As soon as I hit the send button on this, I realized I forgot to re-explain, which I have been meaning to do, what I mean by risk window for folks reading one of my notes for the first time. My trading system has four components:(1) a small set of popular trend indicators such as a moving average (2) a small set of common reversal detecting indictors such as equity put/call ratio (3) a set of four stops to force me to follow the trend in cases, like now, where I'm not in sync with the prevailing larger trend and (4) risk windows of turns or acceleration of the current trend.
This risk window is determined from a whole host of turn predictors that I track which in the past have been able occasionally to predict market turns. A good example is the options expiration every third Friday. I plot all of them on a calendar and look for concentrations of these dates which should have an elevated risk of a turn. Since these are individually widely watched by the trading public, if they fail, the followers act to cover their now incorrect position sometimes causing an acceleration of the current trend. That's why I call these focal points of risk "turn or acceleration of the trend" dates. They don't always work, but heck what does. They work often enough that it's worth my effort to track them. They often, like now, form big clouds on the calendar. Roughly the beginning, center and end of these clouds seem to have the most risk.
I use the risk windows in the system as a sort of fifth stop to turn off the other stops at a time of elevated risk of a turn against the trend. Now that also means that I will miss the front end of accelerations of the current trend, which stinks, but acceleration events seem to be much less likely than turns during these windows which makes up for this missed opportunity.
So that's what I mean by risk window.
Regards,
Douglas
