Strategy Based Trading is a methodology that focuses on the applied strategy verses a specific market and looks to align strategies with markets whose current technical behavior matches the strategies criteria. Please review the following CME sponsored tutorial for a complete overview of this approach.
STRATEGY BASED TRADING
http://progressive.powerstream.net/008/00102/edu/interactive/js_services/strategy_based_trading/index.html
http://progressive.powerstream.net/008/00102/edu/interactive/js_services/strategy_based_trading/index.html
Today I'm going to go over a BULL TREND CORRECTION technical state. A MKT in this position has an underlying positive trend but has produced a negative signal against that trend. This is a dynamic technical state with opportunity on both sides of the trade equation.
Sell signals can be accepted as the MKT has produced a negative signal and the potential for further "corrective" action can be expected. Sell signals are valid but will have a shorter profit objective as the trade is counter trend. Markets in this technical state tend to be "stop and go", with sharp counter trend reactions.
Buy signals are the still the better opportunity as they are in the direction of the underlying Trend bias. FADE and REVERSAL strategies off support are expected to be more successful over BREAKOUT strategies as the CORRECTIVE action will keep the trade “choppy”.
For today, September 21 2009
The following MKTs are in a BULL TREND CORRECTIVE state:
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BKX = KBW Bank Sector Index - 4817 R Level - Inflection Pivot
XOI = Oil and Gas Index - 1058 R Level - Inflection Pivot
LH = Live Hogs - Z'09 51275 R Level Inflection Pivot
CL = Crude Oil -X'09 73.16 R Level - Inflection Pivot
HO = Heating Oil - V'09 18088 R Level Inflection Pivot
RB = RBOB Gas - V'09 18580 R Level Inflection Pivot
GC = Gold - Z'09 - 992.50 R Level - Inflection Pivot
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Each of these MKTs is technically in play with a negative corrective signal against an underlying positive trend. They are each individually going to either follow through on the negative signal, digest, or revert to the positive trend.
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Sell Strategies
Sell strategies should maintain an aggressive position management as the trade is counter trend. The MKT does have the potential to ultimately transition into a negative Bear Trend posture however the chances of this happening are lower and any break in the negative momentum will be an exit opportunity.
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Buy Strategies
Buy strategies can be a little more generous but should only be accepted after a positive sentiment shift. If so the chances of a positive acceleration back into a Bull Trend state are good.
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Behavioral Sentiment
The MKT's sentiment is determined by it's psychological turning point or INFLECTION PIVOT. This is the key price point to focus on for the BULL TREND CORRECTION strategy as it is at this price the sentiment will shift from a "corrective negative" to a "positive trend". Entering at or near this price will provide the best risk adjusted opportunity to participate in both buy and sell signals.
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R LEVEL
This Inflection Pivot is the Reversal or R LEVEL on the JS Services Price Map. This level provides a behavioral confirmation of the MKT's technical state.
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Summary
In summary if the MKT is trading below its Inflection Pivot the corrective trade is in play and must be respected. Avoid trying to pick a bottom as expectations are for the MKT to probe lower. A better strategy would be to enter using a REVERSAL entry strategy where the MKT 1st breaks below a major support level and then rallies back above the support and stabilizes. If the MKT is above its Inflection Pivot there is a good chance that the MKT will try to return to its positive trend state producing a sharp rise.
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By understanding the MKT's technical state you can align your strategy with expectation improving the likelihood that your strategy will succeed. In addition by using a defined behavioral inflection pivot as a confirmation of the technical signal state you can properly define the best risk adjusted trade opportunities.
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JS
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This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.
