We asked contributors where their insight has paid off recently in the markets

February 17, 2017 • Reprints

For this round of We Askd Traders, Modern Trader magazine  showcases our contributions who have been with us since inception. Our experts' opinions have been extremely valuable to our audience. One of the core missions of Modern Trader  is to provide actionable, quantifiable insight into trading techniques, trading strategies and stock recommendations that realized an excellent return.

We reached out to our experts to ask for their opinion on where their insight has paid off in the markets during the last 18 months. 

We asked our contributors, " Where has your insight paid off in the markets over the last 18 months?"

Here's what they had to say...

Andy Waldock @waldocktrades

The commercial traders collectively pull a commodity out of the ground or, process them for resale. Commodity producers sell their forward production while processors lock in future supplies. We use their actions as reported in the Commitments of Traders reports to predict market turns in overextended markets carrying large speculative positions. The gold chart notes our analysis as published in Modern Trader magazine beginning with a late December COT Buy signal and the associated strength we discussed in the January issue.

alt
The record speculative position and reading in our COT Ratio indicator forecasted an unsustainable July rally. Miners’ record selling of forwarding production coupled with no fear in the processors’ bid led to the conclusion the speculatively fueled rally was running out of gas. Finally, the speculators’ last gasp to push the market higher this fall generated little traction in prices. Gold producers’ still controlled the market, which forecasted deeper declines through year-end.

alt

Looking at the natural gas chart is based on the same principal but lists the actual trades and protective stop prices from the nightly email service. Natural gas drillers confirmed that the fall rally was driven by hurricane speculation as they confidently sold forward production into the October seasonal high. The market then fell by more than $70 or, $7,000 per futures contract during the next three weeks. 

Billy Williams

Last year, I wrote about a method called the “2B Method” developed by Victor Sperandeo, a successful hedge fund manager and author.

The 2B Method is used to spot price reversals across a broad selection of securities.

The method is effective because it is simple to understand and follow.

Its rules are as follows:

1)  A trendline is broken by price action.

2)  A trend, if bullish stops making higher highs and higher lows in its price action. If bearish, it stops making lower high and lower lows in its price action.

3)  Prices rally above a previous short-term minor price high in a bearish trend, or rally below a previous short-term minor price low in a bullish trend.
alt
In mid-August of last year, the Dow Jones Industrials (DJIA) hit an all-time price but then began to decline. On September 9th, the price began to make lower low and lower highs confirming that the DJIA was in a short-term bearish move.

Drawing a trendline from the high of 8-15-16 to the high of 9-22-16 then extending it (see the green extension on the trendline) you have a frame of reference for the price movement.
alt
On 10-10-2016 (Point A), price attempted to breakout to the upside but failed to follow-through. The DJIA declined again, setting a new price low and retesting support set on 9-14-16 (Point B). Price went on to flirt with the downward trendline but made no serious attempt to break higher.

However, on 11-1-16, and over the next several days (see Point C), you see the DJIA make an attempt to drive the price lower and fail. The moment price trades back up above support is the signal that a 2B reversal has taken place.

alt
For confirmation, you would just have to wait for the trendline to be broken which occurred on 11-7-16 (Point D).

Two days later, the DJIA’s price action followed through on almost twice the average 30-day volume level.

Today, the DJIA went on to gain almost 1800 points since the breakout confirmation signaled by the 2B method.

Billy Williams is a 20-year veteran trader and publisher of www.StockOptionSystem.com, where you can read his commentary and a report on the fundamental keys for the aspiring trader.

 J. Andrew Goodman @Arc1Research 

An amazing arc trading technique
alt

The Arc Principle offers a wide array of trading techniques. The trading technique I have chosen to demonstrate has a favorable reward-risk ratio. The examples are shown in the chart below evidence a high degree of geometric order based solely on Fibonacci Arcs.

On the attached 10-minute chart of the S&P 500 Index, you will see what at first seems to be a cacophony of Arcs. Each Arc is made up of a larger and smaller circle (except in the case of the gold Arc which has only one circle). In each case, the smaller circle is 61.8% of the larger circle. Each Arc uses as its radius the swing leading into the Arc's center.  The smaller circle then hits the endpoint of a swing leading away from the center.  Each of the endpoints is shaded with the color of the relevant Arc.

There are also 5 turning points that are shaded in pink. These represent additional signals in which the associated Arcs are not shown.  These Arcs utilize an advanced Arc setting of the Arc taught in the Advanced Course at TheArcPrinciple.com.  These signals are among the most important on the chart.

The green square in the upper right of the chart is a device used to properly scale the chart, without which any match of an Arc with price action would simply be random. The square consists of 100, 10-minute bars to $10 in price.  That is all the information you need to recreate this technique in the S&P (on this scale) for yourself.

Let's presume that you employed this technique with a $50,000 account, in which your maximum risk is 2% or $1,000 per trade, and that each signal (except the pink-shaded signals which won't be counted) shown on the chart was traded by entering a bar break and holding for some multiple of that risk.  We will illustrate three scenarios.

In Scenario 1, the position is held for a 3:1 reward-risk:

0 trades were unprofitable for no loss.

6 trades were profitable for a gain of 3 units x 6 = +18 units.

In Scenario 2, the position is held for a 4:1 reward-risk:


2 trades were unprofitable (the turquoise and gold trades) for a loss of 2 units x 1 = -2 units 4 trades were profitable for a gain of 4 units x 4 = +16 units.

In Scenario 3, the position is held for a 7:1 reward-risk:

3 trades were unprofitable (again the turquoise and gold trades) for a loss of 3 units x 1 = -3 units. 3 trades were profitable (the blue, brown and red trades) for a gain of 7 units x 3 = +21 units.

Taking the least profitable Scenario 2, if each trade had $1,000 at risk (thus $4,000 reward) there would be $16,000 earned less $2,000 lost for a total gain of $14,000 less slippage and commissions of 15% = $11,900.  This would have been gained over one month's time.  If you made no other trades in your account and this performance was repeated every month, your account—which began the year at $50,000—would have an ending value of $192,800.

This trading technique excels at finding the big moves.  It applies to every time frame.  It is possible to enter at a price extreme employing this technique not only on the 10-minute scale but also the hourly, daily, weekly and/or monthly scale.  Enormously favorable reward-risk opportunities can be created by combining signals generated on multiple timeframes. 

J. Andrew Goodman is the founder and principal of Arc1Research LLC, which operates through TheArcPrinciple.com. @Arc1Research 

Howard Simons @simonsresearch
alt
Take my December 2016 article on risky bonds and crude oil, completed at the end of July. I could say the analytic framework proved correct in the three-month trading horizon illustrated. Eurozone high-yield bonds, emerging market bonds and U.S. high-yield bonds returned 0.09%, 1.39% and 3.21% in USD terms, respectively.

The original article was written on July 28, 2016, with a three-month implied forecast horizon extending to October 25, 2016 (orange vertical line). The December issue would have been received by readers somewhere in the following two weeks, a period encompassing a global bond market selloff and a strong dollar rally affecting the USD returns of both Eurozone high-yield and emerging market bonds. U.S. high-yield returns remained positive throughout and both Eurozone and emerging market bond returns have turned higher

Howard Simons is a long-time contributor to Futures and president of Rosewood Trading Inc. 

Suri Duddella
Trading-Inverse Head and Shoulders  Symbol/Chart: SOCL Original Long Entry: $18.40 (Apr. 2016) Price on 7/26/16: $21.72,  Projected Target Zones:  $19.81-20.25, $21.53-22.44, $24.18-25.07. Target3 reached (Sept. - Oct. 2016) 11.3%-15.42%Target3 from Original entry: 36.5%

Trading Dragon Patterns Symbol/Chart: MON Original Long Entry: $91.30 (April 2016) Price on 10/31/16: $100.62. Projected Target zones: $111-$119, $128.5Target reached (1/25/17) $111 (Up 10.31%

Suri Duddella is a full-time patterns-based algorithmic trader with more than 20 years of experience. His website Automated Patterns Research and Tools is at suriNotes.com. 

To see other questions answered by experts click here