Wednesday, June 30, 2010

1040 just had to break

No charts today dear readers. Not much technical analysis either. Instead, I will just put some thoughts out there and hopefully, give you readers something to think about. Well, here goes nothing.....

1040 just had to break. Why, you say?? Well, because it was a very strong and very obvious support. Wait a minute! That's counter intuitive, you say. Exactly dear readers. It was a very strong support and that's why it had to break. Hear me out before proclaiming me crazy. 

The key word in the above paragraph is obvious. 1040 was a very obvious support. Why does it being so obvious matter, you ask? Well dear readers, we live and trade in times where most of the trading is done by computer algorithms. The objective of these algorithms is to cause maximum pain or in other words, to take money from small traders like us. The markets don't work on the obvious any more. Now, I am not saying that technical analysis doesn't work anymore. If it didn't, I would certainly stop trading and you would have to bid farewell to this blog. My point is that technical analysis doesn't work the way it used to work in 80s or the 90s. With the advent and dominance of these computer algorithms, things are not as easy and straightforward any more and one has to think a bit outside the box.

Consider this. A lot of traders, going purely by TA, had their stops just below the 1040 mark. If you were looking for some easy money or cheap buys, it makes perfect sense to spike the market down and run over these stops and then go back up again. Seen stocks fall through MA(50) easily recently and then go back again, with you getting stepped out? Well, its the same thinking here again. You just got owned by these computer algorithms. I wouldn't be surprised to see the markets bounce from here now that these stops below the 1040 mark have been taken out.

But all is not lost. There are ways you can fight these algorithms and come out on top. You just have to realize that the obvious doesn't work anymore. Adaptability is the key here. I could give my thoughts on some of these ways but I see a bottle of bourbon with my name on it calling out to me. 

Take care and good luck! I will be most interested to know what you readers think about the above.