Our Tradable Edge
Courtesy of Allan
By now, it is no longer my tradable edge, it belongs to all who have been following my work this past year and especially those who have been gracious enough to subscribe to my private email list. Along the way, the system has had its successes as well as failures, and although nothing is perfect in trading, we seem to have found a method that provides favorable implied odds for trading the market, what I refer to as "our tradable edge."
To the right of this page is my brief introductory essay, titled, "Why Are You Here?" Notwithstanding the occasional human interest detours that chronicle my own version of, Eat Pray Love, we are here to make money. So everything you read and see here, from my commentary to the charts, to the occasional links to what I consider engaging ideas from others, is put up with a view toward making money in the stock market. For most, that means to stop what you have been doing, end a series of bad decisions, flip-of-the coin guesses and failed strategies. In other words, if you want to start making money in this game, you really have to do things different, you need to find yourself a tradable edge and implement it in your trading.
The Trend Following Trading Model is our tradable edge. It’s premise is to identify the dominant trend of the market so we can align our trading accordingly. Trading with the trend takes us out of a fog of stupidity in dealing with trading, but only if we surrender to the solutions provided by this simple, objective, algorithm. Thus we have defined, quantified, embraced a new approach to trading, one allows us to, "do something different" this time. On to some charts.
Below is a two month chart of my VXX_240minute Trading Model. On it are eight actual, real time trades of which six were nice winners and two were small losers. Not perfect, but good enough to provide a tradable edge.
I really want these Trend Models to speak for themselves, but I can’t help myself. Here is what I think: We are at the beginning of huge decline in market capitalization of the US and global stock markets. That means lower stock prices, much, much lower prices in an extended bear market, maybe one for the history books. It is a convenient view with all of our index Trend Models in SHORT mode. But more than that, it allows me the luxury of designing a strategy that will maximize returns from such a decline.
With this as my operative thesis on the big picture, how does it reconcile with trend following and the trading models? Remember, we want to do something different this time, we want to simply identify a trend and jump on board, whichever direction that trend is going. If I were a rampant bull on the stock market and our economy, I would still be short the market in here, as the Daily and Weekly Trend Models are compellingly SHORT (note, VXX trades inverse to market direction, so it’s LONG mode is market SHORT mode.).
Below is a NASDAQ weekly chart covering about the past two years of price action. I’ve puposely left off any Elliott Wave analysis, which by-the-way is direly bearish. Just the trends:
Now here is the same chart with a couple of EW counts. The first count, in blue, is based on an EW algorithm in my software program, Advanced GET. The second count, in black, is my preferred count as well as the preferred count of Robert Prechter and Elliott Wave International.
I started this private e-mail list in part because of this weekly NASDAQ chart. The other indexes are pretty much the same. I expect another leg down in the overall structure that began in late 2007. It is beginning to look like that decline is in its nascent stages. Why it is happening, where and when it will end, is fodder for speculation, but for now, the dominant trend of the market looks to have turned down. Our simple algorithm and its trend line will almost certainly allow us to jump on board and go along for the ride. That is our tradable edge.
Allan’s “Trend Following Trading Model” is based on his trend-following trading system. Most trades last for weeks to months. Allan’s offering PSW readers a special 25% discount. Click here. For more details, read this introductory article.
