Friday's Agenda

Both of the survivors of the early rounds of analysis failed confirmation in this morning's trading. GLD and QCOM have low probabilities of a signal being valid -- they are prone to whipsaws. Confirmation, then, means that they continued to trade in the direction of the signal rather than dropping back within the price channel.

In "Thursday's Agenda", I treated the low-odds survivors as though they were high-odds candidates, resulting in errors. The lesson is, never trade while running a high fever.

I had marked PCG, WMB, DD and KMI as failing to confirm their signals, when they had in fact draw back into their 20-day price channels, which is confirming behavior for a low-odds prospect.

I also had coded CMCSA and SLV as having confirmed their signals, although they had in fact continued trading beyond their price channels, a non-confirmation for low odds trades.

Confusing? Obviously, I was.

Fortunately, these signals are less time sensitive than earnings plays. So I shall now redo the analysis for the four true survivors from Wednesday's markets that I mis-coded in Thursday's Agenda.

PCG has no Weeklys among its options inventory, disqualifying it from short-term trading at this point on the calendar. WMB has low open interest on its options, so I can't use it to build the sort of positions I favor.

That leaves DD and KMI still in contention.

Both have somewhat low implied volatility, which I have used to disqualify trades in the past. On the other hand, am I right to use that as a disqualifying characteristic?

My March 23 essay "Volatility: Defining High" wrestled with the problem and came down, sort of, on the side of the implied volatility relative level not mattering that much, at least for positions not coinciding with earnings announcements.

Despite what I wrote, I obviously failed to convince myself, because in practice I continued to use low volatility as a disqualifier.

Going forward, I'm going to write analyses of symbols having all volatility levels that otherwise meet my criteria. In other words, I'm moving the implied volatility analysis to a later phase of my analytical process.

That being so, I shall write analyses before the closing bell today of DD and KMI.

-- Tim Bovee, Portland, Oregon, May 15, 2015

References

My volatility trading rules can be read here.

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Disclaimer

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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