Blog Category Archives: Order Management Strategy

This category contains posts related to Order Management Strategy.

Status of EUR/USD until October 8, 2017

Forex is the exchange for trading currencies. The EUR/USD index shows the evolution of the Euro against the US Dollar. When the EUR/USD goes up, the Euro appreciates against the USD, and when it goes down, the USD appreciates against the Euro. When you open a Long position on EUR/USD, you bet that the Euro will appreciate. With a Short position, you bet that the Euro depreciates and the USD appreciates.

Figure 17.25 shows a monthly chart of EUR/USD from 1991 to December 28, 2015. On its left side, the Euro relentlessly depreciates against the USD until Q3 2000. Then after a double bottom of W-type in 2000 and 2001, the Euro started a rally until 2008 to reach an exchange rate of $1.60 for 1 Euro. Since then, the EUR/USD wave evolves within a down trending channel. In December 2015, the wave was sitting on a support line. Should the Fed announce another rate hike in 2016 or after, the wave could break through the support line. This event is however quite unlikely because such decision would have adverse effects on the trend of the US financial markets and the ability of the US governments to service their debt.

The EUR/USD trend prediction and timing will be included in the MPS TradeAlerts newsletter.

For further details regarding the state of the US Economy and Finances, please refer to the section “The Fed”.

Status of S&P-500 Index until October 4, 2017

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Status of the US Real Estate Index until September 23, 2017

To analyze the state of the US real estate, we use the TC2000 MG440 Real estate index. Figure 17.23 shows a monthly chart of the US housing index from 1988 to December 28, 2015. After a correction in 1990, the real estate started a prolonged rally until Q1 2007 to make an all-time high on February 8, 2007, with a price of 821.87. With the financial market deflation and depression of 2008, the Real Estate bottomed with a price of 148.28 on March 6, 2009. This represents a loss of 82% from the top. As a reminder, DJ-30 also bottomed on March 6, 2009. Since then, the real estate was re-inflated through the Fed successive QE programs. On December 28, 2015, the wave is sitting on the resistance trend line of the down trending channel. This level is also the Fibonacci retracement level with a loss of 38.2% from the all-time high. The correction from 2007 has taken the zigzag pattern. The subwave A ended in Q1, 2009 and the subwave B, most likely on 28 January 2015. Like CRY0 and oil, the subwave C will take the pattern of a five-wave motive, trending downward. For 2015, the chart shows a small degree down trending wave 1 and 2. The down trending resistance line being confirmed by two different means, the wave may rather have difficulty to break through it, upward.

The real estate prices should find bottom when the wave touches the down trending support line. Most likely, it would find support in the price area of Q4, 1990.

The Real Estate index trend prediction and timing will be included in the MPS TradeAlerts newsletter.

For further details regarding the state of the US Economy and Finances, please refer to the section “The Fed”.

Track Record of TradeAlert (TA) Historical Performance (Status October 8, 2017)

FREE REGISTRATION Register now to get the daily TradeAlert newsletter and other high-value posts in a timely manner in your inbox for free. You can cancel your risk-free registration at anytime. Track Record of TradeAlert (TA) Historical Performance TradeAlert (TA) newsletter is published by Aman Kabir of Money Printing Strategy. You will find attached the … Continue reading Track Record of TradeAlert (TA) Historical Performance (Status October 8, 2017)

Brief Description of Money Printing Strategy

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What is Trading or Investing?

Trading and investing are the processes of buying and selling financial assets for an anticipated profit. Before describing this process in detail, it is worthwhile asking a certain number of fundamental questions for a good understanding of the concepts associated with trading and investing.
What is the ultimate purpose of investing and trading? The answer is to make money, period. How do we make money? We do it by buying low and selling high or by Shorting, meaning selling high and covering (buying) low. How do we know when the market is low so that we could buy or cover, and high, so that we could sell or Short? These are excellent questions. How do we know the right timing for buying and selling the financial instruments? The main purpose of Money Printing Strategy is to answer these questions as specifically as possible.
The cause of making money is not the price we pay to buy something but the delta (difference) between the price we sell and the price we buy. Do we agree on this? It is essential to understand that the delta matters, not the buying or selling price alone. For example, when someone says, “the price is low,” he expresses an extremely bogus statement. To be more accurate, that person must also say the predicted selling price to enable the assessment of the associated delta. Now we know that the deal could potentially be profitable. Even this statement is quite bogus. How profitable is it? We still don’t know how long it will take to sell the item for a potential profit. The profit won’t be the same if it takes one month to sell the item or five years. We know that the invested money could alternatively bring interests if deposited in a “safe” bank account. Now, even if we know the buying price, the selling price, and the duration, the deal would still bear some uncertainty because we don’t yet know the level of risk. In other words, what could happen if the deal brings losses and if so, how much?
The main objective here is to understand that if we want to make profitable trades, we need to know (1) the buying price, (2) the selling price, (3) the duration, and finally, (4) the potential losses.
Now this statement is complete and accurate. Anyone can independently calculate the deal Reward-Risk Ratio and subsequently may decide to take or leave it.
Any advice that would recommend you a financial investment with a statement in which at least one of the previous four elements is missing, should be treated with skepticism. Let’s be logical. Would you buy a car, if you know that it is not finished and ready to drive? For example, if the tires, steering, breaks, engine, or the fuel tank was missing? Well, regarding trading, if you are unable to calculate the Reward-Risk Ratio of a proposed investment, it is like buying a car, which is not ready for driving.
You may now implicitly guess the main goal: There are good brokers and excellent financial advisors out there who know precisely what to recommend to their customers. However, some advisors may misuse the lack of knowledge of their clients and may propose deals that are profitable for themselves, not for their clients. Do you personally know a professional of such kind?
Personally, I feel shocked each time I hear from renowned financial experts when they answer the question “where the market is going for the next month?” by “I don’t know,” and immediately adding, “no one knows the answer.” The Money Printing Strategy experts do know the answer quite often. Sometimes the Money Printing Strategy doesn’t know the answer due to unclear or conflicting signals. In this case, the Money Printing Strategy would recommend to staying away until the signal is clear enough.
When some experts say, “you invest now and in ten years the markets will be up,” this is a naïve and irrelevant answer. You could possibly get such answers for free from a good friend who has never invested in the financial markets. With such kind of answers, you can be quite sure that those experts are making money through commissions they get from your business, not by trading or investing for themselves. Furthermore, by following their customary advice to “invest now,” you can be quite sure that the probability of getting a good value for the Reward Risk Ratio of trade on that specific date, would usually be poor.
There is a good reason behind why “they don’t know” and why they say “no one knows the answer”. This is because they are using the fundamental analyzes for their predictions. While fundamental analyzes have the potential for now and then to predict the future market trends, they are unable to predict the date or price of the market trend reversals with enough accuracy to enable profitable trades in the long run. The main reason is that fundamental analyzes may take into account dozens of different qualitative parameters that cannot each be objectively quantified.
The main purpose of Reward-Risk Ratio is to determine the short time windows when the reward is maximal and the potential losses, minimal. As a consequence, you would open or close positions only during those specific windows. If an opportunity is missed out, then you would have to wait for the next time window. The Reward-Risk Ratio rejects recommendations of experts when they always say “buy now” for the simple reason that the weak ratios provide a “No-Go” signal for the criteria number 16 of the trading checklist. The goal is precisely to prevent the opening of risky positions. With this knowledge in hand, you could easily challenge the professionalism of trading or investing advisors. When watching the CNBC or Bloomberg, I often wish their hosts could initiate a conversation regarding the Reward-Risk Ratio or accurate timing for opening or closing trading positions…
Another argument often used by some financial advisors, traders, or investors to demonstrate their professionalism, consists of saying that they have been in this business for 20, 30, or sometimes even 40 years. While this argument may be objective, it is irrelevant what concerns the performance of the strategy they use. Using the S&P-500 as a fair reference of their past performance is bogus too. When the S&P-500 gains 10% over a year and the professional 15%, she or he is indeed beating the S&P-500 by 5% and her or his portfolio grows by 15%. However, when the S&P-500 loses 10% over a year and the professional 5%, she or he is again beating the S&P-500 by 5%, but the portfolio loses still 5%. True professionals demonstrate the performances of their strategy by providing objective and verifiable figures. Measurement of performances is done not by telling how long they are in this business rather by demonstrating the net gain per trade they have achieved since they started to trade. To calculate the net gain per trade figure, you need to know (1) the total number gaining trades, (2) the total number of losing trades, (3) the total number of trades, (4) the total amount of gains of gaining trades, and (5) the total amount of loss of losing trades. To calculate the net gains per trade, you subtract the total amount of loss of losing trades (of (5)) from the total amount of gains of gaining trades (of (4)) and you divide it by the total number of trades. The result represents the amount of net gain or loss of the strategy per trade. When a professional is unable of giving you any of the five figures, you may consider her or his statements as bogus. Again, would you buy a new car without a steering, fuel tank, break or tires?
True experts will tell you precisely, (1) the predicted pattern of the market for your interested financial instrument, (2) the date or price of the Support level, (3) the date or price of the Resistance level, (4) the position opening price, (5) the position closing price, (6) the potential duration of the trade, (7) the level of risk (loss), and finally, (8) the strategy to manage losses.
Money Printing Strategy provides a detailed description of the processes that leads to answer those questions for the Dow Jones in terms of (1) trends, (2) patterns, (3) prices and (4) dates and durations in chapter 12. Figure 12.3 summarizes and illustrates the outcome for the market trends until the end of 2019.
You will find the measurement of the MPS performances through MPS Performances by Using a Demo Account.
The Money Printing Strategy TradeAlerts (TA) services provide regular trading recommendations based on the Money Printing Strategy.
A major goal of the Money Printing Strategy is to increase your awareness to think for yourself independently and without the need for external advice.

Optimists versus Pessimists: What about Realists?

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Guidelines For Reading This Book

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Cristal Ball For Investing and Trading: Introduction

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Dow Jones Trend Prediction Until November 26, 2021

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MPS Performance Measurement: Trading Using a Demo Account

FREE REGISTRATION Register now to get the daily TradeAlert newsletter and other high-value posts in a timely manner in your inbox for free. You can cancel your risk-free registration at anytime. MPS Performance Measurement In parallel to “on-the-fly” trading activity described in chapter 9, Aman started to do demo-trading. Demo-trading, what is it? Demo-trading is … Continue reading MPS Performance Measurement: Trading Using a Demo Account

Reward-Risk Ratio

The Reward-Risk Ratio (RRR) is an essential and fundamental component of the Order-Management Strategy. The purpose of RRR is to pinpoint and validate the market prices for the most profitable trading opportunities. The higher the value of RRR, the more fruitful would be the trade. Its main contribution to the trading-checklist is the provision of a “go” or “no-go” signal before placing any order. It verifies that the expected gain relative to potential losses is significant enough to justify placing of orders. Furthermore, it ensures that we use the support and resistance trend lines for the Open and Close prices. Finally, it minimizes the risk of overtrading. Before determining the Reward-Risk Ratio, it is necessary to predict the ongoing market trends. We do it by applying the Trend-Prediction Strategy. Application of the TPS is a pre-requisite for calculation of RRR. We assume here that you are already familiar with the TPS.

Let us take a theoretical example for the sake of understanding the concept. We assume that the market is within a horizontal channel with the support at 100 and the resistance, at 120. This results in a channel range of 20 points. Here we empirically assume that if the wave goes 2 points below the support level of 100 or 2 points above the resistance level of 120, the market contradicts the originally predicted market trend.

The procedure to calculate the value of RRR for a Long position would be as follows:

The Open price for the trade will be US$ 100.
The Close price would be US$ 120.
Total potential gains would be US$ 20 per share or 20 percent of the invested capital.
The Stop-Loss would be at 98 (100 -2). The total potential loss per share would be 2 points or 2 percent of the invested capital.
With the above example, the value of RRR is 20 divided by 2, equals 10.

It is essential to understand that while the price fluctuates between 100 and 120, the RRR value varies accordingly. For example, when the price is at 105, the RRR would shrink to (120 – 105)/2 = 7.5. The RRR still validates the order. However, if we want to open a Long position at a price of 115, the Reward-Risk Ratio would be (120 – 115)/2 = 2.5, hence too low. Therefore, the RRR would signal a “no-go” for the order.

Loss-Parking Strategy (LPS)

Money Printing Strategy aims at achieving a very high ratio of gaining to losing trades. To do so, it uses a specifically designed alternative to Stop-Loss orders called Loss-Parking Strategy (LPS).

The following example describes the procedure to follow in case of a sudden market reversal. First, we have to go through the trading-checklist again to make sure that all criteria are still valid. We then have three approaches for handling the situation. Have you heard of the frog and the frying pan?

The hot frying pan: The frog jumps on the hot frying pan, notices that it is extremely hot and then jumps out of the pan immediately. This is an example of our behavior when we get nervous and decide to take the losses immediately. However, it may happen that the market resumes the predicted trend just after we stopped losses. This is not a too bad approach to handling the situation. We have suffered losses, however.
The slowly heating pan: The frog jumps in the pan, feels it is warm but still ok. As the pan gets gradually hotter, the frog does not realize and takes no action. Finally, the frog is progressively cooked without noticing the increasingly hotter pan. This is the case when we keep a losing position indefinitely until it swallows the whole trading capital. It is a catastrophic approach and the result of making a close or stop-loss price a moving target. However, this should not happen to us. The MPS does not allow placing of an order to open positions without the associated Stop-Loss order. In the worst case, we would have taken the losses according to the initially calculated Reward-Risk Ratio.
The wise frog: it comes close to the hot pan and feels the heat. It then asks the question: can I cook an omelet with this pan? Well, this would be the case for knowledgeable investors. We know that the position is losing money at each passing moment. At the same time, we do not accept to take losses either. We also know that the counter-trending wave is going to be short-lived because the main predicted trend could resume soon. In this case, we say, why not to cook an omelet with the hot pan? How do we do it? We do it by checking the signals of the VIX, the DJ-30 as well as their associated TSV and MS indicators. In principle, they should all confirm that the current market trend goes in the opposite direction of our open position. Then we decide to open a “Force Open” position with the same amount of shares, in line with the current market trend, and in the opposite direction of the already open position. This way, our newly opened position compensates for the losses of the original open position as long as the market trends against it.

Within the MPS, we call the process of “cooking omelet” the “Loss-Parking Strategy.”

The Loss-Parking strategy requires proper trading context to be efficient. It works best within the following context:

We determine first the main trend of the wave at one degree higher.
We open a Long or Short position in line with the main trend. This means that if the Trend-Prediction Strategy predicts a bullish trend, we open a Long position.
Knowing that the main trend is bullish also implies that development of counter-trending waves would be short-lived and temporary. Therefore, we would expect the wave to reverse back toward the main trend, after a short while. For this reason, it is inefficient to take losses should the market temporarily go down for a while. It would be better to use the Loss-Parking Strategy. How does it work? Instead of placing a Stop-Loss order, we place a so-called “Force Open” limit order to open a Short position, with the same price as the one of the Stop-Loss order. What is a “Force Open” order? The order management tool of “IG” brokerage firm allows traders to open positions in two opposing directions at the same time. Let us assume that we have a Long open position of one contract of DJ-30. Normally, when we open a Short position, it would close the existing Long open position. By ticking the “Force Open” button, you convey to the IG trading platform that you want to open a new position in the opposite direction of the current IG considers all limit orders as “Force Open” By default. However, the market orders require explicit ticking of the “Force Open” button. You may recall that the MPS uses exclusively limit orders.
Let us take an example. We want to open a Long position at 100, close at 120, and Stop-Loss at 98. How does it work?
We place a limit order to open a Long position at 100 with a close of 120.
We place a limit order to “Force Open” a Short position at 98.
Once the Long position is open at 100, and the price goes a bit up but suddenly, the trend reverses downward and crosses the 98 price. Our “Force Open” order would then be executed. Now we have two different open positions, one Long at 100 and another Short, at 98.
All “Force Open” orders must include an embedded or a separate accompanying Stop-Loss order. We place the “Force Open” associated Stop-Loss order at 100. We never place a “Force Open” position without an accompanying Stop-Loss order. Otherwise, we would have to use the simple Stop-Loss Strategy.
From this time on, whenever the wave goes upward or downward, our losses always remain constant at 2 points (or 2 percent). When the wave goes downward, the Short position gains but the Long position lose, and vice versa. The two positions compensate the gain and loss of each other.
How does the Loss-Parking Strategy work in practice? Well, taking into account this example, we now have one Long position at 100 and one Short, at 98. The “Force Open” accompanying Stop-Loss order is at 100. We assume that the wave price crosses down through the 98 level. We know that the wave is in counter-trending mode. From now on, we focus only on the “Force Open” position. As long as the wave goes downward, we constantly lower the associated trailing Stop price to secure the gains of the Short position. Whenever the Trend-Prediction Strategy signals a bullish trend reversal, we close the “Force Open” position immediately with a gain. Now the Long position has been further losing while the wave was trending downward. The market having resumed the originally predicted bullish trend, the Long position starts progressively trimming losses until it becomes even and then gaining. As a result, the Long position increases our capital by the amount of gains of the “Force Open” position when the Long position is even.

By using the LPS, we avoided (1) to take a loss of 2 percent and (2) to prevent our Long position from unnecessary closure. In particular, we avoided a losing trade and instead, we would now have two gaining trades. The only drawback is that we may have to pay interest if we borrowed money on margin for the Loss-Parking position.

The Loss-Parking Strategy is efficient in the following context:

Statements of the Demo-Account

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Trading Phases and Processes

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Trading-Checklist

The purpose of the trading-checklist is to make sure that traders have taken all elements of the MPS into account before placing orders without any omission. Furthermore, it forces us to do our homework and make conscious, intelligent, and objective decisions. This way, we reduce or eliminate the influence of trading based on feelings and guesswork.

During the process of going through the trading-checklist, you must check and validate each criterion correctly and objectively. The MPS is powerful because it uses measurable and objective facts, not subjective feelings. Therefore, the rule is simple: if you are unable to check, evaluate, and validate any elements of the trading-checklist objectively, the Money Printing Strategy is not for you.

Furthermore, you are required to keep a written record of your answers for each criterion. Once you have closed a position, this would help you to know your good and less good behaviors. More importantly, it would help you analyze what went wrong with the losing trades to improve your trading skills in the future.

You must validate accurately and objectively the following trading-checklist before placing any order.

1. What is the timescale for the trade?
2. Which wave number is developing at this time?
3. What is the anticipated wave amplitude?
4. Is the wave in motive or corrective mode? If in corrective mode, what is the wave pattern?
5. What are the support and resistance levels?
6. Is the wave at a Fibonacci retracement level?
7. What is the VIX current trend?
8. Is the wave within the channel?
9. Has the wave broken a trend line?
10. Is a trend-reversal at hand?

Which Capital to Invest for a Trade?

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What Timescale for a Trade?

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When to Trade?

Become your own financial adviser and trade based on your own independent trend predictions and trading strategy – not on untrustworthy, unreliable, and costly external advice. In Money Printing Strategy, we highly value and respect our customers’ trust that we shall not betray in any way, and take pride in our honesty and integrity. We … Continue reading When to Trade?

What to Trade?

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Management of Capital, Safety-net, and Losses

Management of capital, Safety net, and Losses are important not only for the beginners but also for the knowledgeable investors.

If you manage to apply the Money Printing Strategy correctly, your capital should grow consistently. The MPS defines all components of the strategy clearly. There is no place for the guesswork. Below you will find a certain number of rules and guidelines to manage losses as early as possible.
Management of Capital and Safety-net

Before investing your hard-earned money, you will need to apply the MPS by doing paper trading until you have a written proof of at least over 75 percent winning trades out of a minimum of 100 paper-trades. However and as you may guess, the more trades you do, the better. It is also essential that after paper trading, you do a minimum of 100 demo trades using real-time data to achieve a minimum of 75% winning trades.

For paper trading, you may use the TC2000 historical data. To use a random period, you select the DJ-30 daily charts, pick the cursor below the MS graph, move it toward the left, and place it somewhere. You will then see a daily chart of DJ-30 with historical data. From that day on, you can move the chart one bar in the future each time you hit the “]” key. By pressing the “[” key, you move the chart one bar back. By hitting the “Shift” and “]” keys together, you will move the chart each time one week in the future.

The prerequisite for paper trading is the recording of the results. You may potentially use an Excel sheet. You must also record the rationale behind each trade whether a winner or a loser.

Your Safety Net is set to a maximum loss of 2.95 percent (1 divided by 34) of your capital at any given time. Anytime you have lost 2.95 percent of your capital, you have to go back to school and do your homework properly by practicing the basics of the strategy again. You would resume trading after proof of successful paper trading and demo trading.

When trading, the above-mentioned flexible mental attitude is an invaluable asset. Whenever you catch yourself behaving differently, stop trading immediately, relax, start breathing again, refresh, and re-exercise the basics

Losing trades are an integral part of trading, exactly as corrective waves are an integral part of the wave principles.
Stop-Loss Orders and Maximum Amount of Losses

The Stop-Loss orders are executed each time the price goes up or down and hits the price of the Stop-Loss order. Before placing any order, the Open, Close, and the Stop-Loss prices must be predetermined. These are the minimum prerequisites for calculation of the Reward-Risk Ratio. We place an order only if the value of RRR is 5 or higher. If you are unable to calculate this ratio or use it with lower values, you may wish to stay away and refrain from trading unless you clearly know the consequences of such behavior.

Volatility Index “VIX” – The “Fear” Index

The VIX represents the market volatility index. Its value indicates the estimated volatility, upward or downward, for the S&P-500 index from the present time to a period of one year. Mainly, the VIX is used to calculate the amount of premium the S&P-500 Option traders have to take into account for pricing the S&P-500 Call and Put options. For example, a value of 20 for the VIX means that, according to the current market conditions, the probability for the S&P-500 with one standard deviation (67 percent) to go either up or down within a one-year period, is 20%.

The time premium for the S&P-500 Options is for the next 30 days. The 20 percent being for one year, the rate for the next 30-days or one month, is calculated with the formula 20 divided by root square of 12 . This becomes a 5.7735 percent premium for each moving 30-day period.

Although the value of VIX indicates a neutral price fluctuation upward or downward, it is called the Fear Index because the market does not like high volatility. In general, the markets tend to go down when the VIX goes up. The VIX is a leading indicator of investor sentiment and the crowd’s psychology.

Why do we want to understand the VIX? This is because it is a Leading indicator. It tries to forecast the future trends, like the MPS. Actually, the instantaneous trend for many market indexes such as the S&P-500, the Dow Jones Industrial Average, the NASDAQ composite and the NASDAQ-100 are driven by VIX. This is why it is included in the Trend-Prediction Strategy.

The emotions of fear and greed drive heavily the financial markets. This is why traders cannot be successful in the long run, if unable to manage their psyche and mental states. The VIX measures the state of the market and crowd psychology. It is a measure of fear and stress as perceived by the market participants.

It was said earlier that although the TSV and the MS follow quite closely the market real-time trends, they still lag the markets slightly. This is the reason why the VIX was introduced as a component of Trend-Prediction Strategy.

How does the market choose to take a certain trend? Well, basically, the S&P-500 option trader’s mental state and psychology interprets the events in one direction by some and in the opposite direction, by others. This then triggers actions to buy and sell the S&P-500 Call and Put options. In turn, this provokes fluctuations of the VIX value, which is computed based on the ratio of Call and Put Options. Once the VIX fluctuates, the stock market indexes and individual stocks use it as input to adapt to the newly modified market’s conditions.

The markets do not like volatility. This is why they go down when the VIX goes up and vice versa. In other words, the VIX and the market indexes and stocks, tend to move in the opposite directions to each other.

Above describes the theory necessary to understand the VIX Index. Let us now get practical and see how we can apply this knowledge to predict the market trends. In TC2000, the VIX is called “VIX–X”.