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The MIT Experiment - Day 1


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Rich, what you say makes sense. I've never been able to figure out how to trade MaxPain myself. The "common knowledge" is that at OEX day the prices reach their MaxPain number. I have observed countless examples when this didn't happen. Another theory is the the MaxPain level is a support/resistance level - i.e., that prices don't cross it. Alas, this theory is wrong, too.

 

The best explanation I've heard is that the market makers try to get the prices to the MaxPain level - but, if they see that they cannot, they delta hedge and the price can stray quite far away from that number. So, they always make money and we always get screwed.

 

If anyone has any ideas how to use the MaxPain levels profitably, I'm open to suggestions. One can find historical MaxPain data for various issues there.

 

Regards,

Vesselin

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I've been thinking about that today. It's either a bearish divergence, or, more likely I think, that the options market is simply unwilling to believe the move and so is sticking to its pricing from last week, particularly on the put side. If put traders respect higher prices on those contracts, it will boost the QQV and VXN and VIX. That's my guess at the moment.

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Is Max Pain to be considered TA?

Yes. Technical analysis is about price. Any price or price-derived indicator is a fit.

Sorry I was out for my 2 hour lunch.

 

Max-Pain is game theory.

 

Dr. B. I monitored Max-Pain for a while and kept charts on the periods leading up to it for many months to see if there was a pattern. I could not find one. Good scalpers should be able to make hay on it. I either steer clear of it or ignore the pain until it is over. I don't try to trade it in general but will add to my Rydex with these higher prices.

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QQQ, 5 minute

 

Second pane shows MAJOR cycle top....earlier one was phatomized and replotted.

 

Thrid panel...accumulation now about to turn distribution if it goes negative.

 

Fourth panel....velocity going negative.

 

A 1 minute QQQ chart is not plotted here, but the wave is still up, but we are banging at the wave lows. SHould they break the lows, it looks like the new direction for QQQ 1 mintue wave is down which means we may have just topped.

 

However, if the 1 minute QQQs bounce, this was just the best logical buying point for the day......buy the dips of the 5 mintue accumulation as long as it isnt negative.

 

Its a nail bitter.

post-3-1045594238.gif

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