THE WIND AT OUR BACK
I was finally put out of my misery on my Russell short position this morning. The stock market is kind of like a downwind par 5 right now. There actually is a holiday bias trade that says to buy stocks today, so this early up movement is no surprise. So why was I short coming in if I thought we would go up?
You will have to enlarge this image on your end to be able to read it. It is just a snapshot of all the stocks I have orders in to Sell Short today. None of the orders are close to being filled, and I do not expect them to be.
So, I mentioned a holiday upward bias, I have also been talking bullishly recently. Further I mentioned the trend is very strong and that I am expecting 1235 as a virtual lay up. Why in the world would I have been short the Russell 2000 coming into today, and why would I have all these orders for short sales resting?
I DON'T AND NEITHER SHOULD YOU, TRADE ON MY OPINION!
I have rules by which I trade and I do not vary from them ever! Often with years of experience you can get a feel for what is likely to happen, but here is the problem. That "feel" can be influenced by many things some legitimate, some not legitimate. As we watch market movement and look at what is going on we can often develop an overall sense of what is likely to happen next. However, what if someone in your family is ill? What if a good friend had something bad happen to them? What if an unexpected expense showed up in your life? Do you think any of these types of things might have the ability to influence something so fragile as an opinion? You betcha!
I have not been able to ever find a way to quantify what my "opinion" is and when in the past it has been right or wrong and for what reasons. If you introduce too many variables into this business it will eat you alive. The place where you want to introduce feel is for the most part nowhere. Yes there are times that I do use some discretion in where I exit trades, you need to do some thinking. However, that judgement needs to be a minor component of what you do. Recently, I had a short sale position in the Russell ( last month ) and it had a big day in my favor on the day of entry. I had a target established below the market. I was set to just sit and let it get hit or get stopped out. Then something happened, we got a big gap down on the opening.
I mentioned in this blog right when that happened that often these gaps when they are against the direction of the main trend can often be continuation entries for long side trades. As a result, I judged that since I had a counter trend trade going on, and this unexpected development had taken place, that I should take my profits. Low and behold that gap was the low of that day and we have moved higher ever since. This was not really a "opinion" move. It was based on research I have done over the years about gap openings. This was really more a matter of thinking through what happened not emotionally flying off the handle and clicking the mouse.
I have certain patterns in the market that I trade. These patterns are present in the stocks above for short entries, so I have the orders in, period. Yes they are against the trend. One of the limitations of some of my patterns is that they do at times show up against strong trends. I am aware of this, so I do not get too concerned about it when it occurs. I know that over a large sample size, these patterns work and do make profits. With this knowledge in mind, it then just becomes a matter of executing them when they show up and living with some losses that I will take when we get into a moonshot market like this.
You will note that they are all sells below the market, which does help from getting run over. The market has to trade down in my direction before they get filled. This helps in runaway markets which often do not take out prior days lows.
Just for the record I do still have my 10 year short position on which is consistent with the market bias I have. When I put the Russell short on and the 10 year short on, it was likely one of the two was going to be a loser since they generally trade in opposite directions. However, you never know, and I did not put theme on together for that reason. My pattern was in place for both, so off I went.