BETTER TO BE LUCKY THAN GOOD
I know this chart is hard to see, it is of December Cocoa and a very wild day there today. This is a trade I had been long for awhile, I think I posted that chart with the entry within the last day or two. Ironically this morning when I took a few losses on some other trades I decided just to take the profits in this market to offset some of my other clunkers. You can see where I just went to the market to exit this trade at the top. Little could I have known that a few minutes later a death spike would occur. I call them that because they are caused by the electronic systems and are death to anyone who might be trading at the time they occur. In this case it was an over $2000 per contract move on that single one minute bar on the chart. In reality it was probably seconds when this occurred and any stops would have been filled at the extremes most likely.
This is why I generally stay clear of markets like this, I was very lucky to have exited before this happened. My exit was actually against my rules. However, one over riding rule I do have is that at times I exit everything across the board so I can step back and get a new perspective on things with no money at stake. I had decided to do that at about 6:45 this morning, so I was like Bill Murray in Caddyshack at the end, just slipping out before all the explosions took place.
The moral of the story here, DON'T TRADE THIS DAMN MARKET, or any other illiquid markets. One instance like this could cost you 20 or 30k if you trade any size at all. That is what this would have cost me had I not been so lucky. Today has been a wild day in the markets, particularly the stock market. Below is a chart showing a trade I put on yesterday based on what I deemed to be a buy signal in the VIX, and the stock equivalent is the VXX.
I apologize that the trade station charts are a little hard to read, my genesis stock data is delayed so it does not show the correct current price for this symbol. You can see where I bought yesterday. This implies an increase in volatility is beginning. In general this also means stocks will decline, but that is hardly etched in stone. I do however think the best way to time stock swings is with the VIX even though nothing is perfect.
I shorted the SP 500 yesterday and got stopped out today, and was fit to be tied. It was just a terribly executed trade on my part. I was too eager to get short and was too aggressive on the entry. So be it I doubt it will be the last time I make that mistake. However, I noticed the following and decided to take action based upon it.
The SP 500 which had been decidedly weaker coming into today, zoomed up way above the high of 3 days ago, stopping me out of my short. However, the NAZ failed to get above that high. As a result, when they started to move back down, the NAZ was now decidedly weaker. As a result, I judged that in the event that today's early move up was a trap, I wanted to short the one that was moving down ahead of the other one. You can see where I got short, I waited for yesterdays low to go, then when a bounced a couple of ticks I went in. Who knows this could be another fakeout, this market is incredibly strong here. However, it would be a bigger surprise to see this reverse for most than to continue higher, so maybe a few weak hands will pitch their positions if we start to move down a little. Both of the momentum oscillators are in downtrends now, and this was a legit entry, so I am in the trade and we will see what happens.
I am looking to short individual stocks as well if we get going down here. We may not. I picked a few including the Q's when I entered this futures trade. I had someone ask the other day if I ever give recommendations and my reply was that I do not in this forum. This is the way I choose to post here. Just discussing what I am doing and why. That to me is more valuable. I can go in and out on short notice on many things, and there would be no way to keep up with recommendations on anything. There would have been no way for me to have posted this logic in a timely fashion, it developed in minutes literally. There may be a time in the future where I will get back into that business, but I have no current plans for doing so.
As always, I hope this is helpful.