Highlighted Trades: 02/14/2024
Our best long of the day was on STLD, getting in at $119.35, and holding until $120.88 - a net return of 1.28%. This trade didn’t play out as well as some of our other big winners, but I think it was clear early on that it was a solid play. Looking at the chart up to the entry candle, there are no real warning signs. Volatility is at a reasonable level, there are no major gaps or spikes, a trend is consistent and visible, and the TK-cross is well-defined. This is, ideally, what we want every trade we call out to look like.
Our #1 short today was this one, on MKTX. The stock never hit our target exit ($215.27 - it did come close with a low of $215.71), but it also never got close to our stop loss price. It remained consistently in profit until technicals eventually shifted. There isn’t much to go into on this one, unfortunately.
Our biggest loser today is once again an obvious fake-out, but from a pure math standpoint, there’s more nuance to this one. The open today was fairly volatile, with a range of roughly 5% in the first hour. But we didn’t enter our position right after the opening stretch. We entered at noon - 2 hours after all of that volatility.
This isn’t an isolated phenomenon either. Looking at our 3rd and 5th worst trades today, we can see similar patterns. Our hard rule prevents us from taking a position during the open, dodging a major wave of volatility, but the consequences of that vol wave lead to us taking fake-out signals hours later, and losing money in the process.
We’ve recently been experimenting with ways to identify fake-outs due to volatility like these, but these ones require us to examine these rules in a new way. The Kijun-Sen line is calculated using the 26-candle high and low prices. With 5 minute candles, that’s almost 2.5 hours. Our execution rules allow for entry up to 15 minutes after a TK-cross, which means that if we see heavy movement in the opening stretch, we’d have to freeze trading on the ticker for nearly 3 hours to avoid its consequences.
That’s not necessarily a bad thing, but it does force us to consider whether it’s too heavy-handed with anti-volatility measures. An alternative is, instead of looking at volatility of the stock price, examine recent volatility of the TK-lines. Currently, in our search for a strong anti-volatility measure, we have 4 approaches to consider:
“If the stock’s price range was at least A% over the last B candles, do not trade right now”
“If the stock’s price range was at least A% over the last B candles, do not trade for the next C candles”
“If the TK range was at least A% over the last B candles, do not trade right now”
“If the TK range was at least A% over the last B candles, do not trade for the next C candles”
We can further expand upon these by changing “price range” to “size of the biggest candle”, or “sustained directional movement over D candles”. Needless to say, testing is ongoing at this time.
That’s all I have for you tonight. Thank you for reading, and happy trading!
