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Friday, May 14, 2010
CASH IS A POSITION
For those of us who were bullish on the dollar at the end of last year, we have been proven correct. I have maintained for quite some time that there would be strength coming here, and that holding cash would actually be a position that would gain in value not lose. Ironically, doing nothing is doing something. Since I try and use my funds aggressively on a daily basis, making a decision to be flat during periods where I am uncertain is actually a position. I do know that when my regular patterns show up and I trade them, I consistently make money. Every trade does not profit, but over almost any group of 6 or 7 trades collectively, I wind up with net gains. Often, I require even a much smaller set of trades than that to guarantee a net gain. When I stray from my basic core principles trying to force things, I do not get the consistent results I desire.
It is for this reason that I am flat in all the markets, not having one single position in anything. The Yen order I had placed yesterday did not get filled and left me with a reversal bar in that market coming into today. There were also reversal bars in the indexes in the reverse direction on the downside. I personally hate reversal bars other than trading in the opposite direction of what they indicate. This dates back to a way of trading I tried to learn many years ago, that was based on looking for reversal bar entries at Fib levels. It was one of the most frustrating periods of my career and left scars. I do know from researching them mechanically that in general they do not work. However, some of them do, so I do not always pass just because one shows up. I will take them if everything else is perfect.
Coming into today in the indexes with the down reversal bars from yesterday, I was very tempted to short the market today. As I type this the market does have the look of a possible crash today. Friday's can be big down days, and if you study history you will see that there have been alot of them on Friday's. The problem I had coming into today is that some of the short term momentum indicators have now gone back into up trends, even though the longer term ones still show down trends. It is the correct view to more heavily weight the longer term than the shorter term, so as a result I was still looking for shorts. Then a reversal bar had to show up..... Great!!!! Since I often like the wait for a 2 day low to go when trading reversal bars, the stops wind up getting really big, and hence size on the trade small.
This is not a huge problem, because it keeps the risk in reality the same as anything else, but the reward is not as large. This is why I am so demanding on these setups. What I have learned the hard way is to accept that I am not going to catch all the moves, even all the ones that are in the direction I am looking. I would rather miss a move being too picky, than piss away 10 or 20k chasing a marginal trade. One rule I always follow:
WHEN I LOOK BACK AT A PRINTOUT OF ALL MY TRADES I ALWAYS WANT THEM TO BE OBVIOUS NO BRAINER TRADES BY MY RULES AT A QUICK GLANCE
If this cannot be said when reviewing a setup I pass on the trade. I would be in violation of this rule at the moment with the indexes, so I will not short this market today except in one circumstance. If we take out the two day low and bounce, and I get an intraday setup on the tick charts, I might go in that way. I still feel what I have stated recently to be true, this could rollover big at any moment. We have built a house of cards here and the legs are not that sturdy. I am rooting for the PPT today who I am sure is going to make an appearance to try and stablize this. The question is will they be successful? The market is taking on a different tone right now, and there is volume on this selling, so I have my doubts if the PPT can save this. Heavy volume as I have repeatedly stated, cannot generally be stopped by them as we have seen recently.