive.
Step 3: Determine which length of Overlay to trade from.
The length of days it takes a market come into balance is variable.
Most markets balance within 10 days.
So the most popular Overlay is the 10 day.
Financials tend to balance sooner.
Bonds balance in five days.
Responsive trading profit potential is a function of
the length of the distribution.
Wider distributions offer more profit.
However, the probability of having enough rotation to carry price to
the middle of the bracket is a function of time.
Price rotation through a long distribution generally takes longer.
This limits the potential for a day profit.
== For T-bonds, we normally use the 5 day Overlay.
Step 4 Strategy for the market of April 8:
1st Stop Scenario: Octant (no volatility)
Refer to the Rules in Figure 4 above
Use Octant for protective stop ignoring any market understanding
i.e. ignore volatility.
LONG
Enter long at 9904
Protective stop is at 9900
Target is at the middle, 9915
SHORT
Enter short at 9926
Initial stop is at 9930
Target is at the middle, 9915
Trading on April 8, 1992, T-bonds
Open 9926 - 9927
Low 9905
High 10001
Close 9908 - 9906
Trade 1: Loss of 4
Ticks
7.20 9927
7.20 9926 == Short, stop = 9930, target = 9915
7.20 9927 30m Bar 1 on Graphic 3
Ticks
7.43 9928
7.43 9929
7.44 9930 == Exit on protective stop, gain = -4
7.44 9929 30m Bar 2 on Graphic 3
Trade 2: Loss of 4
Ticks
7.58 9928
7.58 9927
7.58 9926 == Short, stop = 9930, target = 9915
7.58 9927 30m Bar 2 on Graphic 3
Ticks
9.51 9927
9.52 9928
9.52 9929
9.52 9930 == Exit on protective stop, gain = -4
9.52 9929 30m Bar 6 on Graphic 3
Trade 3 Gain of 11
Ticks
10.05 9928
10.05 9927
10.06 9926 == Short, stop = 9930, target = 9915
10.06 9927 30m Bar 7 on Graphic 3
Ticks
12.22 9917
12.22 9916
12.22 9915 == Exit on target, gain = +11 ticks
12.23 9916 30m Bar 11 on Graphic 3
Net Gain of Trades: 5
Net before slip and commission for the two trades is -4 - 4 + 11 = 3 ticks,
or $93. If we assume slip and commission at $100 per trade (round turn),
this is now a $93-$300=$207 loser trading day.
Using a stop down in the noise created an additional trade and changed a
marginal gain to an effective loss.
Figure 6
--------
A Responsive Trading Example for April 8, 1992
2nd Stop Scenario: Larger of Octant and Previous days volatility
Step 4: Strategy for the market of April 8:
Refer to the Rules in Figure 4 above
Use Larger of Octant and previous days volatility for protective stop
The Previous days volatility is 5.86 price ticks
The Octant is 4 ticks
So the stop is the larger or 5.86 ticks or 6 ticks (rounded up)
Upper Limit 9931
Lower limit 9831
Octant 4 ticks
Effective Octant for stop, from volatility = 6 ticks.
LONG
Enter long at 9904
Protective stop is at 9830
Target is at the middle, 9915
SHORT
Enter short at 9926
Protective stop is at 10000
Target is at the middle, 9915
Trading on April 8, 1992, T-bonds
Open 9926 - 9927
Low 9905
High 10001
Close 9908 - 9906
Trade 1: Loss of 6
Shortly after the open at 7:20 AM, the short entry price of 9926 was elected.
Ticks
7.20 9927
7.20 9926 == Short, stop = 10000, target = 9915
7.20 9927 30m Bar 2 on Graphic 3
7.20 9928
During the period 9:30 to 10:00 AM the market reached the value 10000
and the protective stop was triggered.
9.53 9931
9.53 10000 == Exit on stop, gain = -6 ticks
9.53 9931 30m Bar 6 on Graphic 3
The exit lost 6 ticks or $188.
Trade 2 Gain of 11
Subsequently, in the period 9:30 to 10:00 price rose to 10001.
In between, price dipped to 9926 for another short position.
Ticks
10.05 9927
10.06 9926 == Short, stop = 10000, target = 9915
10.06 9927 30m Bar 7 on Graphic 3
Ticks
12.22 9916
12.22 9915 == Exit on target(middle), gain = +11 ticks
12.23 9916 30m Bar 11 on Graphic 3
The exit gained 11 ticks or $344
Net Gain of Trades 5
Net before slip and commission for the two trades is -6 + 11 = 5 ticks,
or $156. If we assume slip and commission at $100 per trade (round turn),
the day is a $156-$200=$44 losing day.
Figure 7
--------
A Responsive Trading Example for April 8, 1992
3rd Stop Scenario: Larger of Octant and Average volatility
Refer to the Rules in Figure 4 above.
Use Larger of Octant and average volatility for protective stop
The Average volatility is 7.5 price ticks
The Octant is 4 ticks
So the stop is the larger or 7.5 ticks or 8 ticks (rounded up)
Upper Limit 9931
Lower limit 9831
Octant 4 ticks
Effective Octant for stop, from volatility = 8 ticks.
LONG
Enter long at 9904
Stop is at 9828
Target is at the middle, 9915
SHORT
Enter short at 9926
Stop is at 10002
Target is at the middle, 9915
That protective stop would have not been reached (high for the day is 10001)
There would have been a single trade for 11 points gain.
Trading on April 8, 1992, T-bonds
Open 9926 - 9927
Low 9905
High 10001
Close 9908 - 9906
Trade 1
Ticks
7.20 9927
7.20 9926 == Short, Stop =10002, Target = 9915
7.20 9927 30m Bar 1 on Graphic 3
Ticks
12.22 9918
12.22 9917
12.22 9916
12.22 9915 == Exit on target, Gain = +11 ticks
12.23 9916 30m Bar 11 on Graphic 3
So, 8 ticks is the minimum stop, both for breakout and responsive trades.
The message: You should risk $250 on a T-bond responsive trade.