Friday, June 10, 2011

Luck of the Irish

If I go back far enough in my heritage I am actually Scottish not Irish, but the luck of the Irish was on my side yesterday. I displayed pre open where my orders were resting in the lean Hogs trade I have been in. I showed a stop and a limit order for taking profits. I also mentioned that if we closed strong and neither of those orders were filled, I would consider taking profits at the close. I had my plan in place. Here is where I got lucky, my target profit target order was at 93.75 and the high of the day was 93.775. I basically got the high tick of the whole day. When I checked in about 15 minutes before the close I saw I had just been filled. Since I mentioned that I do not death stare trades I am in during the day, I had no idea what this market was doing at all. Of course the one mistake I did make in this trade is I did not get my full size on because it did not pullback, so instead of 10 contracts I only had 7. Oh well, I should have had another 6k on this one but so be it.

I did do some calculating and projecting of certain things to arrive at the number, but this was still lucky. This market may continue higher and make my exit look lousy, but when I get the strong days like this against the trend, it becomes a quick exit from an original hold for the move type of approach. The close was still strong enough where I would have exited at the close anyway, so hitting the target made me quite a bit of additional money. I am sure that some of you got this trade as well, but if you did not, study trap patterns it will be worth your while. Often these trap patterns are major highs and lows in markets, so maybe there will be a buy on a pullback here next.

Another market I have been talking about is Bonds. I continue to look for short entry patterns in this market but the equity weakness is keeping this market propped up. It is still a flight to quality spot and we are seeing that play out once again. I now finally see a pattern that is similar to the Hogs pattern but in reverse since it is a sell and not a buy. We made a new high for the year then quickly reversed, and now today so far we have an inside day brewing. This is not the ideal trap situation at all, so I need more than what we have here so far.

It does look to me like next week we could have something here as long as the stock market does not completely fall out of bed which it could. I still am looking for a bounce there but it feels very heavy right now ,and we are so long overdue for a complete washout that it could happen. I still think we bounce first but who knows. The mustard is close to being off the hot dog right here with the stock market.

The other business interests that I have are in industries that are pretty much core to our country. They generally kind of plod along growing very slowly. However, right now in talking with friends who have interests in the same industry they have all said the same thing. Business just stopped recently. Most said they were plugging along ok until the last month, then all of the sudden they are not getting any orders at all. This mirrors to me what is being bandied about as the overall feeling out there, we are on the verge of another turn down in the economy. It is my feeling that you cannot worry about this or trade based on it. As we have seen in the last 2 years, the stock market can trade in a direction completely divorced from the rest of the economy for a long period of time. The one problem we do potentially have is that average Joe investor can get spooked easily and start pushing the Kramer sell sell sell button.

I did get a call from a friend yesterday who never asks about financial things. He wanted to know what the end of QE2 meant and what was it? He had heard it being discussed on a radio show while he was driving. I explained to him what it was and the two potential scenarios. The first being it's expiration was the most obvious sell in the world and that was probably why it won't crash. The second is that the government can continue to manipulate the markets behind the scenes and just not publicly state it. I told him the safest play for him is just to wait and see if the weekly support levels hold. If they do not he should get out and until that time not to worry about it. That is how the average investor should be viewing this. If we get under the 200 Day Moving Average in the Bernanke's that is when trouble will have officially arrived. I told him to call me if he wanted to know when those levels break. It was interesting the other night to hear the Democrats now falling back on how well the stock market has done as a reason why their plan is working out for all of us. We knew it was only a matter of time before that dailogue started. The question for Barry now is what if the markets roll over, then what? Back to Bush bashing I suspect.

Looking at the intraday charts now, we are seeing a preview of what is to come.


Anonymous said...

It is just so interesting how sentiment works. Back in April, I remember thinking how I wished we would pull back to the 50 DMA so I could re-enter some longs, but I could hardly beleive we'd ever see the 50 again. When we hit it, I was already short and stayed that way. Now the Dow is at the 200, and I'm thinking it is time to take short profit and enter speculative longs, but I can barely bring myself to do so. My former ardor to buy at these levels is gone - I'm fighting the urge to add more shorts because I know this is not the time. Logically I know we are not dropping a couple thousand points without a bounce, but man, it feels like we could. It is amazing to me that being self-aware does not stop the feelings or make the simple choices any easier. Are you trying to play a bounce, shorting at these levels, or just waiting patiently for the bounce and then big short while hoping this isn't it right now?

Chris Johnston said...

It is very simple for me, I do not have a sell signal here so I won't short until I get one. A bounce of some type will have to take place for one to develop. I do not get caught up in what if's.

Follow your rules whatever they are, if they say to buy at the 200 buy, if they say to sell at the 200 sell. I don't sense from your comments that you have a definitive approach, so you are in constant Caddyshack mode. This is where discretionary trading causes problems. You have alot of different ideas and opinions in there and it is hard to act with conviction for me when I get into that type of thinking.

Statistics certainly favor buying not selling into weakness above the 200 day. I have covered in the blog what I feel the problem for me just blindly buying into weakness is, but for some they are comfortable doing it knowing the edge is there. Maybe we will just roll over here I have no idea, but I don't care if we do. There are other markets to trade anyway and I know I will always miss moves and trades here and there.

I am not hoping or using any other type of emotion in looking at this. The street is littered with traders who blew up not wanting to miss the big one. You can make a very good living catching a ton of small ones and missing all the big ones. In doing so you will catch a big one occasionally.

Big trades cause big problems. Follow your rules and check the opinion at the door, that is the best advice I can give you.

If your trading decisions are driven by opinions you need to take some of that out of the equation so it is easier to make decisions. I know my strengths and weaknesses, and I know I cannot operate in a environment where trading decsions are based on my trying to reconcile a bunch of my opinions about what will happen next. I need structure to be consistent, so I have specific structure. When a trade is there it is there and I take it. I can tell looking at a chart for 30 seconds if there is a trade by my rules or not, and there is not one in the Bernanke's either way right here.

The Daily E-mini Trader said...

Note the extremely lower open interest that ES showed on Thursday and Friday. The buyers were running scared, as the sellers just sat back and watched the stop loss orders of the buyers that continued to get hit.

Downside weekly ES price target is still 1232.25.