Welcome to The Discovery Trading Group

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Nov 292011

We are a group of professional and amateur traders founded by principals of a quantitative research firm which develops strategy and periodicity diverse programs and risk modeling tools. Our own internal process involves using this webspace as a collective resource for sharing both discretionary thoughts during intraday sessions and as a sort of virtual think tank for our ongoing quant research. A big part of that research has consistently shown that the ‘Holy Grail’ of the purely mechanical, single market intraday trading strategy that produces near linear returns without significant ongoing adaptation DOES NOT exist. As such we have found that for most traders pursuing single market intraday strategies, an adaptive, risk management focused discretionary approach is likely to bear the most fruit. Ironic, given that rigid, purely mechanical systems are what the vast majority of retail traders (including us at one time) seem to be in relentless pursuit of. 

In the spring of 2010 we created a private, member only forum behind the blog devoted to our ongoing discussions related to discretionary analysis of market structure, price action and order flow to like minded retail traders as a sort of experiment. Since we have always found the format in which we use this space privately to flesh out ideas to be so beneficial, we wondered if it might be even more fruitful to increase the sheer numbers of those participating in this process and with that, DTG as it exists today was born. By any measure, the experiment has been almost unfathomably successful for us in terms of its role in keeping us sharp in whatever discretionary or quantitative work we happen to be engaged in at the time. Sharing our experiences and interacting with the greater numbers continues to spark new ideas for all of us, making our little experiment a huge win on all fronts in our book. For information about the types of trading which are the foundations for what most members pursue here, follow this link:

Methodology Framework

 Posted by at 11:24 am

07/12/2024 ES Trade Plan Worksheet

 Pre-market Commentary  Comments Off on 07/12/2024 ES Trade Plan Worksheet
Jul 122024

The “Magnificent 7” had a brutal day on Thursday, the worst in nearly a year as stock markets shifted to risk off.  Nvidia (NVDA) tumbled over 5%.  Tesla (TSLA) snapped an 11-day winning streak to crash 8% after Bloomberg reported Tesla will delay the unveiling of their robotaxi.

After the CPI prints came in with the slowest rise since early 2021, money flowed to rate sensitive sectors like Real Estate (XLRE) and Utilities (XLU).

If Biden can make it to January without a recession, he’ll be the first president to do so since Bill Clinton in the 1990s.  The recession in 2020 contributed to Trump’s loss to Biden that year and didn’t return to pre-COVID levels until 2023.

Inflation continues to slow and some goods are dropping in price.  Furniture is down 4.6% year-over-year, appliances are down 3.6%, and electronics are down 1.6%.  Food prices are still rising but at 2.2%, they are down sharply from 11% in 2022.  Some retailers say they are cutting food prices as their customers cut back.

Rent inflation is 5.1% (which does not include new leases), still high but much better than 8.8% last year.  Rents on new leases have dropped and will be slowly filtering into the government’s data.  New vehicle prices have fallen 5 months in a row and are down 0.9% from last year.  Used car prices are down 10.1% from last year.  Car insurance is up 19.5% year over year, but 2024 price hikes have been smaller than in 2023, reflecting the drop in car prices.

According to a Morning Consult index, consumer expectations of future inflation have dropped sharply and are close to pre-COVID levels (i.e. nearly back to normal).  The inflation that remains sticky is in services, which is up 5% year over year.  Most of the services inflation is concentrated in housing (which is counted as a service) which is also slowly improving.

Based on slowing inflation and job growth data, the Fed is expected to start cutting interest rates in September.  However, no matter what the Fed does before November, they will be criticized for being political.  If the Fed does not lower rates, they will be criticized by the Democrats for keeping rates at 23-year highs.  If they cut rates, the Republicans will claim the Fed caved to Democrat political pressure and that a rate cut helps Democrats in the November election.

Q2 earnings season starts today with the first big banks posting.  Premarket earnings include Citigroup ( C ), Fastenal (FAST), JPMorgan Chase & Co. (JPM), Ericsson (ERIC), Bank of New York Mellon (BK), and Well Fargo & Company (WFC).  Big Banks have climbed over 20% since January, outperforming the S&P 500.  Their rally will be put to the test this morning.

The economic calendar includes PPI @ 8:30am ET and UoM Consumer Sentiment & UoM Inflation Expectations @ 10:00am ET.

Volatility moved higher from Thursday’s S&P 500 selloff.  The ES 5-day average daily range is now around 45 points.

Whale bias is leaning bearish into the 8:30am ET PPI numbers on light overnight large trader volume.


 Posted by at 5:18 am

07/11/2024 ES Trade Plan Worksheet

 Pre-market Commentary  Comments Off on 07/11/2024 ES Trade Plan Worksheet
Jul 112024

Big Tech soared on Wednesday with Nvidia (NVDA) up 2% and Apple (APPL), Microsoft (MSTF), and Alphabet (GOOG) each climbed 1%.  Anticipation of this morning’s 8:30am ET Consumer Price Index (CPI) prints and Unemployment Claims number will bolster a case for the Fed to start cutting interest rates sent the indexes higher.  The S&P 500 rose 1% and closed at a record high for the 37th time this year and for the seventh up day in a row.

Fed Chair Powell’s House testimony also bolstered hopes of a rate cut soon.  He hinted the stage is almost set by the cooling inflation and jobs market.  He’s paying closer attention to the cooling job market; another sign the Fed is getting closer to a rate cut.  Powell also cautioned that if the Fed waited too long, it would weaken the economy.

Separately at an economic conference in Australia, Fed Governor Lisa Cook made a case for a US soft landing.  “My baseline forecast…is that inflation will continue to move toward target over time, without much further rise in unemployment,” Cook said.  She also said that while soft landings are rare, the fast decline in inflation without a substantial rise yet in unemployment rate bodes well.

This morning’s economic data has the potential to send the indexes in either direction.

Costco (CSCO) shares rose nearly 2.5% after the close.  The company announced they are raising their membership from $60 to $65 per year and their premium membership to $130 from $120.  The 8% increase creates an instant $260M+ from their 52 million memberships.  The first membership increase in 7 years seems overdue as Costco historically increased about every 5 years.

Premarket corporate earnings include Conagra Brands (CAG), Delta Air Lines (DAL), and PepsiCo (PEP).

In addition to the CPI and Unemployment Claims numbers @ 8:30am ET, the economic calendar includes the Federal Budget Balance @ 2:00pm ET.  The Atlanta Fed President Raphael Bostic speaks @ 11:30am ET and St. Louis Fed President Alberto Musalem speaks @ 1:00pm ET.

Volatility remains steady waiting on this morning’s numbers which could easily expand volatility today.

Whale bias is short into the 8:30am ET economic numbers on much heavier than normal overnight large trader volume.


 Posted by at 5:21 am