Wednesday, February 1, 2012

Short if...

10:30am Update: Obviously the hold signal was confirmed yesterday as SPY fell well short of the critical number. TNA continues to look good this morning. Probably going to see a sell signal today.


Here is the trading set-up for today: If SPY closes 132.98 or higher, my system exits the long position and goes short again. If 132.97 or lower, hold longs. It's that simple.

Should we get the short signal, I'd have very high confidence that it would be a winning trade. Looking at the internals of my system, rarely do I see such excellent shorting opportunities. The last one this strong was 10/27/11 and before that 1/12/11. Both times TNA lost ~10% within 5 days.

Now to address some comments the past few days. Like most of you, I was bummed the last short trade didn't work out. The frustration here was obvious and I could definitely relate. I was also unsure of going long at these lofty levels. But this market just doesn't want to correct. It, a year ago.

One thing I wasn't worried about was being trapped in a short trade while the market goes up forever. Yes we were trapped for a little while, but with the way my system is designed, it's almost impossible not to get a buy or cover signal eventually. That's the beauty of my system. It just works. You can have confidence in it. You don't even have to take my word for it, just review the 2011 stats if you need a confidence boost.

Good day trading!


  1. It's the nature of the beast. But at this moment all I can say is Mahvellous, simply mahvellous J!

  2. J,

    First, thank you for your generosity in hosting this blog.

    Now, about the rumblings of the last few days. Needless to say, any system is going to have some bad stretches, and during those stretches people will grumble. That's par for the course and I urge you to ignore them.

    The larger issue is a natural and healthy scepticism about systems. In other words, I think that it is a good thing to be cautious. I'm sure that you feel that way about your own system, and that's as it should be.

    The problem is, as you undoubtedly know, many systems begin to fall apart when the market conditions under which they were optimizd change. In fact, almost all systems undergo that fate. So, I'd appreciate a few comments from you about that issue. Without divulging the innards of your system, could you talk a little about how you feel it will do when the market changes complexion, as it will inevitably do?

    And, again, thank you for sharing the fruits of your labor. Even the loudest grousers here undersand that they owe you a huge debt of gratitude.

    1. First off, thanks! Secondly I can't imagine my system ever needing further tweaking. Perhaps I have a poor imagination, though. :) The reason I am so confident is because there are only 2 types of market environments from what I have witnessed. Trending and Mean-reversion. I may be oversimplifying things? Anyway, because of my 2 underlying modes (health) the system automatically accounts for the current environment. Now, of course it isn't perfect...the biggest challenge is the TRANSITION periods. With stops in place now, this will be less of an issue. My system specializes in picking tops and bottoms but if it's wrong, damage will almost always be limited because time-wise it should never be long before getting a signal that puts you back in line with the intermediate term trend. To put it simply, the requirements to get a buy signal in a healthy market are almost too relaxed, which is why I'm not too concerned with adding a stop loss on that side of the trade. (yet) :)

      Gotta run, I will write a bit more later. Cheers.

  3. Never doubted your system J, but damn do I hate this market at the moment with its no sense moves.

  4. Thanks for the update and commentary. I believe your system is pretty robust for the various states of the market.
    Hopefully Feb will be more profitable.

  5. Jim,

    Could you tell me on what you base your confidence? I'd like to have the same attitude as you, but I'm also cautious. Basically, I'd like to know what about J's system leads you to believe that it would be robust in different markets. And, of course, I'd love to hear from J (and I'm confident that he'll chime in soon enough).

  6. I have been following technical trading systems for at least ten years including creating several decent models for myself.
    J's system is the first I have encountered that uses VIX, Candlestick charting, and exp averages in calculating market inflection points. This combination is what I believe makes his system more robust than others I have seen in the past.
    I appreciate his willingness to put on his blog pretty accurate statistics (both good results and bad).

    1. Thanks, and don't forget 2 other very important indicators - sentiment and extreme OB and OS conditions.

      Sometimes it may seem too simple b/c all we're doing most days is watching the closing price of SPY. That certainly doesn't sound very robust, but I assure you there is much more going on behind the scenes.

  7. Thanks, J and Jim. Your comments are sober and helpful.