IT'S OK NOT TO TRADE
Here is a market that has been very difficult lately, BONDS. Here is how things looked last night and the debate on my end was whether or not this was a buy or a sell. It could have been argued either way. The momentum oscillator is rising indicating an up trend. Price has also made a higher short term low and if Tuesdays high was taken out today, it would confirm a second higher short term low. We also have the POIV indicator showing underlying strength. Pretty straight forward, a BUY right?
As I looked at this in more detail I also noticed the following. The short term oscillator had actually risen quite a bit relative to price. This is bearish. Also, we are clearly in a downtrend overall in the market even though the short term market structure if making higher lows. As a result, when I pushed away from the desk a bit and just looked overall at what was going on here, I expected to see price come back down some. As a result I passed on the long side trade.
This morning that decision was confirmed when we took out yesterdays high then tanked. This would have been a stop out loss for me had I placed the buy orders. At times it is certainly better not to trade if you are not completely sure of what you are seeing. I know that during the last several days I have not traded much, but have avoided one loss after another that I would have taken through deeper reviews of things like this. Losing trades are part of trading, but so is consistent logic in how you go about making decisions. I find with myself that I make better decisions when I have a consistent way of making them. When I start jumping all over the place chasing my tail, I don't trade well.
Sometimes you have to just step back and look at a market and see without all the fancy tools we have what is really going on. I mentioned the Crude Oil trade in here the other day. That was a market that was clearly setup to me and was going to decline. There was no doubt the minute I looked at the chart. This is the way I like to trade. When I start having to look at something 10 times, it is best to pass. The best trades jump right out at you, and also once you enter them, they just take off in the desired direction. I have seen this time and time again in reviewing trades I make. It it is not completely clear it is OK NOT TO TRADE.
The above example is just one live one from how I look to trade. Everyone has their own individual techniques they use. Some require less discretion than others, so maybe things are easier for some of you. The tools I use now require alot of analysis, so I find it is best for me to have some type of logic as to how I progress through them and make decisions. The top down, "what is the overall spirit of what I am seeing here tell me" approach for me is what works best over time.
We have had sharp corrections for a couple of days in several markets right off 12 month highs. These are very difficult to catch. Readers know I have been looking for this at the beginning of this year but just blindly selling the first break of a low in big up trends like this, is not a good strategy in general. The decision we now have coming in many places is whether to buy the dip or look for a bounce to get short. I provided this example above to show how I attempt to make these decisions. I hope it is helpful. There is no magic to this as most people who have tried this know.
When you are sure go aggressively, when you are not tread lightly.