Sunday, June 6, 2010

The easiest market to trade

Well, I am sure you readers know, and might have even experienced, that the last few weeks have been extremely tough for trading, swing trading or position trading anyway. But one of the most beautiful, actually make that frustrating, things about trading is that everything seems so clear and easy with the benefit of hindsight. 

Let's look at the chart of S&P for example. 

(1) The markets topped in late April on a classic case of negative RSI and MACD divergence. 

(2) Then we broke through the MA(50). A textbook case of going short on break of MA(50).

(3) This was followed by a textbook case of finding support and bouncing off MA(200). Clearly one should have covered the shorts and gone long here.

(4) A classic case of retest and failure at MA(50). This move was bound to fail as the volume was always much higher on down days and the retrace to MA(50) was on very low volume. One should have gone short here.

(5) A break of MA(200) followed by a bounce from February lows. Again, a textbook case off bounce from a major support level.

(6) Retest and failure at MA(200). Nothing surprising here too.

Isn't hindsight wonderful dear readers??!! This is such an easy chart to analyze and any rookie technical analyst would reach the same conclusions and would say that he would have been able to see this all coming. And yet, we know how frustrating and difficult the markets have been to trade during the last few weeks. 

Maybe there is a lesson in here somewhere. Next time, maybe we should try harder to keep the big picture in mind and try to ignore the "noise" as much as possible. Of course, all this is easier said than done. What do you think dear readers??

Take care and good luck tomorrow.


Anonymous said...

like your site.. I see positive RSI and MACD divergence now. what do you think?

positiontrader said...

Thanks Anon! What time scale are you looking at?? i.e. daily charts or intraday?

Anonymous said...

I am looking at the "MACD red line" in your chart

positiontrader said...

Oh! Yes, there MIGHT be a positive divergence developing. But it is best to confirm and play these divergences when the price/index is at same level. For example, double top, double bottom etc.