Friday, April 04, 2008

Friday bump

Actually, a strong day for the Qs, opening above the PP and making a nice clean run to R1 before the afternoon Friday fade down to R1. It's always fascinating to me how the pivots work so well to provide intraday support and resistance and today's action was classic. The 5 minute 10/20 MAs cross took me long at 11:30 at 45.84 and with the Qs rubbing against the R2 pivot and the technicals deteriorating I took the parabolics reversal signal and closed the trade at 13:35 at 46.25. Expecting the usual Friday risk management fade, I was chomping at the bit to get out of the trade and hence took the parabolic signal (which is frequently premature,as noted Tuesday) in lieu of waiting for the 10/20 MAs to cross. In hindsight, that was the right decision.
Net time in trade: 125 minutes
Net gain: .40

Finally, an interesting post by Dr Brett today (he's always interesting) confirming the propensity of hedge fund managers to day trade as a risk management tactic. This trend is further reflected in the growing daily share volume of program trading and may account in part for the historical rise in the VIX mean levels and you can expect more of the same to come. This comes as a validation of Newson's article in SFO noted Wednesday emphasizing the increased need for focus on momentum.

6 comments:

Andrei said...

Hi,
Good post. I watched the technicals deteriorate too, although i took the sell signal and shorted for my day trade. My question is, what is your opinion on the other two types of pivot point calculations as specified on pivotpointcalculator . com? Why use the classic vs the other?

Sloof said...

Hi, I am starting to trade the q's and discovered your blog. I'm glad to you liked the day overall. I bought some April 45's about 1.5-2 hours before the close, and was dismayed about the last dip in the day. I am holding until Monday since I don't have day trader status - hopefully it will prove to be OK and the q's will trend up again.

Sloof said...

Bob - I am in the Bay Area, part of a group of people who post on wallstreak.com. We sometimes have in-person meet-ups, and a couple of us are starting to trade the q's. If you want to be added to the email list for the meet-ups, please email me (sloof.lipra at gmail.com).

bzbtrader said...

Andrei,
I couldn't get the pivot site up you mention. The intraday pivots I use are displayed automatically on the Schwab platform and I use them with the Qs and a few other ETFS because they generate great momemtum targets and turn signals. I just go with what works. If other pivot calcs "work" for what you watch in the timeframes that you watch, then that's probably the path of least resistance. I spent a year watching and testing the pivots on the Qs and IWM before I dropped real money on them. . but that's what it took for me to get confidence in them.

bzbtrader said...

Sloof,
Since I don't know your specific trading plan or the indicators and variables that you watch to determine trade triggers, it's difficult to assess your Friday trade. That being said, I'll just offr a couple comments about my own trading rules for Q options:
1. Never buy options in the last 2hours of Friday. The market makers typically start to discount weekend premium decay about then and although the price of the undrelying Qs may rise, it's not unusual to have the option price fall.
2. There is also about an 80% chance that the Qs price will decline in the last 1-2 hours of Friday as the commercials hedge risk by closing positions for the weekend. (Also see Thursday post on Newsom's SFO article). This typical negative momentum will further increase the risk of buying calls late Friday PM.
3. Friday's price pattern was what I call "an upside down day" in that 10:30 pst is often the low of the day (per Stock Trader's Almanac). . Friday's 10:30 was the high. With the Qs bounce off R2 and both the TICK and the NYAD going downslope, the odds for a rally into the close very very low.
4. My expereince is that Friday is a time to sell options and pick up the short term premium decay over the weekend and for Monday and Tuesday. We are currently mid cycle on the Aprils (14 days to go) so decay is going to pick up next week (another reason to be a seller). Buy/writes is one approach, or depending on your level of trading approval,capital and risk tolerance, a strangle of the far OTMs can be very profitable short term (also risky).
5. Since we are in the midst of earnings and the economic climate is anything but stable, volatility can explode overnight and intraday, which is why I prefer the relative safety of day trades (for now).
These comments reflect my own particular focus and risk bias based on about 35,000 trades and may not apply to the goals and tactics of your trading plan.

Cucca said...

You watched the stinking Pivot points for a year, before trading them!!??? What the heck is that about??? Are you trying, NOT, to lose money??? That's not any fun, geeze, find a new "THING", and just go for it, damn the testing results!!!