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There are two approaches to trades:
Trading isn’t easy. But trading WITH the market or a sector, whether it’s rising or falling, and not fighting the current, is certainly less difficult. Below are Sector Performance charts for the past week and month. Of note are:
 Real estate continues its tear. It’s again the leader of the 13 sectors shown for the week just ended.. For the rolling month (last 4-5 weeks), we see this: 
Our other analysis piece is our summary screen showing (1) the state of the sectors with their 20-, 50- and 200-day SMAs; (2) how stretched they are as expressed by their standard Bollinger Bands and their stochastic readings showing overbought/oversold conditions; and (3) for context, how they are sitting in relation to their rolling year performance as expressed by their 52-week channels.  Looking at the above, our observations are:
Our plans:
Look for setups Tuesday morning before the market opens!
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There are two approaches to trades:
Trading isn’t easy. But trading WITH the market or a sector, whether it’s rising or falling, and not fighting the current, is certainly less difficult. Extra! Extra!! The market’s changed in the last couple of weeks. Previously there was clear strength at the top with only minor weakness below. But there’s now widening gaps between strong and weak sectors, although it’s not immediately obvious. But with a little help of knowing what to look for and how, and knowing how to use our trading platform to greatest effect, it’s pretty obvious. Looking at last week, it seems nothing was especially weak, with utilities (XLU) barely below break-even:   Materials (XLB), utilities (XLU) and the transports (IYT) were weakest the last 4-5 weeks: XLB down over five percent; XLU and IYT down over three percent. Today (6/28/21), energy (XLE) cracked a bit, falling by over three percent today, while everything else held up:  To help piece together the puzzle we look at charts and a couple of enhancements to alert us to key market changes. For this we use moving averages (MAs) like trend lines, except MAs correct and adjust over time, making them (in our opinion), better than trend lines. We view them in varying periods to assess short-,medium-, and longer-term trend and momentum based on the bar-number selected for the MA. We then look at how price interacts with the MAs, if they are upward or downward sloping and to what degree, if price is above or below the curve, etc. to determine if price is moving with the MA (i.e., with the trend), or against it (countertrend). We do this for broad markets, sectors and industries, and individual symbols. While the concepts are simple, we’re always grateful for platform help to reduce the manual scanning required. Well, hooray! Our platforms offer nice features to help us see things. To be clear, we’re not looking for magic indicators to steer our decision making. Rather, we use simple platform tools to highlight the things important to our decisions, like here with our moving averages.  There’s nothing magic above. It’s our sector ETF list that tells us:
This simple visualization tool directs us to symbols where there is a higher likelihood we’ll find our key setups with a higher probability of a successful trade. We can see above there are clear pockets of weak and weakening sectors, while others are remaining strong. We didn’t see this a month ago. It was basically a sea of blue in our Moving Average Pressure scan indicator. But that was then. There are two approaches to trades:
Trading isn’t easy. But trading WITH the market or a sector, whether it’s rising or falling, and not fighting the current, is certainly less difficult. Here are screens of Sector Performance for the past week and month. Lately we’ve generally had both strong and weak sectors, but this week everything was weak, to a greater or lesser degree:  This week materials (XLB) and the financial (XLF) sectors were the weakest, each diving by over six percent. On the less weak (“relatively strong”) side, tech (XLK) was flat, while consumer discretionary (XLY) products and healthcare (XLV) were down by less than one percent. Looking at this in the context of monthly performance, we see opportunities in these numbers.  For the rolling month (past 4-5 weeks), XLK and real estate (XLRE) are the strong sectors, with tech up 6.5% and real estate up 4.8%. Combining the weekly and rolling month performance, tech held up well in the context of a weak week, showing relative strength by staying flat. As comparison, the S&P 500 (SPY) was down 2.2%, while the Dow fell 3.3%.
Our plans:
Look for setups Tuesday morning before the market opens! Please whitelist PTL’s email to make sure you see your free trades!! In our recent “Flavor of the Month” piece, we charted the Bitcoin index. We showed three levels of upward price pressure below where we said long trades could be executed. Price dropped to the first region, leading to a nice, profitable trade. Below are:
 There’s always the new hot topic or segment to invest in or trade. Everyone has an opinion why it’s a disrupter, why it will change the world, why it’s an example of that horrible biz-speak phrase, “a new paradigm”, and why Buffett, Bezos, Cuban, and/or Gates are plowing money into it (without any proof that this is true). Cryptocurrency and all things blockchain, electric vehicles, work-from-home, green technology and climate change; years ago it was solar. Who can keep up? The one thing that is consistent with all of these is that they move. As such they often represent good trading vehicles, but not necessarily long-term investments. For some, it comes down to risk tolerance and ulcer susceptibility. Bitcoin is great if you can plow money into it and not watch it after that. But for us at PTL, these represent swing trades, not investments. They require planning and attention, and not being seduced by “the story.” For instance, everyone was giddy when Bitcoin blew through 50k & then 60k, at which point in five weeks it dropped 49%. That doesn’t sound like “an investment.” But a trading vehicle? You betcha. Below’s our read on Bitcoin using the $BLX index. It shows what happened to people who dove in when the euphoria of 50k set in versus waiting for a pullback into a high probability trading zone lower down. The chart also shows areas below where we are now and expect a bounce as the basis for some likely short-term swing trades.  Stay tuned for our next piece on the newest “hot flavor”, non-fungible tokens (NFTs), We’ll identify key symbols in the area and a couple of setups we are waiting on.
There are two approaches to trades:
Here’s a screen showing strong and weak Sector Performance for the past month:  On the strong side:
On the weak side:
And you’ll see them Tuesday morning before the market opens! Whitelist PTL’s email to make sure you see Actionable Trades Tomorrow!! P.S. If you have any questions about this or any trading topic you can email PTL@precisiontradinglabs.com. Mitch & Ryan 5/28/21 - The insanity of Bitcoin trades arises from the tremendous distance between S&D zones. The prior DZ just under 34k quickly took it back up to >42k. We're now heading back down, & it's unlikely the prior DZ is good anymore. If so, a similar zone now sits just below 31k. That's a likely point for the next launch. For most instruments you might look at this & say that's 15% or so down, & won't happen for a long time, or ever. But remember, this is BITCOIN.  People enjoy seeing their “worlds” on TV or in the movies. Viewers love to debate how accurately (or not) being a lawyer; EMT, doctor or nurse; or a cop is depicted. Less common but equally true is Wall Street and trading. Billions is the TV gold standard. In movies, two titles, both now over 35 years old are the most beloved: Wall Street (“Greed is good, greed clarifies…”) and Trading Places (everyone’s introduction to frozen concentrated orange juice-FCOJ). And honorable mention for the more recent Margin Call which is very good, but not iconic and lacks characters remembered or loved today. Trading Places is awesome. It’s ginormously good and fun. But besides that, if you paid attention it was a mini trading education and a primer on supply and demand. <Spoiler alert!!! – although should one really be concerned about that for a movie that came out in 1983?> The Duke brothers’ explanation of how brokers function and supply & demand to Eddie Murphy (Billy Ray Valentine) in the back of the limo is great. Their example of pork futures and “bacon, like bacon in a bacon, lettuce and tomato sandwich,” justifies the movie right there. It’s that funny but also accurate. But the climactic trading floor scene rewarding our heroes, Valentine and Dan Ackroyd (Louis Winthorp…the third) and wipes out the Duke brothers is supply and demand in action and nicely depicted. The Dukes are commodities market makers and brokers. As part of this, they are also proprietary traders, i.e., they trade their own accounts. But in their case, greed isn’t good. They pay for an illegal advance copy of an orange crop report to gain inside information. Valentine and Winthorp learn of the plan, and behind the scenes maneuver the substitution of a phony report stating the forthcoming orange crop would be low. This forecasts a low supply of oranges to make FCOJ, so FCOJ will become much more expensive. Meanwhile, the real report will say the crop will be normal, so prices will actually remain relatively stable in the short- to mid-term. After getting the phony draft report, the Dukes act on it the next day, when it’s scheduled to become public a few minutes into the trading session. They start aggressively buying FCOJ at the open, accumulating FCOJ futures contracts. They expect FCOJ prices will soar once the (phony) crop report about a low orange harvest comes out (lower supply and higher demand = higher prices), resulting in a huge profit. The Dukes start aggressively accumulating and other brokers and traders pile in since everyone knows the Dukes and figures “they know something.” The buying fuse lit by the Dukes illustrates another well-known trading concept, “FOMO,” the fear of missing out. So, while the Dukes and other traders are paying higher and higher FCOJ prices, they believe they’ll be rewarded when the official report is released and prices spike. But it’s not to be. The real report’s issued, and everyone realizes there’s no coming price surge. In fact, FCOJ prices were already driven far too high by the buying frenzy. Then the fun really starts… The traders stand silently for a few seconds after the report is broadcast, realizing their predicament and they’re about to get smoked. Then, one of our heroes yells out at the top of his lungs an order to SELL SHORT a slew of FCOJ contracts, knowing that will set off a selling cascade. The panic bubbling beneath the surface is ignited and a selling frenzy starts as everyone who just bought FCOJ futures (at inflated prices) looks to dump them and limit the damage, and prices come crashing down. As the wild selling ensues, our heroes gauge the panic on the floor, the order surge and how prices are descending. They wait, they wait, they wait and when they sense the time is right, they now yell out orders to BUY THE SHARPLY DISCOUNTED FCOJ FUTURES, which serves two purposes:
Q: What do these have in common? Unicorns; The tooth fairy; Santa Claus; Politicians prioritizing the public good against their own self-interest 🡪 A: All are, of course, mythological figures.
Here’s another: Trading services and discretionary traders claiming “real” success with win rates of 99%, 93%, 87%. Good luck with that. No discretionary trader achieves success shooting for rates like that. The only beneficiaries of these claims are those making them to people hungry to believe them. Before continuing, note the word “discretionary.” This refers to individual retail traders, like us, like you. We evaluate charts, determine entry & exit criteria, manage trades, and manually execute them. We don’t have black boxes doing algo, high frequency trading. We’re not quants. Discretionary vs non-discretionary trading are entirely different worlds. Here’s an obvious truth: trading is about making money, not about “being right.” In baseball, offense really isn’t about a .300+ batting average. It's about either knocking in runs or scoring them. Of course, you need baserunners to score runs and in trading you need to be right a “certain amount of time” to be successful. But like almost everything in life, it’s not binary – it’s how much, to what extent, and how frequently. Many traders, if we really went to the effort, could have lofty win rates – maybe not 90%, but certainly 75-80%, because that amount of time, our trades go green at some point. So if we closed those trades with stupidly low profits, they’d be “winners.” But….to what end? In business, net results come from the sum of outcomes. You aggregate money brought in and subtract what goes out. In trading that’s Winning Trades minus Losing Trades. Winners pay for losers, and only then are there profits. But if you have $300 losses and a bunch of $50 winners, is that really the foundation of a robust trading method? Is that sustainable? In the real world, can you really be right 93% of the time, pay for your losers and run a business where losing trades are, by design, part of the recipe? It’s really insulting to one’s intelligence to put that out there. There are three ways successful discretionary traders operate, with the latter two the most frequent. Intraday scalping A small number of people scalp intraday, often profiting on small moves magnified by throwing large volume at them. Either way, it’s not a life and certainly no way for most of us who love trading want to do it, especially when it’s our livelihoods. There’s nothing wrong at all doing that, but it’s impractical for most people. Middle-ground positive trade frequency and reasonable reward-to-risk ratios A well-planned system where the average win rate is a “realistic” percentage, and the average win-size is a “reasonable” multiple of the average loss. For example, being right 40-50% of the time & the average win-size is 2-3 times the average loss. So, for every 10 trades, here are sample scenarios:
Depending on your trading style and trading frequency, maybe you do this every month. Maybe every two week. Maybe far less often, but you trade a larger account so have more money in each trade. The numbers can be extrapolated to your personal situation. Sometimes, especially with certain credit spreads in options trading, you may have some high probability trades with low or even inverted reward to risk. This is okay because these trades are rooted in math and facts. Not fiction and intelligence insulting marketing claims. In baseball terms, this approach is like a singles and doubles strategy. You aim for consistency and moderate drawdowns when things don’t go right (which they inevitably sometimes will). You avoid being unduly stressed, especially when starting out with real money and then shooting at a financial target. Done right, you can make a very, very nice living doing this, or have an awesome supplementary source of wealth generation. “And Now for Something Completely Different” This is geared at catching fewer, but (much) bigger moves. But it is NOT necessarily high-risk, high-reward. Rather, when done right, it involves cutting off ill-performing trades very quickly and taking a large number of (very) small losses. This is often characteristic of a trend-following strategy. These systems feature lower “trading batting averages” (win-rates), but (much) higher average wins per trade. There are often multiple “stabs” at a trade, aiming to catch the start of a big move, and trying multiple times if the setup fails but remains valid. After entry, there are sometimes add-ons to grow the position. Returning to baseball, this is like swinging for home runs. Such systems often see win rates of 15 or 20%, but average win/loss ratios of 7-8:1 and higher, sometimes much higher. The upside is obviously mega-results when things work. The downside can be larger drawdowns, as well as being battered psychologically since as human beings we want to be right. The Wrap-up In future pieces we’ll talk about the elements of a good trading system and realistic win rates and reward-to-risk ratios. But for now, we’ll leave you with this. Do you notice in both the “Realistic” and the “Completely Different” scenarios, there’s no mention of 87%, 93% or 99% win-rates? Q: Do you know why? A: Because unicorns and the Tooth Fairy don’t trade. |
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