Monday, May 31, 2010

Trade what you see, not what you think

Well dear readers, I hope you are enjoying the long weekend. This was just supposed to be another post with some charts, support and resistance levels etc etc. But then I thought, would I really be sharing anything with you readers that you don't already know. You know that the market got rejected right at MA(200). You know the support lies at around the 1040 levels. Do I know where the market is headed next dear readers? To be honest, I don't have a clue. And don't trust anybody who says that they do.

What happened Friday? The market was consolidating rather well for most of the day, after the big move up on Thursday, until the last few minutes, when we made a sharp move lower. We had even recovered well from the news of Spain downgrade until then. Now, was the movement in the last few minutes due to fundamental reasons or just traders not wanting to be holding long positions heading into the long weekend? And now we have the Asian and European markets holding up rather well overnight. Does that mean most of the Euro zone debt fears is already priced in the markets? Do you really want to go short when every blog you read or everyone you follow on twitter is predicting the worst? If everybody expects a sharp correction, does  it really happen? Too many mixed signals out there dear readers! How the hell is one supposed to trade markets like these?! Well, like I said earlier, I don't claim to know all the answers but this much I can tell you dear readers......Trade what you see, not what you think.

Exactly. And this is what I feel holds the key to making money in markets like these. Trade what you see, not what you think. Sounds simple, doesn't it dear readers? Let me be the first one to tell you that it is anything but. As human beings, we are all victims of our own beliefs, opinions, prejudices etc in life. And it should come as no surprise that this same psychology extends to our trading. So often we let our overall bias or opinion of the markets influence the way we interpret the markets. Now, I am not saying that it's bad to have an opinion or general view of the markets. Anything but. But at the same time, it is very necessary to realize that the markets do not care a damn for our opinions. 

And that's the trouble with technical analysis, it being so subjective. The same chart can be read as bearish by a person with a bearish bias towards the overall markets and bullish by another person who has a bullish bias towards the overall market. That's why its so important that as short term traders we keep our overall opinion and biases at the back of our minds (am not saying forget them!) and not let them be at the center of our decision making. I know of so many traders, some much better than me I will admit, who pretty much missed out on the entire rally since March, because they weren't convinced that the economy was actually recovering. Now, it is quite possible that these traders will eventually be proved right on their views on economy. But they lost out on an opportunity to make lots of money, and some actually even lost money, because they were trading what they were thinking and not what the charts were telling them.

Let me end by giving an example of my own trading on Friday. Early in the trading day, I took partial profits in ORLY, loss in DLTR, profits in MTG, day traded PMI for a decent gain - all because I wanted to be in mostly cash heading into the weekend. I had a slight bearish bias towards the markets in general which made me uncomfortable being overly long during the weekend. But then I saw opportunities in RDN and NR close to the end of the day. I debated with myself whether I should go for it. I still held the bearish bias but at the same time, I felt I owed it to myself and my trading system to try and take advantage of any opportunity that arose. I ended up reaching a compromise and taking positions half the size of what I usually take, and am quite comfortable holding them into the weekend. Now, I did not totally neglect my overall view of the markets (bearish) but at the same time did not let it come in between me taking short term long positions when I saw the opportunity. That my dear readers, is trading what you see and not what you think.

Whew! That turned out to be a lot longer post than what I had imagined when I started it! I will be back tonight with some charts for your watchlist.

Take care and have fun!

Friday, May 28, 2010

Take the poll!

Another interesting day in the markets dear readers, but I will be back with more on that and a watchlist sometime during the weekend. Until then, why don't you take a moment of your time and participate in the poll to your right. Thanks! It will be a nice gauge of trader sentiment out there.

Enjoy the long weekend with your loved ones! Take care.

Thursday, May 27, 2010

Stock market today and a watchlist

The market finally managed to work itself off oversold condition today, closing tantalizingly short of MA(200). In fact, close to the end, the momentum with the bulls was such that another 5 minutes and they would have probably taken over the MA(200) level. This level - 1104.44 - is obviously the one to keep an eye out for tomorrow, followed by further resistance at 1110. The volume was low today, but then what else can one expect close to a holiday weekend. Nothing surprising there. 

The strategy still should be to go for short (time-scale) trades rather than swing trades. The market still lacks direction and holding overnight still carries a more-than-usual amount of risk. Take profits when you can. Personally speaking, I had time to follow the markets the entire day today and had a nice day. I was on a lot of margin for pretty much the entire day (the thinking was to make hay when the sun shines and I felt pretty comfortable being in such heavy margin as I knew it was only an intraday thing), taking partial profits in PAL, MTG close to the end of the day. I am still holding some long positions overnight. However, I plan to head into the weekend mostly in cash.

Here are a few stocks that I like heading into tomorrow, provided the bulls are able to sustain the momentum.

RDN - Had pointed this one out on Tuesday. Congrats to all those who played it! 

MTG - Got into this today. Took partial profits close to the end of the day.

ORLY - Had pointed this one on Tuesday too. Long this since yesterday. At 52 week highs.

NR - Oil play. Nice bounce off MA(50).

Take care and good luck!

P.S.: Forgot to put up a chart of PAL - my "gut feel" play from 2 days back. Both PAL and SWC were up over 10% today and look good to run some more as Palladium seems to be bouncing back.

U.S. Dollar - Double top??

Be careful of a possible double top forming on the dollar here. Negative divergences in both RSI and MACD also make me like the odds of a double top here.

Wednesday, May 26, 2010

The market has gone crazy!!

That is all I have to say today dear readers. If you had time to watch the markets today, like fortunately or unfortunately I did today, you have probably reached the same conclusion....its crazy out there!! If you are a swing trader, take a break and don't come back till Tuesday. This market lacks direction right now and if you are a disciplined swing trader, chances are you will keep getting stopped out of your positions. Though I have to admit, that if you hold no or perhaps small positions, this market makes for great watching! With things being as they are, there is no point putting up any charts or watchlists.

Bottom line - Cash is the best position, unless you are a daytrader. And if you are indeed a day trader, don't get greedy and be a scalper.

Take care and good luck!

Tuesday, May 25, 2010

Stock pick

Was going through my scans and just had to share these daily and weekly charts with you readers. The charts speak for themselves, so I will just shut up!

A buy on a break of 50.

The bulls fight back

The bulls finally came to the party, helping the markets fight back from what could have been potentially a disastrous day. The bullish hammer formed today looks similar to one formed at February lows. We shall have to wait and see whether history repeats itself over here. I foresee a short term bounce, as the markets are still in extreme oversold conditions and today was an impressive day for the bulls, followed by a reversal again. The next resistance level is 1100. For the bulls to take complete control again, they need some good news to come out of the Euro zone.

Here are some stocks that I like for playing a potential bounce.

DLTR - Pointed this out yesterday too. Adding to my existing position just over 63. I like how it held up during the earlier part of the day today.

RDN - Positive divergences all over the place. Target - 9.10

NGD - You gotta love the bounce off MA(50) today. Gold continues to look impressive and this is going to move with it.

PAL - My gut instinct play. Got some at 3.13 today.

UCO - Double bull Oil ETF. Oversold and positive divergences also beginning to appear. In this too.

Take care and good luck!

Monday, May 24, 2010

Of bears and bulls, McClellan Oscillator and Oversold bounces

After their impressive comeback in the last few minutes of trading on Friday, the table was all set up for bulls to bounce back today. I, like I believe many others, thought we would start off strong today before the bears would fade any gap and eventually prevail. Well, I got the second part of that right dear readers, didn't I? All the bulls had to do was show up. But Alas! As you and me now know very well dear readers, blessed as we are with excellent hindsight, that the bulls forgot to turn up today. The bears waited patiently for them for most of the day, like good hosts should do (for surely, bears own the house now), but eventually decided to carry on with their party without the bulls.

Let's have a look at how the S&P chart looks after today. The February lows remain an obvious area of support and one can also expect some support at 1160 levels. 

But despite the bears' obvious domination, I would still not recommend going short here dear readers. And here is why. Both NYSE and NASDAQ McClellan Oscillators, indicators which I have found very reliable in calling tops and bottoms in the past, are at extremely oversold levels here. 

Does that mean a bounce will happen tomorrow? No! Not at all dear readers. An oversold market can easily become more oversold. All it means that the odds are in favor of a bounce here. The market always work in probabilities dear readers, never in certainties. And so does life. But I am sure you already know that. I think we will see higher lows being made in both these oscillators.

As for individual stocks, Gold made a very nice move up today and the intraday action was very encouraging. NGD is my usual gold play. And like I wrote earlier, I got into DLTR today, which showed excellent action for most of the day, before giving in to the market action close to the end. Also, I would recommend keeping an eye on PAL here. This is a gut call here coming from watching the action on tape today. The chart is ugly but I think something might be brewing here.

And that's all from me for today dear readers. Take care and good luck!


Started a small position at 62.32. Might add on a break of 63.

Sunday, May 23, 2010

A vital week ahead

So, the bears almost had the bulls down and out on Friday dear readers, until the last few minutes of the trading session when the bulls made a fantastic comeback, and thus lived to fight another day. Will this be the start of a glorious comeback by the bulls or will the bears be able to keep the momentum?  Only time will tell dear readers and hopefully, we will see things get resolved one way or the other in the coming week, and that's what makes this week so important in my point of view. But here's what I think. The bulls will find it hard and the bears certainly have got the upper hand. I have marked the immediate support and resistance levels in the S&P chart below. I have a hard time seeing the bulls make a break of MA(200) unless we get some significant good news from Europe. It was news which got us down,  so it makes sense to me that only good news can get us back up again. And since news is so important and what's mainly driving these markets, I still think remaining chiefly in cash is the best play here. Let things come to you....why try hard to make things happen?

Another chart worth keeping an eye on next week is Gold. It has pulled back in the last week. Ideally, I would have liked to see the volume to be tad lower on the pullback but keep an eye on the 114 level. If the move is still intact, I expect gold to bounce from here, so this would make for a nice entry point with stop loss below MA(50) level. Usually, I buy gold miners when I wanna play gold, but I think this time I will just go with GLD. The volatility in the junior miners these days is a tad too much for my taste, especially considering the fact that I don't have time to see the markets all the time.

Take care and good luck!

Thursday, May 20, 2010

Why cash is better than initiating short positions here?

Well, I must admit at the very beginning of this post dear readers, that I am surprised by how quickly the bears too control of MA(200) today. I did expect them to break through it eventually but certainly not so easily.  Next support - 1160 level.

As important as this break of MA(200) might prove to be dear readers, I would still rather be in cash here than starting short positions here. And I will tell you why. These days, with most of the trading been done by computer algorithms, the moving averages are obvious places to run over and eat up the stop loss orders just below it. The perfect bounces off MAs that technical books talk about are a rarity these days and as I am sure you readers must have observed there are a lot more false breakouts and bottoms these days. And the McClellan Oscillator, for whatever it counts, is making record lows. Considering all this, I would rather wait for an unsuccessful test of MA(200) to start a short position rather than jump in with the crowds over here. Expect the unexpected - that's the name of the game.

Take care and good luck! I sincerely hope all you readers have not been hurt too much by this recent drop. Specially all of you close to retirement, I hope you learns the lessons from the 2008 crash and shifted to to stocks/bonds conservative portfolio rather than just being long equities.

Wednesday, May 19, 2010

Like the odds of a bounce here

Another red day in the markets. No surprises there. But the bulls can take heart from the fact that the markets bounced from MA(200). Like I mentioned yesterday, this was pretty much the last fortress for the bulls and it is very important that this holds. 

Now ideally, I would like to see a bounce from these levels. The bulls don't want a consolidation at MA(200) levels because that would ultimately lead to a breakdown. You want the MA(200) to act as a springboard, not as a consolidation area. Any consolidation should ideally take place at a resistance level in case you are bullish. The markets are way oversold as indicated by the McClellan Oscillator  charts below. This, coupled with the fact that MA(200) held today, make me like the odds of a short term bounce here. And in case we do get a bounce here, pay close attention to the accompanying volume.

Take care and good luck!

Tuesday, May 18, 2010

MA(200) - The last hope for the bulls??

After just having a written a post about the more important issues at hand, the stock market state seems trivial but its anything but. Please find below a chart of the S&P showing the support levels. I didn't even bother showing the resistance levels. Looking at the futures right now, it seems like the first level, 1115, will be given up easily tomorrow. Let's see what kind of fight the bulls put up for MA(200). Make no mistake dear readers. This will be an important battle.

Seeing gold bounce off support today, I took a small position in EGO. I like the bullish pattern of the stock but have a tight stop in place.

Take care and good luck!

I am getting concerned....Are you??

You, the regular readers of this blog, know that I trade pretty much based solely on technical analysis. I don't care about the news but rather the reaction to the news. When I trade, all I am concerned is getting my profits. But let's just step aside and see what's happening in the world around us. I can't help but be concerned dear readers and worry about what's coming next.

The Euro bothers me. Greece bothers me. I am getting worried about PIIGS. The short-sightedness of the governments throughout the world bothers me. Unemployment bothers me. Everyone printing money like there is no tomorrow bothers me. The circus has to stop one day. It will. And I worry it will be my generation, not to even mention the future generations, that will be left with the bill.

Now, let me first say here dear readers, that I am no economist. Am just a simple guy who has a more than curious interest in what's happening around us. And I am sure a lot of you readers are in the same boat as me. Take Greece for example. They are worth around 3% of the GDP of Euro nations. Yet, they are too big to fail. So, the big guns i.e. France and Germany decide to solve the problem by throwing tons of good money after bad money. Don't tell me about contagion et al. dear readers. If the problem is gonna spread, it will and this printing money is going to just delay the inevitable.....after making things worse. You have people rioting on the streets protesting the austerity measures. Now, I believe these measures are very much needed. Two months of bonus salaries??!! You gotta be kiddin me!! But again who pays for this?? The present and future generations of Greece. And these very much needed austerity measures are just going to slow down the growth of the economy. Hmmm....seems like we are going in circles. And don't even get me started on the moral issues at hand here. Greece lied about its balance sheets!! It fudged the numbers damn it!! Where is the accountability? The way I was brought up is that there is no way out until you accept responsibility for your own actions. Oh well....I am not singling out Greece here. They just happen to be the first nation caught in the headlights. I am sure more will follow. Think about California closer to home. When teachers and firemen can retire close to 50, getting pretty much same as what they were earning as pension for the rest of their lives, then something is wrong dear readers!! And who pays for it?? You got that right dear readers. My generation. And the next...and the next.

I could go on all day about the above but let's move our attention at the Euro. Its not surprising its falling. What do you expect when, like I said earlier, you go on throwing good money after bad? Talk about averaging down!! lol. Now, consider how competitive the cheap Euro is going to make German exports. You think China is going to increase the value of its currency now?? No way! Where does that leave us? What about US exports? Till how long can we expect the consumer spending to bear the entire responsibility for the economic recovery? And we are not just talking about any consumers here, but consumers in a society with 17% unemployment rates. Sigh!

Now on to the short sightedness of politicians throughout the world for a second. Let's say Greece, or for that matter any nation, shows the guts and does a great job in implementing the austerity measures. I can bet that in their next local elections we will have some opposition party, wanting to remove the austerity measures and blaming the rest of the world for their problems, get elected. That's just the way democracy works. Everybody wants a quick fix. It pays to be short-sighted.

I hope our leaders are paying close attention when it comes to the crisis in Europe. I hope they are learning something. But I know I am expecting too much when I say that dear readers. Something is wrong somewhere when people with advanced degrees are trying hard to get census jobs. Something is wrong when people who acted immaturely and irresponsibly get bailed out. Something is wrong when I have to pay for the house of my neighbor who was stupid enough to buy a million dollar home at $20,000 salary. Something is very wrong when society teaches us that its not OK to fail, but hey its just fine if you fail BIG! Damn it! Where is the responsibility? When will anyone - us, the bankers, the politicians - accept any responsibility? That's the thing about life dear readers....If you try hard enough, you will always find someone or something to hold responsible for all your life's troubles. I know I am beginning to go on a rant here now so I will stop here dear readers. 

But I sincerely believe that we should all begin to get concerned.Very concerned. Not only about the economy, but about the very social fabric of the society we live in. What kind of society will you be handing over to your kids and grandkids? And pray tell me, what did they do to deserve this?

Monday, May 17, 2010

A bullish day no doubt but....

A valiant fightback by the bulls today which not only helped them recover from a precarious intraday position, but also end the day slightly in the green. Normally, I would call this the time to start taking small positions on the long side but you know that we live in anything but normal times dear readers. I have my doubts on the strength of this comeback by the bulls and would need to see a follow through day tomorrow to get bullish again. That makes tomorrow an important day in my opinion. 1150 is the immediate resistant level with 1115 being the support. That said, the market is still not right to place your bets if you are a swingtrader but if you are a daytrader, you have got to be loving the volatility. It might sound boring but I still think cash is the best position to have here until things get sorted out on either side. Remember dear readers, sometimes taking no position is the best position you can take.

As an interesting sidenote, the doji formed today is very similar to the one formed in early February which marked the end of that pullback. I have marked this on the chart above. Will history repeat itself here?

Take care and good luck!

Sunday, May 16, 2010

Important levels for next week

Take care and good luck!

What to do if your stock falls 50% in a few minutes?

This post is inspired by.....

How do you protect yourself against a fall like this? If you look at the intraday chart for TIVO, it fell within a matter of minutes. If you had a hard stop in place, chances are you got a bad fill. Consider an even worse scenario dear readers. What if a stock in which you hold a long position gaps down over 50%, not even giving you a chance to get out for a decent loss? Can happen. Does happen. Will happen. So, what can you do in such a scenario? Basically, nothing.

But there are ways you can minimize your losses in case this happens. Actually, the key lies in acting properly before it happens. No, I am not asking you to try and predict a fall like this. What I am talking about is proper risk management.

In the end, its ALL about risk management dear readers. Its all about the risk/reward ratio. I like to think that if you take care of the risk, the rewards will take care of themselves.  A very important part of risk management is position sizing. And if I can "implement" position sizing with a small trading account, there is no reason why all you readers can't do so with your accounts. Here is how it would have helped you in a situation like this.

Say, I don't believe in position sizing and I went all in a which stock gaps down 60%. Ouch! Now to break even, I will need 150% profits on my remaining capital! Tough, isn't it?? Could take you years to break even after a loss like this.

Now let's consider the alternative scenario where the maximum I allocate in any position is 10% of my trading capital. That's still a pretty aggressive strategy if I have a large trading account. Again, my stock gaps down 60%. But now, due to my allocating only 10% of my trading capital in this stock, I suffer "only" a 6% loss on my total capital. To breakeven, I need a gain of 6.3% going forward.

150% vs 6.3%. Think about it!

Friday, May 14, 2010

The Bears have it!

Well dear readers, if you are bullish, I have good news and bad news for you. The good news is that the S&P ended positive for the week. The bad news is that we ended this week the same way we ended the last one.....with bears totally in charge. Now, one might argue that the market closed well off its lows and if you are bullish, you might take some encouragement from that. But, I have some bad news on that front too. Considering what happened to those who were short over the last weekend this Monday, it is not too hard to imagine that many did not want to hold their short positions going into the weekend, and covered into the close, leading us to close well off lows. The bulls should also be discouraged by how easily they gave up control of 1150, an important level. I admit I expected them to show more fight here. Euro took another beating and one wonders what the Euro zone can do now. It is quite possible that they might have already played all their cards last weekend. I will end this post right here dear readers as I will be back sometime during the weekend trying to gaze into the future, seeing where we go from here.

Have a great weekend!

Thursday, May 13, 2010

Bulls have to protect 1150

An interesting day dear readers where the bulls were consolidating below the MA(50) for most of the day before the bears took over. The day definitely belonged to the bears but I am still not ready to go short here. Overall, we are still trading in a range and will continue to do so until the bulls manage to break MA(50) or bears manage to take down 1150. Until either of these two scenarios takes place, I still think cash should make up majority of one's portfolio. The bulls would do well to just hold back the bears here to make them lose the momentum gained from last week. Moreover, they have additional support creeping up in form of MA(200). 

Personally speaking, I doubled my overnight TIE position at 17.25. I sold half at 17.90 and still hold the rest. It looked pretty good for most of the day with volume also looking good before suffering along with the rest of the market later in the day. I had pointed this one out yesterday and hope of some  of you readers were able to profit from it! I am interested in seeing how gold stocks pullback. I might start building a position if its a low volume orderly pullback. I am still trading less and small but things should hopefully be back to "normal" with my life in a couple of weeks.

Take care and good luck!

Wednesday, May 12, 2010

An interesting day lies ahead

With the S&P stopping just shy of the MA(50) level, an interesting day lies ahead of us tomorrow dear readers. Will the bulls succeed in taking over MA(50) or would the bears manage to hold off the bulls? 

Here is what I think. Mind you, the following thought comes just from a gut feel rather than any charts or other economic indicators. Given this markets tendency to lure and deceive, I wouldn't be surprised to see the markets break the MA(50) level, lure the bulls waiting on the sidelines back in, get the frustrated bears to cover their short positions.......and then go back down again. The market is the greatest temptress dear readers. Woe befall those who fall prey to her alluring charms! Do not get complacent if we break the MA(50) and be on your guard. Consider yourself warned dear readers.

As a sidenote, gold does look good for a slight pullback here which should provide a good buying opportunity. From the metals space, I like TIE if some volume comes in.

Take care and good luck.

Tuesday, May 11, 2010

Some gold(en) stocks

With gold at all time highs, here are some gold stocks that look good to me over here.

AUY - Nice bounce off MA(200) today.

EGO - Impressive move today on great volume.

AZK - Nice volume pattern. Watch out for a decisive break of 5.80.

GG - Breakout on very impressive volume.

NEM - Again, another breakout on very impressive volume.

SA - Same as above.

Take care and good luck!

An indecisive day

And that's exactly what today was dear readers, an indecisive day. The market started lower but the bulls rallied from there in what I thought then, was a pretty impressive comeback. But they weren't able to hold on to the gains and we finally entered lower for the day. In yesterday's post, I had marked out MA(50) as the level to watch out for today and also doubted if the bulls had enough firepower to break through it in the first attempt. That's exactly what happened today as the markets got rejected at MA(50). In the grand scheme of things, nothing much changed today and the same levels that I had pointed out yesterday remain crucial heading into tomorrow too - 1150, MA(50) and MA(200). This is the link to yesterday's post in case you missed it - Watch out for MA(50)!!

On this day where we pretty much went nowhere, something that did make a decisive move was gold. I will be back sometime later tonight having a look at gold and with a watchlist of some gold stocks.

Take care and good luck!

Monday, May 10, 2010

Watch out for MA(50)!!

So, a nice comeback by the bulls dear readers. You can kick a guy down only so much before he shows at least signs of some sort of fight! Whether this fightback is feeble or actually a solid comeback, that only time will tell. Only way we can "predict" (being a firm believer in TA, I don't want to use the word guess but in this news driven market, guess probably makes as much sense as predict) is by looking at the charts, so lets have a look at the charts for both S&P and NASDAQ. Since both the charts are very similar for the purpose of our musings, I am going to talk only about the S&P.

First thing that should strike you dear readers is the low volume today on both of the charts. It makes sense as both Thursday and Friday were, to a large extent, driven by panic. I am guessing you really profited from the rally today only if you went long on Friday evening as the markets gapped up and stayed up. The S&P closed above 1150 today, a very important level of support. I would recommend keeping a close eye on this level tomorrow dear readers, because if this breaks dear readers, I see another retest of MA(200) coming up. As for the next resistance level, there is MA(50) looking down at us right above at 1171 levels. I have my doubts if we can break this level that easily. For what its worth in these news driven markets, I see us trading in a range between MA(50) and MA(200), indicated by the green box, for the considerable future. So, in a nutshell, those are the levels to watch out for S&P dear readers - 1150, MA(200) and MA(50). You will find similar levels are at play even at NASDAQ.

I still believe that a considerable cash position is a must here irrespective of whether you are leaning bullish or bearish. Take care and good luck!

Sunday, May 9, 2010

Three to watch out for

Let me start this post with a disclaimer dear readers. I am not recommending to go and buy any stocks here. In fact, if anything, I recommend staying on the sidelines until normalcy returns. By normalcy, I don't mean that the markets resume going up. As short term traders, our goal is to make money irrespective of whether the markets move up or down. But at least wait until the charts start behaving themselves once again and the price movement begins to make sense.

One of the many things (I should do a full list sometime) I love about trading is how the markets give one the opportunity to learn something new everyday and if one has their eyes, ears and minds open and the right attitude, the opportunity to grow as a trader everyday. And it is no different in these exceptional times. I chose these stocks because I want to see when the bounce occurs, which stocks will move up the most - the most oversold ones or the ones which have held up well against the onslaught of last week. All these stocks were up on big volume on Friday and closed within 5% of their 52 week highs on Friday, so they have performed relatively well the last week. Of the three, I particularly like DPS.

Take care and good luck!

Friday, May 7, 2010

No charts, no play

I did not even see the markets today dear readers. Not even for a second. My reasoning for that is pretty simple. No charts, no play. For making consistent profits in trading, one needs an edge. No edge, no play. Yes, risk management is extremely important and without proper risk management you can simply blow up your trading account in a few trades. Yet, risk management is necessary but not sufficient for being a successful trader. First, you need an edge i.e. something to tilt the odds in your favor. How do we get an edge? Well, we all have our own ways but I bet the majority of the people visiting this blog get it from their technical analysis abilities. And when price is moving all over the place, with no regards for support or resistance or moving averages etc., we basically lose our edge. One can still trade with proper stop losses etc but now you are basically just gambling that the market might move in your favor. As short term traders, we love volatility. But there is volatility and then there is madness. And what we have seen in the last couple of days dear readers, is madness. Enoug' said.

Have a great weekend!

Thursday, May 6, 2010

Stay Out!!

Wow!!!! What a day!! One for record books surely. What can I say? Nothing. And I am going to stick to that. Except for a couple of points. Firstly, the best thing to do right now is stay out! Don't try and be a hero. Don't try to call the bottom. At this stage, this is a day traders market. If you can't watch the market each and every second, its better not to trade at all. That's my plan and I am going to stick to it.

Let's see how oversold we are after today. But before doing that, I would like to point out that this is for academic purposes only. At this stage, the market doesn't care a damn about technicals. This is purely a news driven market. As can be seen below, both the NASDAQ and NYSE are at their most oversold levels since the Lehman collapse!

Take care and good luck! You are surely gonna need some if you are trading these markets.

Wednesday, May 5, 2010

To all those who lost a lot of money in the last couple of days.....

It hurts doesn't it? Specially, if you lost money because you made stupid trading decisions. You tried calling a bottom or catching a falling knife. Then its hard to say what hurts more....the losses or the stupidity. Most of the times it's the latter. I can feel your pain dear readers. Though I wasn't much hurt (emphasis on much) from this fall due to my trading sabbatical, I have been there before.

At times like these, it helps to get things in a proper perspective. So, you lost money. Maybe you lost a lot of money. Hopefully, you only trade with money you can afford to lose and not money needed to pay next month's bills. If not, cut back on your trading accounts immediately. Even if you did not lose money. Only trade with money you can afford to lose

Now the next step. Money is fluid. By that I mean, money comes and goes. That's the nature of money. You were the one who earned it in the first place, and you were the one who lost it. Accept the responsibility. It wasn't the markets. It was you. It was all you. For the profits and the losses. It wasn't the markets or what's happening in Greece. It was you and it will always be you. You lost it in the last couple of days and only you can earn it back. But here, it is very important not to let the temptation of getting back at the markets creep in. If you accept the responsibility, then the markets are not at all to blame, so what for do you want to get back at the markets? Take it slow and easy. It might take you months to recover from the damage caused in the last couple of days to your trading accounts. But that's OK. Trading, like most important things in life, is about the processes and the journey rather than the destination.

I talked earlier about putting things in proper perspective. I would be the last person to belittle the importance of money in our lives, but in the end, if you were trading only with the money you can afford to lose, its only money. You can always earn it back. Some things in life are so much more important and once gone, can never come back. Take your health, for example. Or the time spent with your loved ones. Now these are things that money can't buy. So, take comfort in the arms of your family and loved ones (or your favorite alcoholic beverage if you are like me :)...Pathetic, I know). instead of brooding over the losses tonight. This reminds me of a post I wrote in January when my account took a big hit due to days like these. Disclaimer: The following post was written after, actually during, generous consumptions of good ol' bourbon.

In the end, I would just like to say that things are never as bad as they seem to be. Even I know that at my ripe old age of 28 years. So, I take it dear readers, you know that too. Believe in it.

Take care and good luck!

Are we oversold yet?

And the answer is....yes, we are. At least according to the McClellan Oscillator. 

I have marked what I consider to be the oversold territories on two year charts of both Nasdaq and NYSE McClellan Oscillators. As you can see, one can typically expect a bounce from the levels where we currently stand.

Now, the question arises dear readers, what does being oversold really mean? Obviously, an oversold market can become oversold and similarly, an overbought market can become more overbought. But at these oversold levels, I would be cautious initiating new shorts and look to take partial profits in my existing short positions.

That said, its still a news driven market. So, be careful and good luck out there!