Thursday, September 25, 2014

What next?

This blog post comes after a big down day for the market = 1.62%. We remained short going into the day even after yesterday's good rally. I closed VST/ ST short positions (read 5 under timeframes ). I still remain short on the IT position but took 1/3 off the table, following my scale out principle. The market basically boxed swing traders for the last 2-3 weeks, harassing us in the VST/ ST signals = all fail. One day like today compensates for the small losses we had in the last 2 - 3 weeks; actually not only compensates but makes the account positive for the last few weeks.
 
Anyway, what is next? What is the direction going forward?  I don't know. All I do is to follow the trend. How long this downtrend lasts? I don't know again. However, I see signs of the last phase of this down trend. One of the signs is in the chart below. We are entering an area where this chart indicates bottoming of the market. The last time I posted this chart was then . Of course, the market did rally few days later. Unless the market structure changed (from bull market to bear market), this barometer should still do good. I am not just talking from this chart's point of view. I have few barometers which are showing the same signs of bottoming. Bottoming could take few days. There may be divergence sometimes. We don't know. What does it mean to us, traders? We don't have to buy everything like crazy. Why? Price still rules. If market swings wildly, if market takes you off the rider, if you have doubt that market is going to turn, if you think you have earned good profits = fine = remain in cash till the signals change again to buy. But, please do not start buying before the market turns, that is not how it works.
 
 
Resistance is SPX 1978. Support should be around 1940 area. More to come in the next post....
 
 

Tuesday, September 23, 2014

Market update

VST/ ST/ IT - Turned to sell as of close yesterday
LT/ VLT - Buy
 
 
We can use today morning's bullishness to sell short SPX. Previous market update here

Monday, September 22, 2014

Market update

In my previous post, I indicated that we were rather flat going into FOMC. So, we did not participate in the rise and decline of the markets since.

Previous market update here

If you followed the previous market update or if you followed my FOMC post, you should still be good (= market did not move much either way since 1 week) and be unscathed. I closed most of my holdings prior to FOMC, so I had a 1% profit on the previous IT signal. What now?

Market update
VST/ ST on a buy
IT turned buy on 09/18 close (today's weakness should be good to initiate a buy with a stop...)
VLT/ LT - Buy

I am stressing on the stop this time because the breadth is very weak in the market. While we are still on a buy on all timeframes, this uber bullishness could turn into a disaster. Then, we could simply sell short and wait, right? Not really. We do respect price, hence we follow price. However, it helps to look around what breadth is doing to be cautious.....

Gold update
VST/ST/IT/LT - Sell
VLT - changed to Sell but we will wait till month end for confirmation

Have a good trading!

p.s: I do not have any positions on BABA now but I did daytrade on the IPO day few times for a 1% net gain on the account (not BABA position)....



Wednesday, September 17, 2014

FOMC Forecast

If you look at the economic calendar, there is an important announcement every single day of the week. While they may be important, I do not care for most announcements = I do my own trading based on the market technical regardless of what the outcome may be from the announcement. However, there are some very important market moving events like FOMC meeting announcement. We need not read all what is published on the announcement, as we can seldom trade markets based on announcements. In other words, the outcome of these announcements will manifest on the technical charts very soon = we begin trading at that time.

What do you do before, and after the FOMC announcement though? Like I said above, FOMC is noise to me. But, the noise can hurt us sometimes. The noise can throw the technical out of the charts, before, while and shortly after the announcement. I have seen traders say "this is a trader's paradise". If I traded on FOMC days in the past, I had mixed results with gains sometimes and losses sometimes = ineffective. Hence, I have learnt to stay out of the market starting 1 day before the FOMC announcements till 1 day after. If I participated, then it would mean I had small positions which would not impact my accounts much. I could be in the middle of a good trade which I may lose if I get out. Unfortunately, we may feel so sometimes that we shoulda participated in XYZ trade. In the big picture though, it helps to stay out of the noise. It kinda feels like fun to be the audience when every single media outlet and every trader/ investor is pretending to be panicky after the FOMC. If possible, I get the front row seats = listen to Bloomberg/ CNBC. It doesn't hurt to just enjoy the weather outside on such days though.......= take a break!

Happy FOMC day for all market participants!! :))

Wednesday, September 10, 2014

Q & A

1. Your signals are conflicting
A. There are always different trends in the market. If you look at the hourly charts, you may say the market is flying but the daily chart may say the market is breaking down. The market always has different time frames. Your trading basis/ bias should also have different time frames. I have 3 different accounts catering for different times frames and different goals. What your time frame is, depends on your risk, goals and needed returns. You must define these 3 before you even start trading, before you start following (your/ someone else's) signals. Then, you search for a proper instrument in the market.

2. Your signal is a fail
A. That is correct. If my signal always works, I would be a billionaire by now with a Year over year % returns of >1000%. I am not. My returns are decent in all timeframes and consistently beat the market. I see that they are positive in all time frames. Importantly to answer the question, my signals are profitable most of the times. Sometimes they do fail, I agree.

3. So, how do you prevent a big loss?
A. Risk sizing is very important. If the market acts erratically, if you met with an accident (and did not trade for few hours/ days), if something unthinkable happens and the trade goes against you - you should still be in a situation that your account will survive. You can always win tomorrow, but surviving till tomorrow is the key to trading. Hence, you should adjust your position sizing to reflect your risk/ survival etc. 

When you take a signal, it is always important to think how much loss you can bear for a position.
I prevent big losses so that my account will survive the unthinkable. However, things do go against me but I keep such incidents to very very few. 

4. What should you do?
A. There is somethings called using stops. And there is something else called following a methodology. Before following me, I suggest you to go through my thought process and methodology. It doesn't matter if you subscribe to paid investment analyst/ guide, you still have to think what their plan is. Unless someone takes your money into their hands and works for you, you must use appropriate thought process. 

Then, there are stops. Like I said above, you should review your risk, and adjust your stop in case the position goes against you. You must use manual / autostops for all your positions. If the position goes completely against you and the position opens higher/ lower, unfortunately you still close that position. There is always tomorrow to work on your next profitable trade.

5. How is your performance decent if you hit stops often? 
A. We must make sure that the number of profitable trades are more than the number of losing trades. Position sizing again plays a role. If you use all our account into one trade and that trade goes against you, you cannot withstand the fear and will dump that position out of panic too soon = You won't give the trade, enough time to work for you. 

6. What timeframe is most profitable for me?
A. Market conditions are not always the same. When volatility is very high, traders profit a lot. In 2011, my trading portfolio had a return of 44%. Sometimes, investors gain nothing. In 2012, my long term portfolio had returns of 3% (vs SPX return of 0%!!). In 2013, When volatility is low, traders loss money to brokerages via commissions while swing traders are king. So, the portfolio performance depends on volatility of the market. 


Tuesday, September 9, 2014

Market update

VST/ST - Sell
IT - Turned to Sell at close yesterday
LT/ VLT - Buy

Previous update here


Saturday, September 6, 2014

Market update

ST/ VST - Turned to buy as of close on 09/05
IT/ LT - Buy
Previous update here
 
Our previous sell (VST/ ST) yielded some downside (to the 1988 SPX area) but wasn't good enough to capitalize on it, hence we got stopped out higher = loss. No problem, as it was only a 8 point loss.
 
 
Gold update
 
ST/ VST on a buy
IT/ LT - Sell
 
 


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