The Variable Changing Price Momentum Indicator (VC PMI)
Trading Guidelines

The Variable Changing Price Momentum Indicator (VC PMI) currently runs on more than 70 futures contracts and derivatives. The major ones we trade are: 

• E-mini S&P 500
• Gold
• Silver
• Soybeans
• Crude oil
• Bitcoin

However, the VC PMI’s price momentum indicators can be used to trade indices, ETFs, futures, options and other financial instruments related to these five markets. For example, we use the VC PMI gold reports to DUST and NUGT, which are double X ETFs based on gold’s volatility. 

The VC PMI can be used for day, swing or long-term trades. The day trading program is used with 15-minute charts, but it can also be applied to other time frames for weekly, monthly and annual data.  

For each time frame, type of trading and market, the structure based on the VC PMI algorithm is the same. The VC PMI calculates a mean or average price for a given financial instrument and a given time frame, such as for the day, week, month or year. Then the VC PMI uses standard deviations to calculate two extreme levels below the mean, called the Buy 1 and Buy 2 levels, and two extreme levels above the mean, called the Sell 1 and Sell 2 levels. These five levels form the structure of the VC PMI. The structure is always based around the mean and changes as time passes. For example, the daily mean changes each day as the daily average price changes. The weekly structure changes each week on Sunday, the monthly each month and the yearly each year. We have also used the VC PMI to produce 9-year cycle reports on various markets using the same structure.

The five levels are the result of supply or demand from the previous trading period (day, week, month or year). The levels are also called pivot points and are specific, which allows you to use them to guide your trading with precision.

If a market moves down to the Buy 1 level or up to the Sell 1 level, there is a 90% probability that the market will then revert back to the mean. If the market moves down to the Buy 2 level or up to the Sell 2 level, there is a 95% chance that the market will revert back to the mean. Therefore, the highest probability trades involve buying to go long at one of the buy levels and selling to go short at the sell levels. When you enter a buy trade, your target automatically becomes the mean and then the two sell levels above it. You can use the mean and sell levels to manage your trade. If you buy more than one option or ETF share, you can lighten up as those levels are reached or use stops to lock in profits. Conversely, if you sell short at the Sell 1 or 2 level, the targets then become the mean and buy levels below. In this way the VC PMI gives you a structure to guide your trading and levels to watch for as you enter and exit trades. The VC PMI does not offer guaranteed trades, but provides specific entry and exit points for high probability trades. You should still use stops to protect your risk, but the trades you make based on the VC PMI over time should be profitable.

The VC PMI program at any given time will be in one of four states: 

• Wait
• Neutral 
• Long
• Short

You begin your trading session in the wait state. When the market trades at or beyond a Buy or Sell level, you are then in an active neutral state, waiting for confirmation of that level or trigger. If the market at the end of the next 15-minute bar trades above the sell level or below the buy level, you then activate your trade. The target is automatically the level above (mean and then Sell 1 or 2) for buys and the level below (mean and then Buy 1 or 2) for sells. You also place your stop. Once the trade is either stopped out or exited, you then return to the wait state, watching for the market to indicate the next high probability trade. 

Long is when you buy into a market at the Buy 1 or 2 level, while Short is when you sell short at the Sell 1 or Sell 2 level. You then wait for a stop to be hit or for the market to reach the mean or Sell 1 or 2 level after you buy, or the mean or Buy 1 or 2 level after you sell short. For a buy to go long, you can use the mean and the Sell 1 and 2 levels as triggers to sell, depending on your risk tolerance and financial goals. For a sell to go short, you would use the mean and Buy 1 and 2 levels as triggers to exit the short position. Once you exit a position, you are then neutral again, waiting for the market to trigger the VC PMI’s next buy or sell level.

At the end of a trading session, such as the end of a day, week, month or year, the program transitions between states. The states and possible transitions are illustrated below:

STOPS

When it comes to risk management, straight stops can sometimes be identified by large-volume traders and taken out prematurely, leading to market whipsaws. To mitigate this issue, it is recommended to use Only (SCO), Market-on-Close (MOC) and hard-dollar stop orders.
These types of stops can help eliminate whipsawing and are applicable to daily, weekly, and monthly strategies.

SUGGESTED STOPS METHODOLOGY:
( 15-minute time frame )

Conservative Stop:

1. When entering a trade, you can use the entry point as a conservative stop. This stop may be quickly taken out if the market reverses slightly, but it limits the risk of losing a significant amount of your trading capital.

Aggressive Stop:

2. If the trigger is activated from Buy 1 (B1) or Sell 1 (S1), you can use Buy 2 (B2) or Sell 2 (S2) on a Stop Close Only (SCO) basis to go neutral. This aggressive stop limits potential losses while allowing the market some room to move without triggering a stop for a minor move against the trade.

Catastrophe Stop:

3. Use a maximum dollar amount based on your risk profile. A catastrophe stop can be determined based on the amount of money you are willing to lose. Calculate where the stop level would be in relation to your entry point and set the stop order accordingly.

Trailing Stop:

4. If the momentum unfolds profitably right away, a trailing stop can be employed. This is the only scenario where a straight stop is recommended. Adjust the stop order as the trade moves in your favor to protect profits

Fundamental Rules

First Fundamental Rule:

1. If you are day-trading after the opening, it is recommended to wait for the first 30 minutes to 1 hour. If the price action trades above or below the VC PMI mean price during this period, it tends to continue in that direction for the rest of the session. Waiting allows the market to settle and provides more data to determine the likely direction.

Second Fundamental Rule:

2. The highest probability trades occur when entering and exiting at the extreme Sell 1, Sell 2, Buy 1, or Buy 2 levels. These levels indicate a high chance of reversion to the mean. Therefore, it is generally advisable to buy (go long) at the Buy 1 or 2 level and sell (go short) at the Sell 1 or 2 level. Avoid buying at the high Sell levels or selling at the low Buy levels. As the market moves further away from the mean, the probability of a reversion increases.

Third Fundamental Rule:

3. If the market closes below the Buy 2 or above the Sell 2 level, it indicates a potential shift in trend and price pattern. Resistance becomes support, and support becomes resistance. It is a time to wait for the VC PMI to establish a new setup or structure for the new price level.

Additionally, when the price breaches an extreme Buy 2 or Sell 2 level, the VC PMI from the current time frame is linked to the next longer time frame. Daily extreme levels connect to weekly levels, weekly to monthly, and monthly to annual levels.

It is important to watch for harmonic convergences between different time frames. If multiple time frames have similar means, buy, or sell levels, the likelihood of reaching those levels and experiencing a reversion to the mean increases. Harmonic convergences can guide trading decisions, including buying, selling, and placing stops.

By following these rules and utilizing appropriate stop orders, traders can effectively manage risk and make informed trading decisions based on the VC PMI indicators.