NinjaTrader 8 is Born

Today we’ve updated the entire Acme 8 suite for the general release of NinjaTrader 8.0.1.0, and we couldn’t be more proud.

 

Get NT8 here.

 

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Acme 8 for RC2, Trade Plan Released

NinjaTrader released RC2 last week and we tested and updated the entire product catalog for it… it’s going swimmingly so far.

There’s also a new addition to the Acme line up, the Acme Trade Plan for NT8. It’s a better, stronger and faster take on the hugely popular Trade Plan for NT7.

Click here to check it out.

Acme 8 Wave One is in the Corral

Lordy… we here at the Ranch are completely drenched in sweat and every crevice is choked with dust.  We finally corralled the big first wave of Acme 8 products, and just in time for the weekend too. Have a look at the Products menu above and see what’s in there. We’re gonna go have a beer and a shower, not necessarily in that order, and not necessarily together. Just sayin’.

A Walkthrough: The Powder Keg Trade

Been a long time since I was able to blog much. But in the words of Jack Nicholson from The Shining, I’m baaaack!

For the last past few weeks on Twitter I’ve been posting a lot about the #powderkeg trade. I’ve tried to explain what it is, why it works, when its most likely to work. But tweets aren’t always the best way to get a series of points across, and I’ve had a ton of questions about it. It’s not practical or possible to explain it each time someone asks about it, so I thought I’d walk through the finer points here.

First, let me go though what it is NOT (in no particular order):

  • The best trade ever. This isn’t a home-run type of trade. If you define it “right” it has small risk and generally good reward. By “good” I mean somewhere between 1 unit of risk for 2-3 units of reward. It’s a solid base hitter, though every now and then it cracks one out of the park.
  • One pattern to rule them all. This trade works best on non-trending days or later in the day when any drives from the opening of the session have exhausted their fuel.

That said, it has a lot of good things going for it (again, in no particular order):

  • It requires minimal tools, though as you’ll see I use a volume profile. VPs will help tremendously in defining the boundaries and quality of the setup. But truth be told this can be done without a profile.
  • It requires minimal preparation.
  • It requires no directional bias (it’ll be better if you suspend all bias, in fact). So in some ways, it’s the ultimate anti-revenge-trading tool (I’ll post about revenge trading another time).
  • No need to catch a falling knife or catch the top tick.
  • Works on pretty much any kind of short duration bar, ones that take 2-5 minutes on average to complete is best. The more bars there are the easier this pattern will be to identify. That said, many Renko bars will work against you here, they are designed to filter out exactly the kind of “chop” we’re after.
  • It’s the same pattern every time (but the quality – the ease with which its recognized – and outcome varies, of course).

Why it Works

Markets ultimately have one purpose:

quote

The theory behind this trade is simple. It works because it’s catching the end of a short-time-frame auction cycle… i.e. balance. Once a market achieves balance (supply/demand equilibrium, fair prices, etc.) on any time frame, its purpose has been fulfilled and it must start the cycle over again (see above). More about balance and other profiling concepts here. We want to be ready and waiting when it starts this cycle anew.

What to Look For

  • Find an area where price stalls, preferably away from a recent area of balance.
  • We want price to have left and returned to this “stall” (balance) area at least once on each side.
NQ - Powderkeg no profile

Example 1 – No Profile

 

NQ - Powderkeg with profile

Example 1 – with Profile

 

Now that we have the basic elements down let’s talk about a few characteristics which sweeten the quality of the setup:

  • The more times price exits and reenters the balance area the more powerful the break. At least one excursion-and-return on each side is needed to validate the setup.
  • The session VPOC’s included inside the balance area. Even better is when the VPOC’s in another location, you identify a new balance area, and before the balance breaks the VPOC moves into your forming balance area. This means volume’s being expended in this area and (probably) that stop loss orders are accumulating on either side of this balance area. These stops will serve to accelerate the move once it finally breaks the balance area.

 

Defining the Risk and Reward

There are multiple ways to do this, but ultimately your risk will be just over or under the center of your balance area. Preferably the highest-volume price in your balance area. Ideally it’s the session VPOC (point of control). You’ll want to define your reward at at least 100% of the size of your balance area. If for whatever reason it seems implausible that your target will be achieved, forget the setup and move on.

Example: if your balance area is 10 points across, your ideal 1st target will be 10 points on either side of the boundary of the balance area. Since you’re defining your risk as mas o menos the center of balance, if you enter at a break of the balance area that puts your risk:reward at ~1:2, assuming you only trade one contract or lot. It gets more a little more complex (but with a more favorable ratio) if you trade multiple lots or contracts because you can scale out along the way, booking profits and reducing your risk, while still having ammunition to take down further moves.

 

NQ - Powderkeg R-R

Example 1 – Reward Zones

 

Once the reward zones are defined, I like to use a trend line to split the balance area in half. There are many ways to split it in half, but I find this helps keep me focused and in the flow. Use whatever works for you.

I use a bottom or a top trend line depending on which way I think the keg will blow. It really doesn’t matter whether you draw the trend sloping bottom left to bottom right or vice versa as long as it splits the middle of the balance area. If price breaks back through the trend line, no matter which way you draw it, you’ll want to get ready to try in that direction. In this case, based on price action, order flow and internals I think this balance is most likely to break to the upside. So that’s how I draw it.

 

NQ - Powderkeg R-R Trend

Trend/Risk Line

Getting In

Now that our risk and reward is defined, how to you know when to get in? What you’re looking for is an impulsive directional bar. You HAVE to be paying attention here. This means any bar that starts to move unusually fast in a direction, compared to other bars nearby. Remember, you’re in a balance area, which is generally slow, lazy “chop.” So a bar that starts to hustle should grab your attention. Ideally, you’ll have your entry order(s) ready to go and all you have to do is place it and let price trade through and thereby assure a good fill. If you can’t get filled on your entry it’s probably because you hesitated and chose a bad price. The best prices are always ones that you can actually get filled. The best way to assure a fill is to make sure your order is one that gets traded through while price is on its way somewhere else.

This “trade-through” strategy is my preference, is entry option A pictured below, and will give the best risk and reward. A more conservative entry is to let the impulsive move happen and then wait for a back-test of the balance area to hold. This is option B. You still have to act decisively, or you’ll blow your R:R. Be quick or be dead, as I say. So shoot to kill.

 

NQ - Powderkeg ENTRY

Example 1 – Entry Options

One of two things will happen at this point, and neither are in your control. First, price will move toward your target and you get ready to book your profits, or price comes back at you and enters your stop zone (see above). If it does it’s OK. It happens. Look at the risk here… if you got long at the impulse through 4400 and your sell stop was at 4396, your target was around 4415… that was a 1:4 trade. You can afford to try again or flip the other direction even twice and still profit on the trade. But you have to honor your stop.

OK, so, how’d this one turn out? As you can see below, the impulsive bar I thought would be the magic one was a head fake. But that’s OK, because our stop was never touched again. Price re-entered the balance area, giving it even more power, and a few minutes later it launched out in our direction all the way to and past the previous day’s high. If you have enough units to scale out along the way, the max favorable excursion (MFE) would have been about 25 points, while the max adverse excursion (MAE) was just 9 ticks.

 

NQ - Powderkeg COMPLETE

Example 1 – Trade Complete

More Examples

Today gave more than its usual share of #powerkeg opportunities. Generally, there’s one or two a day. But today, thy cup overruneth,… so to speak.

 

NQ - Powderkeg EXAMPLES

More Examples – NQ

 

ES - Powderkeg EXAMPLES

More Examples – ES

Hope this was helpful, amigos. Until next time, trade ’em well…

New Market Study: Directional Potential of Popular Futures Contracts

Nerd alert…

I’ve just published a new data-focused market study on a bunch of futures contracts. Curious? You know you are.

Head on over now

Summer Blog-cation

Time’s in really short supply lately, just too many major projects in full swing. So I’m giving myself the summer off from long form market blogging. But I’m on Twitter (click the “t” button up in the top right corner) every day doing my thing… so… you know…

Trade ’em well and watch this space as summer winds down.

Same Old Situation?

Given the what’s been happening in the US equities markets the last couple weeks I felt it only fitting to honor this week’s post with one of the best worst songs from one of the best worst bands in one of the best worst genres of rock and roll – “Same Old Situation” by Motley Crue. And also they are on their farewell tour this summer. So listen in while you read. If nothing else it’ll put a smile on your face with its ridiculous but nostalgic excess. The same could be said of the state of the markets right now, no?

Here we go…

S & P 500

Well, we got it. Yes, it. The elusive, exclusive initiative buying we needed to push back through the critical 2105-2107 area in the ES that’s been so difficult to break lately. Friday marked the 6th (count em’) attempt above this zone since the 3rd week in April. Of course, the question of the hour is whether it’s different this time. So… is it? What’s changed?

Let’s have a look and see what this week’s COT report says about how the important reportable categories are positioned.  In the ES we see the Asset Manager/Institutional category is long 1,229,592 (change -43K) contracts and short 516,499 (change -22K) contracts with both sides decreasing exposure from 1 week ago.  Levered funds are  422,587 (change -25K) long to 770,747 (change +38K) contracts short, while the “other” category exposure remains net short by more that 2:1.

Interestingly, the asset manager category increased long exposure last week in the big contract by more than 3.5K big S & P contracts while the levered and other categories remain net short the big contract.

So what the takeaway?

I’m thinking here’s really a couple of plausible explanations. First is that there is just plain disagreement between the biggest money and the aggressive money over market direction. If you lay the common narrative over the numbers, the aggressive money thinks the market is over-valued and is trying to get in position for a top. The other plausible explanation is that the increase in short exposure is actually hedging activity for long equity exposure and there is actually a belief new surge of money about come rushing into the market, tsunami style.

To be frank I find the former scenario the most plausible given how the story has unfolded over the last few months. In my view the range-bound sloshing of recent months is most credibly seen as participants disagreeing over the intermediate term market direction and battling to take control of it. But that’s not to say the latter scenario lacks all credibility. I think it does, but of course I have no visibility into what money is lurking on the sidelines and how much is there. But one thing I do know is that now that Q1 earnings season is over, and with interest rates remaining crazy low, there will be buybacks. Starting soon. This self-generated demand is kind of like a snake eating its tail in my view, but it is what it is. I have to account for its potential effects on the market writ large.

So… let’s start with the extremely solid channel built by the ES starting overnight on Thursday:

ES

But when we start looking at the RTH only trading, we can see this march up was not without it’s structural flaws.

ES3

Since we’re focusing on the coming week let’s start with that monster gap up on Friday. Given the RTH volume on Friday (over 1M contracts) it would seem that someone was trying to send a message. There was a massive run of stops overnight Thursday all the way to 2107 and the bids just kept on coming. All day Friday there was selling into this move up, and this can be clearly seen in the order flow, the top bulge of the profile and in just in how compact the up-move was considering the volume.

Given this, my overall plan for the week is to watch for the same-old-same-old or for a significant character change in the tone of the market. Evidence of this change will be seen in a buying appetite for prices over the 2105-07 area. Such a change in tone would represent that buyers are now seeing value in large caps, where they haven’t recently, even so close to the all time highs. This is incredibly bullish, at least in the short term. On the other hand, you’d be crazy in my view not to expect a clean trend up free of the same range-bound sloshing.

So… first and foremost this week I’m going to be on the lookout first for a  more of the same in the form of the kinds of repair shown below. In my plan that would call for at around a 50% retracement of the late week up-march from about 2060 to 2115 should we push back through that all-important 2105 area shown below.

ES2

This half-back area, sitting from about 2090-2083, would be where I’d expect assertive buyers to be found on any push lower. If they liked it above 2105, the same buyers should be ass-over-tea-kettle in love with it at 2085.

If, on the other hand, this push up on Friday was a successful attempt at gaining decisive control of the market direction, I’ll not only be targeting the 2120 area but looking at the area around 2128 and even 2147. I suspect a close above 2120 puts the fear of God in the leveraged shorts (position summarized above) and we may even see some sort of capitulation. With short positioning this high, it could lead to a rampant orgy of new highs.

But let’s not get too excited just yet. As I said, I think there would have to be a significant change in character in the market for this to happen… and I’m pretty sure I’ll know it when I see it.

Beyond this… who knows. I’ll be taking it one day at a time.

Not covering my other markets this week, folks, other projects beckon for time and attention. Trade ’em well this week, amigos…

 

Para el Escenario Número Dos , Marque Ocho

[Translation: for scenario number 2, press 8. Ah the irony.]

We had one hell of a week in equities, didn’t we? Going into it (for me) was a lot like calling the 800 number for the utility company, impatiently trying to wade through the phone tree options to get to the one I want.  As it turned out I had to back all the way out to the top level, stabbing and swearing at the 10-key menu, to get to the trading scenario that ultimately worked.

Last week I felt like the time was more ripe for a significant correction than it’d been some time. But no. It wasn’t to be. That really leaves only two explanations: my thinking was early; or my thinking was wrong. I feel confident enough that I didn’t somehow misread the technical tea leaves.  The charts were pretty clear. But guess what? Buyers wanted to buy despite all the lines and letters I drew on my charts. ;-} I mean, check out the circled region. Sure looked weak at the time, like a slinky about to walk down another step:

ES-Daily1

If you hang out in the Twitter #twitpit you may know that I was actually pretty short the indexes for the first part of the week based on my thesis. But by Wednesday mid day it became pretty clear that the morning’s dip buyers were serious and I unwound the remainder of that position while the unwinding was good.

I could go on and on and on about how as a trader it’s paramount to stay flexible, but I won’t do that. I’ve done it before. Instead I’ll just say that’s why I make 2 plans. I prepare for both success and failure, because when I do that I can easily flip failure back to success.

Anyway, let’s get on with the show…

West Texas Intermediate Crude Oil

That all-important weekly historical chart I posted a while back? Wow, you couldn’t have asked for a better performance. Here it is, exactly the same line and arrow as a few weeks back:

www.tradingview

On the weekly time frame it looks like we’ve had a pretty spectacular and predictable bounce. Zooming in a little close and we see that this week in particular was all about consolidation following an equally spectacular 5 straight weeks of vertical development:

CL
… with the POCs and overall balance remaining stable in the mid 57-58 region. The stable consolidation is even more evident on the daily chart:

CL-VP

… with a clean test of both the mid and top of the regression channel I have from early March. And from a classic TA perspective, this week looks a whole lot like a bull flag in the making, doesn’t it? So for the week ahead my scenario numero uno is for a test of the next balance area above the 58.60s up. The 60 handle is the first natural upside objective as it’s a round number and also because it’s smack in the center of the balance area formed when the bear flag/consolidation zone was created there in December (all prices are relative to the June contract, by the way):

CL-VP2

If this consolidation craps out and rips recent longs a new one below the 55.40s, my scenario numero dos expects to find pretty significant support at the 53-52 region. I mean check out the hot, steamy kurtosis action on the right side composite above. If that’s not profile porn, I don’t know what is. ;-} Anyway, at this stage in the oil saga I’m thinking only force majeure will take us below that 52 handle.

S & P 500 + Goooooooooold!

Oh yeah cowpokes, we’re going to be talking about the SPOOs and the shiny yellow stuff at the same time. Why? Well because gold is a pretty good sentiment indicator. In times of fear, the price goes up. In times of confidence (complacency?), the price tends to go down. Of course, we also know that the gold price “floats” on the price of the currency in which it’s denominated as well. But at this juncture in the equities market I’d rather look at what the price of gold is doing overall, globally, as opposed to how the value of specific currency is affecting it. So let’s start there. In my ideal world, the price of gold and the price of equities should move inversely. I’m not saying I expect them to move in lock step, I’m only saying that in times of market development (such as now) they should be inverse in their directional movement.

GC

Anyway, just like the SPOOs (below), gold has spent the last few weeks in a consolidation box pattern (above):

ES-Weekly

 

… and while the SPOOs have finally (!!!) broken to the upside at the same time gold looks to be starting some downward vertical development. This is exactly the kind of thing I’d like to see for a credible equities rally.

So for gold this week I’m leaning toward a test of the 1155-60 zone, though at this point I’m not really expecting anything lower regardless of what happens in equities. Should that downward development fail to materialize most likely something unexpected and potentially destabilizing has happened in the world macro balance. In that case we could even see a return to the previous zone of the failed auction in the 1215-25 zone. Which brings us back to the SPOOs…

The range breakout this week was a long time coming, of course, and it left a new but significant feature in the 2105 area on both the time (above) and volume (below) charts. This should be considered something of a very short term, intraday line in the sand. Taking a step back, though, it’s very common for the SPOOs to give as much as half of the recent range back before climbing higher.  So I’m pondering 2 scenarios for this week. The first is a slow grind higher, a la your typical week in late July. I think early in the week, Monday especially, chances are very good for some additional upside. Mondays are QE day in the EU which means hot money is spewing forth, and also in the states Mondays are a very common day for long-only mutual funds to average in their buys near the RTH VWAP line.

Beyond Monday I am going to be on the lookout for a punch down the the 2100 area, and I think we could easily see the 95-85 area and still be in rally mode. A quick failure about 05 and a push down to the 85-95 area would likely get enough traders bearish to be caught off guard and provide some buy stop grease for subsequent rally to even higher highs:

ES-Daily

So for this week I’ll be favoring upside scenarios until I see evidence otherwise. The best long trades will likely come at the pullback levels mentioned above. I’m not of the opinion that, at least on a swing timeframe, this move higher is not something I want to chase. But that said, I think the realistic upside targets are around 2125-2130ish, and for the mega bull scenario I can even plausibly see up to the 2145-50 area. Again, this breakout is still very wet behind the ears, naive and vulnerable, so it’s not wise to chase it. Let it prove itself first. Shorting breakdowns of the areas mentioned above and getting long the pullbacks (also highlighted) is the way to play this week in my view. And that’s what I’ll be doing.

Trade ’em well this week, amigos…