The Really Useless Thread

Very quiet thread time to start wrapping all conversation of the year before the last mover and shakers of the year. Lets start with the last post of the 'Dissecting the market (The Basics)' collection....

10 Bars and beyond: Bulls and Bears traps

There are many definitions for Bulls and Bears traps but I am only interested in traps in the context of this collections. In simple words, a trap will appear when traders, especially weak players (in intraday common timeframes), are caught in the weak side of the current direction.

Attached Image

Any trap involves 3 stages. In the case of a bear trap:

1. The move is first propelled by late buyers, especially in a swing high or a test of a resistance level, stuck without profits by consecutive bear bars. They will be forced to close positions or their stops will be easily hit.
2. The second force in the trap is the sellers calling the top or reversal.
3. The trap is completed when the sellers of the apparent top/reversal break the lows of 1 or more bull bars forcing some late buyers (all or almost all weak or short term buyers) to close their position and giving a new cheap price for smart buyers to go long and continue the move up.

Introducing bars 7 and 8 in the example (fig 8a), shows these stages very clearly. All late buyers on the highs of the 4th bar are under water after the close of the 6th bar (they are losing money in every tick down). New sellers calling the top/reversal appear until the break of the low of Bar 7 that kills all buyers of the 4th bar.

Finally, late sellers (weak and amateurs) are attracted to go short on the apparent confirmed reversal but they get trap when the real buyers (those in point of control A1) fund a new bargain to buy and move the prices up.

-> As you can see enough bears were trapped making the start of the new wave up (bar 8) fast and furious (weak sellers covering in the rush). The break of the resistance level will only happen if enough buyers get in. The easy entry without indicators or volume analysis is at the close of bar 7 (No indicator will give you such a fast signal and it happens many times every single day)

Of course by the close of the 8th bar there is a new swing low, a new support level and a new support zone. This mark the start of the new wave, the one we were waiting for the high probability setup to go long. Extra confirmation is given by the break of the invisible line connecting the Highs of bar 6 and 7. In this particular case this entry (the open of the 8th bar) is exactly the same as the one in the bear trap.

In the second example 8b), bar 7, forms a first swing low, a support level and a support zone. In this case there is also a potential bull trap forming when the late sellers on the 6th bar are under water after the close of the 7thbar (they are losing money in every tick up). New buyers calling the bottom/reversal appear in Bar 7 that kills all sellers of the previous bars but find resistance on the expected point of control a1.

Attached Image (click to enlarge)

However, in contrast with the previous case the buyers on the 8th bar are real and strong and they manage to kill all sellers breaking both point of controls (a1 and a) and clearly signaling the break and change of direction to the long side.

If you pay attention to detail the last bar in this chart is the first on the first case and that's when this collection ends: connecting the last 2 consecutive swing lows with a trendline and waiting for a new swing low for longs.



...and that conclude the series .... i hope some find some clues, hints or simple reminders of basic concepts ...

sisse

I think it was good to choose your poison on the first retrace on Monday cuz there was good chance the floor is gonna break pre-NFP but the bulls fought super hard this time. However, due to timing reasons I would say its not choose your poison right now. We too close to NFP and you may be caught on wrong side right now.

I think its hard to trade the thing right now also due to the weekend = Italy and Austria vote. In my view: I would use NFP to jump in the post-NFP flow:

As on the chart:

NFP flop - triggers a veeery open retrace.
NFPinline or slightly better: we stay around flip (dont believe anyone would enter into the weekend).
NFP strong overshoot (is has to be strong as some kind of overshoot is expected): forces is to the low of ST range but without a break

=) so I guess I would enter post-NFP BUT...

Weekend is gonna have implications for ECB: in case of Italian NO = I bet ECB is gonna keep all options open and will prolong the program and will not talk about tapering = so the expectations are gonna move during the next week prior to ECB via Italian vote. In case of YES - same expectations = we stay with mentiong tapering/doubting strong extension.

=)

NFP flop - retrace + Italy NO =) retrace to sell short term as its gonna fade via ECB and political uncertainty X Italy YES: just a little bit prolonged retrace = sell later.
NFP inline - stays flip + Italy NO =) we break down via ECB/politics X Italy YES = we stay in chop waiting for ECB.
NFP overshoot - we go to the low of the ST range + Italy NO = we break the short term floor X Italy YES = we wait in chop for ECB with same lvls same all.

Hmm so to break the mid term lvl = short term floor we need = inline/overshoot NFP + Italy NO + ECB confirming dovish to hold the break OR inline/overshoot NFP + Italy YES + ECB still dovish even though Italy YES (- not so sure outcome of ECB!).

My personal expectations of the game: the first one of these two most likely

Now this is what I call it as complex things in simple explanation ....
In any case I don't see a no from Italy .. if they didn't learn any lesson from brexit ...
 After such a good nos. Coming from us I don't see a bad nfp nos, that also in a confirmed fed hike to take it off the table expectations...only ecb is there to trigger something which all over the media is expecting an extension in qe

If a play a little bit more this is what I see - dont take it too seriously - its more just an approximate illustration + Im not sure If I evaluate the referendum well from the FA side. Plus there is more scenarions - NFP (inline/flop/overshoot) + one binary event + ECB (if we again simplify into 3 outcomes - inline/hawkish/dovis) =) its 3x2x3 = 18 scenarions loool even though some are identical.

On italy referendum: Im pretty sure they will vote NO. However, just an intuition. Dont have much arguments

So:

NFP flop and future



Inline NFP



overshoot



P.S.: ill recalibrate the maps as it happens. Will post more precisely later

My view is completly the same, interesting. That means hikes, but way less hikes that are projected on FED papers/adaptations. Now the key question is why would one have such view, and its important to find the micro reasoning and macro to make that view consistent and actually to perform with decent probability. My view is one or 2 hikes, or perhaps more than this, but defenetly not 0 hikes or cuts as certain contrarians are expecting. Being contrarian is nothing bad, as long as you know your statistical edge and if you can define it, when it becomes bad for trading is when you are contrarian with historical relevance of very little percentage basis. For example if you take view of majority of 0 hikes, bad for EM, FED cant hike becouse of 18 tril outstanding national debt, majority of those people if you track their historical calls will on time window defined basis fall into 90-10 or 80-20 % of precission at best, being only 10 or 20% correct on their views based on time window where in leveraged markets it matters a lot. Now on other one can be contrarian but be in oposite camp, being on side where majority are blind in deception which makes you corrent on majority of calls adjusted to time window. The best way to get there is to be contrarian and asking why, depicking the view apart otherwise its hard to define "real" value.
So for example lets take that what that article said isnt shit and it has value. If it has value, then surely the FED officials knew that 2-3 years ago when they first started dicsussing the hikes. They surely projected how bad in current 0 rates environments and trillions of negative yielding debt the hikes would have on capital flows from EMs where capital was parked due to higher yields and less bad times compared to rest of world, especially since 2008. One thing that those officials do for sure (no matter how good or bad you think they are) they do study and know flows very well. So why would the FED start hiking at all if that was true? Surely they didnt just gave it a go and to see what would happen. Thats what gold bugs and AE think and we know their historical performance related to time window-poor. If that were true they could hiked once and twice and then started cutting and completly ruining the credibility. It is possible, but history tells us that this is very unlikely. Good contrarian view is probable view, bad is using very unlikely statistical view, unless the reward is so massive and risk is very tiny and even in such case that should be much more refined.

But then i can go to point to where my view couldnt be more symetrically oposite to what that article project. In fact my view is that FED will hike, exactly due to that fact where article author believes there wont be any more hikes. In 2014 early/mid i started to short EM markets (currencies by majority) on consistent basis trough USD play, using micros and following trough large patterns which lasted usually weeks.There were some BE trades, some loses quickly cut, but some trades that payed large RR profits trough RUB, MXN, ZAR and TRY especially. Not telling you this to brag i am not here for that, nor to justify my loses. The point is if my view where almost no market participant (surely are some that i dont know about), media, institution was projecting that large bear market to fall on EMs and yet my view materialized probably there isnt that much of shit contrarian view. Skeptic view might say, yes but that only happend becouse commodities crashed which pulled down EMs, initialized by Oil oversupply, this is what then triggers the road of rationalizing the micros. It means you have to find real intention in micros to have proper view on macro. Proper can be floating word, the only real definition to it is historical statistical replayability, if high then it its fine to define it as proper. So at the point where majority of market participants were extremely bullish on EMs thats exactly where the downtrend started, and thats what happens in many instruments on day to day basis.

Deception is key structure of everything in universe that is around us. To define or find deception information is needed, the larger the pool the better, the more double sided infos the better, the less filtered and "third party" info the better to construct where deception is. That is why 2500 years ago when majority of European civilization was in their diaper bags, Chinese have already collected large sums of data pooled in libraries, studied by Sun Tzu and later project with views that are still completly relative today and yet majority are still not projecting them on day to day basis around the world.
That means that anything that seemengly to be true for what you think it is, could be so for completly different reasons if judged from micros. And certain micros are so strong that they are able to form macros and reshape them from time to time, not often, but it does happen. Majority of economists and perhaps traders aswell will say the tightening of FED is now happening becouse before we had loose policy and we have to tapper now. This can be true, but there could be macro hidden behind that has much larger statistical relevance of why this pattern is happening. Usual good and reliable way investigative journalists (the good ones) use is : follow the money. This means that you dont take macro pattern of its face value, but you dig deep, track the micros, in fact you track micros way before anyone else is telling you where you should track them, you go way infront of that.

For example Mongol forces ever since were superior in milatary and if ever confronted to 1:1 basis to Mid/South Chinese factions they would surely won, they had overpowering tactics, way stronger macro plays on military side, and yet nothing of that happend, they were on loosing side for full 2000+ years, defined by not even triggered macro play that is to fight China. The deception that Chinese played origniated from ST layed ground for Mongols to never be able to achive victory, becouse the traditional war was never put in place, it was diverted trough asimetric warfare. It took 3200 years then for that large macro to be subverted and finally large enough mid term macro was placed trough micro of Genghis Khan and his father before that to initiate the massive change that followed all macros trough whole world. You can find such examples in history many many times. Pattern that repeats, which is on face random, but it stops being if you define where and how deception is defined trough micros. A level placed in front of level, micro infront of macro and then it all follows seemingly random explosive and surprising path.

Underlaying tactics can be so much more powerful than obvious patterns becouse majority does not recognize them. Going to above means that Genghis did recognize that long term pattern but it took very long time, many lifes wasted before that. This doesnt mean he was right or wrong, and niethre that later actions to be good or bad, its all based on deception the way micro and macro reasoning is built. From my view it goes to, if you have clear one sided view on politics you most likely have non valid long term view on that macro.

Conventional wisdom will tell you Mongol empire was so strong becouse of that. British empire due to that, Spain for that, Egypt etc.... If you take it on face value everyone should be able to project the exact changes just from those informations and place themselves infront of macro flows very simply and quickly yet that doesnt happen. Spoting strong changes that should impact rest of flows of world is key, and yet thats where it all fails. Masses dont properly judge strenght of micros to define macros. Yes Britain you created sharp bow but so what. Well, that micro left massive footprint that defined Britain-French war. J Caesar stormed senate and laws one later part of his actions, its a micro play so what, well it triggered the rest of mid term macros from it if you follow correct flows that resulted in this and that. 2001 Saddam H. actions were seemengly following EUR formations, if you follow micros there is much deeper grounding in it. The rest of macros proceeding were grounding the base around it. If you take any sentence and shorten it for only 10 or 20% you can take apart whole meaning in some cases. This is how deception is built, its not about lies, its about shortening.

It needs to be point how succesful the subversion/deception tactics is, if its not very good then all those words are worth a shit. But if they actually perform in good matter on long term basis, then there is good value behind. Such method was aproximately reliable in above Chinese case on year to year basis, but on overall performance it was extremengly performant, 95%.If one studies many other historical cases of other factions, institutions it points to very similar statistical data which confirms the pattern. Clear edge to that macro info behind it. Everthing might fail once, but human only is alive on avarage so many years, and if time and volatilit window is not properly set it matters not.

Reasoning for 2014s bear EM view to start was asimetric warfare that was about to begin, for that very heavy macro to form i was looking for micros or mid term macros to push the probabilities better in that direction and confirm that possible view. Wont go in details what were initial infos that even derived to form such view becouse it is a lot to tell from what has happened in EMs in before years that triggered the historical pattern that one can define as "rebelion". Ruling powers dont just let their provinces do whatever they want, they track micros and they kill macro formation before its too late. It would take tens of pages to explain what were exact triggers behind this, but lets leave that aside.
Sun Tzu layed down plan how to use deception against counterparts or even the people of own country for royal courts to achieve best possible performance, that is victory without even throwing a stone. That is key concept of asimetric warfare, using deception to fight against enemy without masses to even realize there was actual war going on. War is like markets, its constant happens all the time, it just depends how upscale or downscale the impact goes.

Going a bit back what do the US dollar hikes affect? To answer that you need to take 21st century economy as whole, you cant drag view from US aloane, again gold bugs they do that, and ......High yieling countries such as EMs on market side are attractive for capital when all is green, but when things go a little bad the volatility of capital outflows starts to expand and expand and expand. This is pattern followed trough history for centuries. Pension fund, hedge fund, large money flows, when they cant no longer park money in high yield countries with decent reliability they flee. When they see dollar soaring, and their safest bet of treasury or bonds possible yields rising they go there, becouse even with low yield at least their play is safer, thats what risk managment teams on such funds do.

Now all those mid term micros seem to be laying like this in skeptical view: Yes ok those funds are parking money becouse EM are falling. Actually no, the key for that mid term micro is to track lower micros to find real value of information and therefore long term macro view. Everything has initiation somewhere and that usually is the cleanest way to define where and how it should be traveling on longer scale. Defining micros trough "real" intentions can be very productive in trading markets becouse it can extend large macro view way above the trend where masses think now it should be over. It is very hard to do on every setup and realistically in current technology and brain processing power it can only be done on few cases here and there, but that could be enough to get things going.

If you study history deep one can find deception hiden in informations everywhere. Key point is not studying all macros across everywhere, but exactly oposite of what conventional knowledge projects you to, you study few macros but you study micros very well with same time attention. Julius Caesar said that history is written by victors, which is very true, thus deception is actively projected to masses. Markets and traders actions are by majority based of historical actions which means that deception is tied in by default.

Dollar demand crisis, or shortage or whatever one wants to call it was triggered before many times, and before dollar existed it was triggered more and then some. It is type of attrition war that is projected trough very deceptive mid term macros and the result is in 90% always the same, which confirms the initial play of why and how it was really played, and that 90% target is projected trough what happens to the oponents and how they are swalled by seamingly outside random play.

With other words, current downtrends in EMs are most likely only the beginning.

Thank you. I think I may have underestimated this potential triple whammy (Italy saying yes + ECB Tapering + Hikes/FED forecast) on Gold. I'm even starting to think MT outlook might switch to Neutral if planets align in the next two weeks. Anyway, Thanks a lot for the answer and everything.

Think again, how many nations and people that form them learn bad lessons from abroad? On historical basis its very very poor performance. Never say never in this case.
Even patterns that obviously lead to very bad decisions are ignored and still projected.

When a nation stands against higher macro it usually fails. They dont learn the lesson and thousands or millions die, or equal capital is transfered.

Pattern aligment that proceeds in impulsive changes works is same way no matter of setup and instrument. All it depends if one trades it how it is.





Biological cell formations work that way, Chemical athoms buildups, moralization/de, sense/validity everything works in same way once outside flows start to collapse micro to macro flows.

A dull US afternoon session as expected.... nothing to see for the roll.

Tomorrow we have big day for trading, not only because of the usual NFP but because it's the first [un]official macro number to evaluate expectations post DEC hikes and its a double key positioning for Italy/ECB major combo.

It's 'trading time' from tomorrow till year's end. If you are no planning positions across the board NOW [dec]IS ACTUALLY the time to be IN the market....

sisse is going to miss live trading NFP tomorrow as I will be in a flight to the UAE for business so after reading the last 2 months of posts in the thread I would like to invite /challenge publicly @chester123 to take control of the traditional flow post minutes before, live update quickly and wrap up after following the usual pattern (on the fundamental side...on the TA side ...and for the flows...).

Your posts has been very solid and a fresh live voice it will be a v. good idea for the thread. I would be reading with attention and interest your post. Is time to show some struggling fellow and lurkers on the background that one can master FA concepts on the context of trading if you put the effort and determination to do it ...

The floor is all yours and GL

sisse

No pressure C. Good pick sisse. Chester's posts always concise and clear. I, for one 'struggling fellow', am flat and looking forward to his take on coming events in real time.

all right. And I humbly accept the challenge. Hopefully it will live up to your expectations. At least partly. Since I still have tons to learn!!! Enjoy your flight tomorrow. Well do our best here.

Looking forward for Chester live input during NFP

On the other hand , I still have running positions for which I am actively managing the trailing stops at the points of control and resistance levels direction wise .

Unfortunately , Euro managed to avoid a clean sweep and now both possibilities are open for the second short term leg in the mid term swing . FA wise lot of

scenarios in play and is blurring my speculation ie too much info to digest

Anyway, have a nice business trip Sisse.

i checked to see the correlation - once did it match 4 times in a row - the max after that it matched 3 before a negative...

i went through 55 - 31 were a match - (both coming out better or worse than expected)

the rest were red

just a heads up

They won't get on it much more than they have done in 2016. The Trump govt will dive into as inflationary a project as can be imagined and, if that succeeds, the Fed will just let the old jalopy run hot. Just remember: Republican debt is altogether a different thing than Democrat debt. All creatures are created Equal, only some are more Equal than others. I recommend "Animal Farm" by George Orwell as a quick read that will be quite instructive. If you will just go long US equities, you will be a able to buy a truckload of paperback Animal Farm's and hand them out at the local mall. Not that I am really recommending you do that. Anyway, good luck.

OK, thanks - you could take that and mix it with the stats about NFP results for the same month going back a few dozen years - if those are leaning beat well you might take it as another crumb of support. Still, how ya gonna trade it, if at all?

Hey follow a hypothetical with me. Let's say in the not so near, not so far off future some huge repatriation deal is made. Those corps ship containers of million dollar bills back into the states for a bargain rate, then do what they do, namely buybacks. What happens next? Nbd blip on the chart? Giant sucking sound as the next catalyst pops a massive debt bubble? All time higher highs? Event or non-event? Would you think about it at all?

http://www.sciencedirect.com/science...04405X14002748

My gut is that repatriation would be stimulative in the real economy and in the equities markets, too. It's going to be interesting to see what a drastically reduced corporate tax rate and some kind of repatriation tax reduction or holiday will mean for the US economy. Could be epic. Emerging markets could end up regurgitating decades of gains. What will happen to the USD? There would be less of them to be found in Honduras and Bangladesh? When the USD gets that strong, who will buy those Carrier AC's overseas?

sorry, that article was the first I found and scanned - there are another many 1000 or so - it's a big question - have fun....

Thanks. It is. And there are (many opinions). I was interested how you were thinking about it. Appreciated.

Interesting blogs for winter reading....
http://www.americanmanufacturing.org/people/bio/spaul
https://piie.com/
http://www.mauldineconomics.com/outs...tlook-3q-2016/
http://www.george-orwell.org/animal_farm/0.html

i wont unless im already in with some breathing space