Con-tango

Channel Breakout

I wanted to share with you guys the channel breakout formation setup I see in GC0604.

First, channels are a natural extension of the high (low) hooks mentioned in our previous post. Think of them this way, the more times a high (low) resistance (support) has been challenged the stronger it becomes, and the harder it is for prices to break away from the channel top (bottom).

Originating from Joe Ross’s channel breakout, I’ve set the following modified simple rules for this setup:

• There are two conditions to enter a trade:

The channel is at least 40 days old, or the breakout will take a 40 day high (low).

Buy (sell) on a stop at a price set at a quarter of the height of the channel above (below) the ceiling (bottom) of the channel.

• To exit the trade on a failure:

Sell (buy) on a stop at the opposite band of the channel; bottom (top) when long (short).

For our example, the height of the October – November 2005 GC0604 channel is $27.5 = $490.1 – $462.6,
then a quarter of the channel is $6.9 = 0.25 * $27.5,
the stop order is placed at $ 497.0 = $490.1 + $6.9
and the protective stop at $462.6.

Looking at this present GC0604 chart, we see a similar formation with a ceiling at $579.5 and bottom at $534.5; so we have a potential breakout trade if $590.75 is taken,
from $590.75 = $579.5 + 0.25 * ($579.5 – $534.5);
and a protective stop at $534.5.

(I would consider a $562.0 stop protection; $534.5 is too harsh for my taste…)

We’ll see what unfolds.

I love long legs

It’s been a while that I’ve wanted to talk about legs – the longer they are, the more I like them…
Continue reading…

Implicit learning

I wanted to share with you guys Brett N. Steenbarger’s article Learning to Trade: The Psychology of Expertise, —it’s definitely a must read.

Continue reading…

40 second Boyd

Colonel Boyd of the Air Force was a fighter pilot known for his challenge to fellow airmen. He allowed himself to be placed in a position of tactical disadvantage in an air fight and promised that, within 40 seconds, he would be on his adversary’s tail, ready for the kill. Col. Boyd was never known to have lost this bet, earning him the nickname “Forty Second” Boyd.

During his career, Col. Boyd developed his approach to airborne combat into a comprehensive philosophy of military strategy.  He described combat decision-making as a function of Observing, Orienting , Deciding, and Acting (OODA). 

These processes form loops, with new actions providing fresh observations and requiring renewed efforts at orienting and responding.  The goal of military training, Boyd stressed, is to accelerate OODA loops, becoming more efficient than the enemy.

Its been a while that I’ve come to regard trading as a sports activity. It’s not enough to know what to do, which is hard enough in itself; but, one has to perform impeccably in a very competitive and stressful environment.

And, how can we achieve that?

In a nutshell, submitting ourselves to a harsher and more rigorous drilling of our own trading setups than we would encounter in everyday market situations to build our speed in the OODA process, and to build our confidence too.

A while back, Linda Raschke, Brett Steenbarger and Brace Barber combined their trading, psychology and military training backgrounds to setup a trading workshop based on the grueling military Ranger School.

An interesting article on this subject is found in this article from Brett.

Optimal f

So you’ve got an idea and you want to know how good it is…

Continue reading…

Dollar future?

I really appreciated Menzie Chinn’s presentation (and fredw’s comments) at econbrowser on the theories behind future dollar predictions; it’s a fascinating subject, very relevant to what will happen to the US, and I picked up a couple of concepts. Thanks Menzie.

Continue reading…

Muddy’s method

Although I intend to give more weight in this blog to trading futures, I promised I would mention a couple of simple methods, -quickies, which are quite profitable; and, what’s more important for me, help complement futures’ trading.
Continue reading…