Monday, August 30, 2010

1040 the key again

A disappointing day for the bulls. I will admit that I, for one, after the market action on Friday, expected the bulls to put up a much better show today. It seems like we are stuck in a mini range here (1065-1039 on S&P). 1040 remains the key level here on the S&P and a close below that will probably lead to much further downside. As I had mentioned last week, the more we test this important support level, the weaker it will get.

So, where do we go tomorrow? I will be damned if I know! After the market action on Thursday, one wouldn't have given favorable odds for the bulls to make the kind of comeback they did on Friday. But comeback they did, and in fact, closed at the day's highs. Bullish for the short term, right? But we all know what happened today. The only thing certain is that the overall momentum still lies very much with the bears.

And how does one trade markets like these? Simple, you don't trade them. That is, if you are a swing trader. 100 point moves are just fine if you are a daytrader and anything is fine if you are a scalper but if you are a swing trader, and a disciplined one at that (the only kind you should be), all you are going to end up doing in these markets is end up trading a lot and end up getting stopped out a lot. 

In my early trading days, I had often read that most of the annual profits come from a very small percentage of the trades. And after trading successfully for a couple of years (the first one was unsuccessful!), I can vouch for the veracity of this statement. Pull the trigger only when the odds are in your favor and all the variables are in place, no matter what your trading system is. One doesn't have to catch the entire move i.e. call tops and bottoms in order to make profits, just the meaty part of the move. Another free piece of advice for markets such as these would be take your profits if you can, or at least partial profits and move the stops for the remaining position to break even.

Take care and good luck!


Anonymous said...

Good post. Really honest and I concur with your take on the market and on trading.

positiontrader said...

Thanks Anon! And thanks for reading.

Anonymous said...


Thank you for sharing your thoughts every day. Love reading them.

Good advice for the day as usual. In this market, I think both bears and bulls are toasted on a stick!

A quick question for you. I've been reading many mixed opinion about September seasonality. Is it positive or negative? Is the first week of Sept positive and the rest sucks?


positiontrader said...

Thanks Anon! I am glad if the daily musings are of some use to you.

I am sorry I don't have an answer to your question as I don't really follow such stuff.I don't believe in seasonality unless there is some concrete logic behind it. I am not saying that cycles don't work. They do. But I believe one should only follow those which have some logical reasoning behind them. Like the holiday season, or the first day of the month etc. It's important to not forget that we still are not trading in ordinary times and there are too many macro factors to think about out there which should override any seasonality biases. Just my two cents.

Bill said...

Wise post positiontrader, i agree that well positioned patience is the key to success in any market. Anon 2: September seasonality is negative. August is generally positive although not this year, but September is negative. I could see the first week being positive but overall i wouldn't bank on it being a rebound month just b/c its September. History says its a loser of the month for the market in a big way (-%1.2), in fact the worst performing month out of the entire year. Happy trading everyone.

positiontrader said...

Thanks for answering Anon 2's question Bill. I had a feeling you would answer it!

KnowledgeMC said...

Hey thanks for taking time to write out these posts and tweeting updates!

As a beginner who's only been in the market for 4 months, I love reading thoughts, opinions, tips, etc. of more experienced traders such as yourself.

I've been learning as much as I can, but the market has been confounding my intellect. Seeing companies posting strong earnings, raising guidance, then getting slammed in the market and seeing the opposite where a company reports horrible earnings yet the stock rallies, coupled with all this talk about high-frequency trading by machines, I feel so lost sometimes. But a lot of your posts provide some guidance and I'm thankful for that.

positiontrader said...

I am glad that you find this blog of some use. It is a steep learning curve and you are not the only one out there feeling like this. As for things not happening the way one would logically expect, remember to trade what you see, not what you think. Never argue with the markets as they are always right.

And finally, one is always learning in the markets, no matter how experienced one is. The day one stops learning, is the day to call it quits.

Good Luck! Feel free to mail me if you ever have any questions.