Red Cross 101

On Monday night we warned that the new patterns would be vulnerable to price action we respectfully term "The Dreaded Red Cross." Joe has fielded a few questions and we have decided to post an explanation.

Since Hooper's main attribute is creating a defined risk window to interact with the market- the P/L mean reversion risk comes from multiple passes through the window that stop short of R.O. (a symmetrical red Cross would be 1 number up to 1 number down) These moves can provide plenty of ADD day trading singles for addicts but a core position trade would need to increase a unit with every pass to mitigate stop wash (just getting your money back)

In the example here 10 year notes "turned down" below 07..only went to 02+..then reversed above 12 to 23+/24...Then -this morning- returned to 07. A hypothetical short at 06 (slippage adjusted) was stop/reversed at 14 and would have had to be sold at 23 (randomly because objective at 28) to wash. Unpretty but not uncommon. Red crossing markets will self correct to the RO and the next pattern will trade "cleaner" - that usually occurs shortly after participants become comfortable leaning against the Hooper defined direction and playing in the range.

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3 thoughts on “Red Cross 101

  1. hap317

    I’ve seen this occur on some of the softs, grains & livestock from time to time. Still trying to figure a trick to avoid those whipsaws.

    Reply
    1. tradingpoints

      Spoos, Euro, Treasuries tend to trend the best agree. But ignoring all other indicators for the moment, I’ll trade much smaller positions in the Softs when establishing a new position. I say that because when the Softs oscillates around the trap and gap – which is between the Bullish and Bearish Points of Control (Hooper Buy and Sell points) it can get brutal if you have too large of a position on and you are scratching around the midpoint etc.

      Another idea for the Softs, or when markets are non-trending, is not to treat the Hooper levels as a strict buy or sell level decision. Think of the BUY and SELL points rather as bullish or bearish points of control where you can now buy dips or sell rallies and you should fare better. I’ve seen the Softs frequently test the bullish and bearish Points of Control before taking off, so that is a strategy you might consider. But never chase, once the Softs leave the barn and hit first objective and more, it’s just not worth it to jump in. Chasing in the Softs has gotten me in more trouble than its worth.

      OK you’re probably thinking now how do I tell when markets are trending? There are simple and sophisticated measures for doing just that. Perhaps the simplest is to look at the recent direction of the weekly close only, then look at the shape of the Moving Average Curves on smaller time-frames. If the 8 or 13 MA is flattish then you know trending strategies are in for a bit of a rough time.

      Hope that helps.

      Joe

      Reply

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