The Matrix

As a discretionary trader, I developed the Matrix rating as an objective tool to double-check my assessment. The original format gave way to one I saw in Pruden’s “The Three Skills of Top Traders”. This is the format I adopted in the Nature of Trends.  After I complete my analysis, I begin the matrix – see Figure 1. The idea is to provide a numerical that identifies the bullish or bearish disposition of the market. The Weighting Column allows inputs from 3, 1, 0, -1, -3.Once I have rated the individual elements of each section, I normalize the rating for the section.

 

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FIGURE 1 MATRIX

Let’s use the current S&P basis cash to show how I apply it.The Ray Wave/Nature of Trend show a confirmed downtrend in the 18-d but the latest price action shows the probability of a move to at least the Primary Sell Zone (Figure 2) and probably a move above 1399 but below 1424 (5-d Maximum Extension) courtesy of the 5-d Spring Change in Trend (CIT). We need to see a directional bar closing above 1286 to trigger the signal.

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FIGURE 2 Barros Swing

The other price items in the Price category don’t apply. Hence Price has a rating of 1.

Volume is the next category and here the first item is normalized total volume. Figure 3 shows that the normalized volume on the new low yesterday was on lower volume than the first leg. This is bullish. So, the rating here is 3.

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Figure 3 Normalized Volume

The Market Profile showed a Neutral Day closing in the middle quadrant. This is a test day and is often a precursor to a low (or high). I’d rate this as 1.

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FIGURE 4 Market Profile

The Delta Volume for the day is positive. I’d rate this a 3.

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Figure 5 Market Delta

In the Sentiment Category, both Whisper Numbers and Upperman’s COT data are bullish. A ‘3’ for each. Only short term cycles are applicable at this moment. Here I have a rating of ‘3’.

Figure 5 is the final Matrix. For today, we see a rating for the 5-d trend (18-d line direction) of 2.3: a bullish rating.

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FIGURE 5 Final Matrix

Since my timeframe is the 18-d, the fact that the Matrix confirms the subjective analysis means I’d cover shorts (if I had any) and stand aside until we see 1390s or accept below 1270.

 

4 thoughts on “The Matrix”

  1. Ray

    Since your Matrix gives a reading of 2.3 on the 5-d trend (18-d line direction), which means it is bullish, it is prudent to step aside in view of the FOMC announcement at 2 am Singtime.

    At time of reading ie 10.40pm local time, the Market Delta footrpint was around 1305, and green in colour, which is buying volume.

    Which way ES will break out hinges on the number of basis rate cuts ….

  2. Hi Ray,

    What event or event(s) would prompt you to repeat the analysis you outline above? i.e. Would you only do this when the market reaches 1290 or 1370 or would other developments / time instigate this activity?

    Ryan

  3. Hi Ryan

    I do this whenever I am about to take a trade. By filling out the matrix, I do a reality check. Right now, I’d only be doing this at 1270 or 1390. But that could change as new info comes in.

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