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Tuesday, August 10, 2010







THE WAIT IS OVER








I finally got short the SP500 this morning, along with a couple of stocks. Unfortunately alot of the stocks I wanted to short gapped through the entry points and I don't chase gaps except with rare exceptions in stocks. This is the world we live in, you need to be a vampire basically, everything happens overnight. It is also why it is imperative to have those orders in for the overnight sessions as I reviewed the other day.






I will go on record as saying this is not an optimal trade setup, but it is good enough to take a shot. You can see how the recent trend above was not confirmed by an increasing ADX which is a very good trend measuring indicator. We got a trendline break as indicated on the chart, but I actually shorted above that below the low of yesterdays inside bar. Either way if someone waited for the trendline break to occur, that is still a valid entry.




Will we go down, who knows? The longer I do this the more I come to realize that all you do is throw out probes when you trade anyway. We try and stack the deck for our probes, but in the end each trade is really a 50/50 bet for it's outcome. I played golf with a retired guy at my club the other day who was in shock when I told him I was a trader. His quote was classic. "You win some and you lose some I guess." So true my new friend!





I have mentioned over and over the tight market correlations that are in place particularly in the currencies. I have been wanting to short one of them also, but also realize it is basically the same trade as shorting stocks. As a result I tried to find the weakest one. That is probably the Canadian Dollar overall, but in terms of recent chart patterns, I figured it was the Swiss Franc, so this is where I played. The chart is below.




The EURO is actually down more today, but I just judged that the chart pattern was stronger there in the near term. They should more or less trade together anyway. The one thing I liked about this was again the ADX not confirming the price trend strength. The EURO had the opposite, with the ADX skyrocketing. Time will tell if this was the right call or not.




Gold was also a marginal short setup but I have to admit that I did not take that trade. I have a close friend who avoids trading on days like this due to the report coming out later. I have always believed that you take the trades when they come up and let them play out. We spend some much time researching bar charts, how would we ever know when we look at one in the past that worked out the way we thought, whether or not there was a report on that day or not. I think reports are just part of the market, and you place the trades without regard to them.




Maybe I will get stopped out due to it, but I would argue that would have happened anyway for some other reason if it was not for that. Sometimes we just outsmart ourselves in this business. Maybe it will come out in a way that makes the trade better, we just never know. The one exception to that is non-farm payrolls. I do not avoid them but use stop limits often if entering a trade on those days just in case we get on of those wild reactions which happen a couple of times a year.




That is all for today, good trading to everyone.

1 comment:

The Sound Center said...

Thank you, Chris. I appreciate it.

Short /ES from 1124.50.