The automated hourly program has a risk control that takes the program entirely out of the market when the average daily ranges exceed the overall price change for the previous week in the majority of markets traded. if the risk control is activated clients that want to reenter prior to the filter disengaging need to contact us to confirm allocation and risk.
When risk control is activated all positions are liquidated and the hourly program remains neutral until overall weekly change in market price for the previous week is greater than the average of the daily ranges, once an individual market qualifies positions for that market are reestablished.
Risk control = overall rate of change divided by average daily range (it should be greater then 1 to 1). This risk filter has taken us out of the market 7 times since 2008 most recently 25 May 2022.
NASDAQ, average daily ranges from the 20th through the 25th were 400.75 points or $8,015 per contact, overall change from the 20th through the 25th 44.25 points or $885 per contract, Total reversals 8, overall change divided by average daily range = 0.11 to 1 (which is a terrible ratio it should be greater than 1 to 1). I’d also like to point out the price gaps during these sideways volatile markets a good example is the 23rd, on the 23rd from the settlement at 15:00 Chicago to the reopen at 17:00 Chicago the market gapped (no trades) 144 points against the hourly trend ($2,880 per contract price gap)
Volatility is manageable if there is carry through,
From January 18th, through January 23rd, 2022, the NASDAQ moved from 15,458 down to 14,544, down 914 points or $18,280 per contract with 4 reversals. Average daily ranges from the 18th through the 23rd, 492 points or $9,840 per contract, overall change divided by average daily range = 1.86 to 1. (a tradable ratio for the hourly)
During the same period we had the same scenarios in the S&P,
Looking at the chart below note the break in the S&P on May 20th representing $7,050 per contract move lower only to be followed by a recovery of the same amount on the same day.
We had a $7,100 range per contract on the 20th with a settle 1.00 point lower than the open or $50.00 per contact. May 25th a $4,212.75 range per contract with 3 reversals, the risk control filter took us out preventing these reversals.
Average daily range 19th through the 25th, 96.125 points representing $4,806.25 per contract
Overall change in price from the 20th through the 25th 66.25 points representing $3,312.50 per contract, Overall change divided by average daily range 0.69 to 1 (less than 1 to 1 is bad)
Sideways high volatility is tolerable if it’s limited to one sector, but when it spills over the majority of sectors traded like to did from the 20th of May 2022 through the 25th it’s time to exit, wait for trends to clean up and renter positions one market at a time when their weekly change to daily range ratio exceeds 1 to 1.
Silver, from the 20th through the 25th silver had an average daily range of $2,543.75 per contact.
On the 20th silver traded at $22.020, on the 25th it traded at the exact same price, overall change from the 20th through the 25th, $0.15.per ounce or $750 per contract. Overall change (0.15) divided by average daily range (0.5086) = 0.2948 to 1 (a terrible ratio)
Crude oil, overall change in price the 19th of May 2022 through the 25th $1.52 representing $1,520 per contact, average daily range from the 19th through the 25th $3.58 or $3,580 per contact. Overall range divided by average daily range 0.42 to 1 (anything less than 1 to 1 is bad).
It’s frustrating to exit the market and potentially miss moves but one has to ask themselves would they rather be out of the market wishing they were in or in the market wishing they were out?
If you have any questions please contact me.