Short Squeeze and MAE

July 1, 2019

When markets come to the forefront in news they are most of the time volatile. This means more participants, more volume, wider ranges, simply – everybody shows up. This causes emotions and struggles with a lot of different market participants and these emotions trigger even the astute trader. Now if you trade more typical markets where you have an uptick of volatility each time there is a federal reserve meeting taking place, you can simply plan to stay sidelined and avoid money exposure. (The FED meets eight times a year, approximately every six weeks). If you are participating in the crypto currency markets, volatility is such a big part of this speculative market niche, that it is wise to rather find ways of how to trade these larger range environments because they are frequent. We want to point out two important “abnormalities” that come to the forefront in these times of all time frame participants meeting at the same plain field. The short squeeze and MAE (maximum adverse excursion).

 

On June 26th at 10:30 eastern time we posted in our live Telegram channel, that we reduced total cash exposure to the market by 30%. A drastic move on a total portfolio exposure. Ninety minutes later the market exploded for one last time to the upside reaching annual highs to collapse shortly after with a violent drop of more than 2000 points. The following day the bitcoin market had reached at its daily lows a total loss of more than 24 percent. Within a very short period of time the entire market had lost a quarter of its worth. In these times trading behavior of the market changes quickly and dramatically.

 

Daily chart of BTC/USDT, 27th of June 2019, we called the top right in time:

 

Bitcoin in Tether US, daily chart as of June 27th 2019

 

Market play reflects the human condition of dualism. Most struggle in daily life with up and down, yin and yang, good and evil, the endless list of opposing pairs. We do similarly in the markets. Here it would be directional and range, indicators and oscillators, single trade versus sample size, and all the other dichotomies that make trading so very difficult.

In today’s publication we are differentiating between lagging and leading markets. A non volatile market is lagging. This environment allows for precision and tight stops. It has  a low probability in a successful turning point ratio. It needs to be traded anticipatory. Most of all it is counter intuitive and requires conditioned behavior to overcome obstacles.

A volatile market is leading by nature. Turning points are choppy and require wider stops. Once through the struggle phase, a larger than typical reward distance is granted and prices lead.  The turning point success rate is high. The market swings. As such it feel intuitive to trade such markets.

 

MAE, maximum adverse excursion is one way to measure the expected size of stops to be used to be in alignment with the turning point size.
 

MAE describes the maximum loss suffered by an individual trade before it turns into a wining trade. Most software back testing packages offer this value but we recommend actually hand back testing. In short the average of a larger sample size based on extended range and volume of volatile environments in the past, guide towards the stop size to be used next time around volatile times are to be traded within. Simply take a bit larger number of a stop size than the MAE value is.

It is time well spent to look into this subject a bit further on your own. It can truly provide an edge where most struggle to adopt to switching from fixed stop sizes in calmer waters to giving more room when things get going. One simply needs different tools for different environments.

 

One exception to the intuitive behavior of a volatile environment is the short squeeze.
 

With a market share of two thirds to three quarter of all execution done by computers, one needs to know when to step aside as an individual since computer speed outperforms the individual execution capacity.

Luckily in this case it is fairly easy to spot if you know what you are looking for. In the following three charts we are pointing out a short squeeze that occurred on 6/27/2019. Identify of how clean looking this channel looks on the various time frames, to good to be true. And that is exactly it-it is generated by buy and sell programs of computers and you do not want to fade such an up creep, even if it feels like it is collapsing every minute.

 

5 minute chart of BTC/USDT – 06/27/2019, short squeeze channel:

 

Bitcoin in Tether US, 5 minute chart as of June 27th 2019 a

 

5 minute chart of BTC/USDT – June 27th 2019, at a closer look this nearly one thousand point move is just to clean:

 

Bitcoin in Tether US, 5 minute chart as of June 27th 2019 b

 

15 minute chart of BTC/USDT – 06/27/2019, after a long day of bears controlling the market-shorts are getting squeezed:

 

Bitcoin in Tether US, 15 minute chart as of June 27th 2019

 

It is the too clean lines that give these program trades away. Avoid, if you want to keep risk on the low end.

“When in doubt, stay out” is great advise. A milder version of this saying is “when in doubt, step a time frame higher”.

We adhere to both trading rules. When to much action, to much noise, is over stimulating a traders mind, it is best to remove oneself and get a clearer view what the more dominant market players are perceiving as their edge.

 

weekly chart of BTC/USDT – 06/29/2019, the bigger picture, “shifting tides?”:

 

Bitcoin in Tether US, weekly chart as of June 29th 2019

 

It is extremely hard to utilize market news letters. For truly integrating a market picture from an outside source, trust and confidence are core principles. We are trying to illustrate what tools we are using, and in which form we are applying them, to support your market play. Only with a clear view of principles used, and absolute transparency, we can truly provide value to our readers. In today’s publication we hope to have provided inspiration that with a bit of extra work anybody can sharpen their tool box for the next battle. We wish for you to prepared  for market participation at times when the density of emotions flaring up in a volatile environment, make most just freeze up and observe, even so great opportunities unfold themselves.

 

Join our free Telegram Group :https://t.me/joinchat/HGe22hDDEEl0LvFGAgEZ9g

 

 

All published information represents the opinion and analysis of Mr Korbinian Koller & his partners, based on data available to him, at the time of writing. Mr. Koller’s opinions are his own and are not a recommendation or an offer to buy or sell securities. Mr. Koller is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations. As trading and investing in any financial markets may involve serious risk of loss, Mr. Koller recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

 

 

 

Although a qualified and experienced stock market analyst, Korbinian Koller is not a Registered Securities Advisor. Therefore Mr. Koller’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction. Past results are not necessarily indicative of future results. The passing on and reproduction of this report, analysis or information within the membership area is only legal with a written permission of the author.

 

 

Important Trading Risks and Earnings Disclaimers - Terms of Use

 

RISK DISCLAIMER: All forms of trading carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Please ensure your chosen method matches your investment objectives, familiarize yourself with the risks involved and if necessary seek independent advice.

 

 

U.S. Government Required Disclaimer - Commodity Futures Trading Commission. Trading financial instruments of any kind including options, futures and securities have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options, futures and stock markets. Don't trade with money you can't afford to lose.

 

NFA and CTFC Required Disclaimers: Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in Foreign Exchange (FX) trading, you should carefully consider your investment objectives, level of experience and risk appetite. Do not invest money you cannot afford to lose.

 

EARNINGS DISCLAIMER: EVERY EFFORT HAS BEEN MADE TO ACCURATELY REPRESENT THIS PRODUCT AND ITS POTENTIAL. THERE IS NO GUARANTEE THAT YOU WILL EARN ANY MONEY USING THE TECHNIQUES, IDEAS OR PRODUCTS PRESENTED. EXAMPLES PRESENTED ARE NOT TO BE INTERPRETED AS A PROMISE OR GUARANTEE OF EARNINGS.

 

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAN ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

 

 

All information presented or any product purchased from this website is for educational and research purposes only and is not intended to provide financial advice. Any statement about profits or income, expressed or implied, does not represent a guarantee. This presentation is neither a solicitation nor an offer to Buy/Sell options, futures stocks or securities. No representation is being made that any information you receive will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Please use common sense. Get the advice of a competent financial advisor before investing your money in any financial instrument.

 

Terms of Use: Your use of this educational website indicates your acceptance of these disclaimers. In addition, you agree to hold harmless the publisher and instructors personally and collectively for any losses of capital, if any, that may result from the use of the information. In other words, you must make your own decisions, be responsible for your own decisions and trade at your own risk.

 

Tags:

Please reload

Recent Posts

June 30, 2020

June 26, 2020

June 18, 2020

Please reload

Stay Up-To-Date with New Posts

Search By Tags

Please reload

join my free

telegram Group

Mentorship

packages

download my

free book