Well, that was quick. After a few tentative weeks watching on the sidelines, I finally took a stab at things on Wednesday, going short on a Dow day trade.
I lost. The sum forsaken - €275 - is not going to keep me awake at night. There's little dignity in getting stopped out of a trade within five minutes of entry, however. I didn't even have time to get nervous.
It was made more irritating by the fact that I'd passed on a couple of decent opportunities earlier in the week. I contemplated going short near the close of day on Monday. The Dow had enjoyed a pretty strong day price wise but trading volumes were unimpressive. Besides, Citigroup was due to report earnings next day and they were sure to be ugly. One could argue that this was already reflected in market prices - everyone was expecting a multi-billion dollar write-down on account of sub-prime losses - but the market's 200 point rise on Monday made me inclined to think that we might be due another leg down anyway. In particular, I was expecting that shorts would attempt to test the much-talked of August lows.
As it happened, Citigroup's report was predictably awful - a loss of almost $10 billion and a write-down of over $18 billion (euch). The Dow quickly gave up the previous day's gains and this silly monkey was left cursing and whining.
A second shorting opportunity arose later in the day. Even weak markets rebound at some stage but the Dow's attempt to do so was a pretty sad one. It settled into a midday trading range not that far off the morning lows. The obvious play was to short near the top of the trading range and wait for a break of the bottom of the range. Distractions in the monkey household meant I had to leave my computer for a time, however. By the time I got back, the market had broken to the downside and although it wasn't a decisive break, it would have been sufficient to carve out some decent profits.
These lost opportunities were preying on my mind on Wednesday. After another ugly morning, the Dow rebounded and I decided to short the bounce, placing my stop above the morning highs. As I said at the start, it was a brief trade - not even five minutes (a personal record). Even worse, the market reversed back as soon as it hit my stop. Bad luck? Nope. Sheer amateurism on my part. Markets love to test obvious price points that will trigger the stops of fellow traders. Once that occurs, you'll often see a quick reversal of the move. I should have placed my stop another 10 points or so away - that would have been sufficient. Instead, I was picked off at the very top of the move.
More to the point, I should have avoided the trade in the first place. It wasn't a bad place to enter but it wasn't a great entry either. The wise and patient thing to do would have been to wait for price to come close to the morning highs and get short there. I considered it but, thinking that the price would probably not get that far anyway, forced an early trade instead. That would have been an easy and profitable trade. Traders need to have a little imagination. If you're staring at the screen for an hour or two during a quiet period, it can be easy to think the market is never going to move or that the price will 'never get that far'. Of course, it does eventually. Indeed, even if your order never gets filled, so what? You haven't lost any money, which must always be the first priority (unless you're like the person who complained on my blog that I should get trading pronto - "so what if you lose money, at least it will be interesting reading". I disagree).
The same goes for swing trades. Wait for a great entry - I've preached it many times. Put the odds on your side at the very beginning.
Alternatively, do what I did on Wednesday and land yourself in, at best, a 50-50 trade.
People think of traders as adrenaline junkies but my guess is that the best guys are the patient ones. I watched the action for most of Wednesday. For the most part, it was a choppy and unpredictable session. On only a couple of occasions did a half-decent opportunity arise. Other days, you won't even get that. Again, same goes for swing trades. You might look at a hundred daily charts and only a couple might offer a decent set-up.
Certainly, the present market isn't affording me many set-ups, a situation that the blogger at themarketspeculator.blogspot.com can relate to. "We are in a tough spot with regards to initiating short positions, and I'm in no mood to add longs,", he wrote on Tuesday. The following day saw similar reflections. "I am still finding this market tough to trade. I have no problem trading in bear markets, but my issue right now is that we are oversold, but not that oversold. So it's tough to initiate longs or shorts. If I do decide to trade, it will most likely be with an even distribution of longs and shorts".
That's how I feel. My technical style works well in a range-bound market - buy at support, sell at resistance. In a down-trending market, I look to get short after a weak bounce to resistance points. At the moment, we're scarcely getting that. For anyone who got short a couple of weeks ago, this is an easy market. Finding decent entries at this stage is a tougher proposition, however.
Day trading opportunities are arising so I expect to be a bit busier on that front over the next week or so. Hopefully, I'll show a bit more cop-on too.
Weekly gain/loss: -€275
Overall balance: €19,725
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