IF YOU DO THE RIGHT THING YOU GET PAYED IN THE END
Once again the poor quality of the Tradestation chart is unfortunate here, but you can see the summary of the last two SPY trades I made there. I first bought into the decline adding larger portions as the decline got steeper, the blue arrows show the 4 days I bought on. I then exited that trade where the light blue lines all come together. Next I shorted in 3 different spots into the rally as we approached the 200 day where the red markers are. You can see from the light blue lines that I exited that trade today at the close. This is how Tradestation marks the entries, I probably could change it but it is a hassle to do so. Today with the large decline, I wound up with a decent profit there. I did contemplate holding overnight here, but my rules called for a certain exit from weakness in my indicators, so I took the profit as per the plan. This is an example of fading the herd, I did it twice in a row here for very good results. There is no point in just fading moves just to fade them, there has to be a reason and a plan in doing so. Do not mistake these last two trades for just blinding fading a sharp move, that can be very dangerous. Do your own research and see if you can find times when reversions are most likely to happen.
There was a question about where the stops were on the short position I had. The answer was there was not one. I do not carry stops when legging into these types of trades, they significantly hurt the overall results. These trades are never completely comfortable to do with the seemingly unlimited exposure to risk. However, you take the good with the bad. When legging into extreme conditions, your stop loss so to speak, is the trend you are in. I knew we were in a down trend in the indexes, and this was a rally in a downtrend. As a result I felt the risk was limited. There does come a time when you have to say uncle in trades like this, and you need to determine what percentage that is going to be before you get into the heat of battle. Once you are in the trade, it is to easy to get emotional. I did have an uncle level in both of these trades where if we had closed beyond a certain percentage, I would have taken the loss and moved on. We did not get even close to it on this recent trade.
The other day I pointed out what bothered me the most about the current rally, was the huge divergence in POIV for the futures, and OBV for the SPY. I mentioned that often large moves in the opposite direction happen during these situations. I do not know if that will be the case here or not. There is so much political will behind making sure we do not crash here, that I don't think we will. That is a completely subjective view without a doubt, but it is what I think. The Presidential cycle is also very bullish, so I will likely be looking to buy into this decline if it goes further. For now I am flat with two decent trades behind me. The next chart shows the Russell and that big divergence I am talking about.
I have marked this big divergence on the chart. Notice how price got to the same level as the highs yet the POIV indicator is significantly lower. This gave us a heads up that we were likely to see what happened today fairly soon. Now we just have to watch and see if price stays stable here or rolls over. The market action is very strange right now. It is eerily quite for hours then moves in spurts. The volume is dropping off significantly, which is somewhat typical for this time of the year.
I do not see much going for Friday other than I think the grains are looking like buys down here.
Good Trading and have a nice weekend