Saturday, April 4, 2015

Changes in analytical methods

As I've put increasing emphasis on very short term volatility trades, what I say I'm doing in my rules and what I'm actually doing in the markets have diverged. Time to bring things back into line.

Rule sets

I'm downgrading my Price Channel Rules and Shares Rules. While I might occasionally trade using them, my daily operations will be under the Volatility Rules.

I've revised the Volatility Rules to reflect the fact that they now encompass trades that don't rely on earnings announcements or other events to produce a collapse in implied volatility. The rules are quite a bit simpler than they were.

Analytical universe

I'll continue to run the overnight analysis searching for bull and bear signals in the form of beaks beyond the 20-day price channel boundaries. This is will give me an source of potential trades independent of earnings announcements, which occur in great numbers only 24 weeks of the year.

The bull and bear signals on symbols having high historical odds of success will provide potential directional trades, and signals on symbols that have a history of failed directional signals will be a source of direction-neutral trades (such as iron condors).

The Volatility rules require greater liquidity than do the other rule sets. I've limited my new analytical universe to a fifth of what it was. For the current week, the old analytical universe was 2,472 stocks and exchange-traded funds. The new one is 512 symbols.

I've already done "Monday's Prospects" for April 6 based on the old universe. Since the old version contains the new one, I'll use the old Prospects for Monday and begin with the new one on Tuesday.

I'll also discontinue my splitting out of signals from my list of innovative companies. They haven't been productive of trades.

Elliott wave analysis

The Elliott wave analysis that has proven useful in framing charts is less useful for my volatility trades. I may revive it from time to time, but it will no longer be a common feature of my analyses.

-- Tim Bovee, Portland, Oregon, April 4, 2015


My price channel trading rules can be read here. My long-term share trading rules can be read here.  My old, superceded volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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