Acceptance of Risk
Monday, November 30, 2009 at 03:03PM You know, Friday's half day really tweaked my universe. Coming into today, after spending several hours researching ideas, thumbing through charts, and running my various scans, I came into today with a "coin-toss" bias on equities. My expectation was to see the low end of the S&P range defended into weakness; and luckily it was.
Range bound trading is not the swing traders friend. Even when you can game the range perfectly, your stock might not react in the way the market does. If you are an options trader, its a whole other ball game. It's not about picking the tops and bottoms, its about timing the trade, getting a "fair" price, and picking the right terms of your contract. If you are off in any way, these premiums nowadays are built to eat you alive. Whether you are a stock picker or not, options can jerk your universe. That's just how it goes.
Anyway, ss I bailed through my late day analysis, I found more joy in chart surfing than I have in weeks. The technical set-ups were abundant, which gave me an inner-peace that I haven't had since the beginning of the month. A lot of things stood out to me today, which makes me think like there are big opportunities coming, heading into year end.
The themes I liked today were the moves in what I would consider "riskier" assets. Financials, REITS, and even small caps. I focused almost exclusively on small cap stocks a few months back, and abruptly stopped as I noticed the set-ups were becoming sparse. Today, there were too many to analyze.
The Russell made a beautiful hammer today, with the day's low reaching the 78% retracement level of the years fibonacci range. I've also been measuring relative strength between the S&P, Dow, and Russell. I think the weakness in the Russell might have bottomed.
A continued move to high beta assets and a continued acceptance of risk will put the S&P at new relative highs before Christmas. Keep an eye on REITS, junk financials, and small caps. Those will be a new area of focus I'm looking to explore this week.
I'll be back tomorrow with some specifics. If you are around tomorrow, I plan to present many of my ideas via TA Live tomorrow, with some follow up blogging after the close.
OA
Reader Comments (8)
HI Jeff,
I am finding out the hard way that range bound trading is not the swing traders friend!! Its not working for me to set trailing stops on share price. As I don't want to exit too early out of a trade due to a dip in the middle of the day, I generally wait for EOD to make a decision as to whether to stay in or not. If share looks to be closing in my favour i stay in the trade overnight, only to have it go in the wrong direction next day( more often than not lately), along with my option profit...on paper anyway.
Have you found it best to trail stops on the option for a "fair price" during the day or keep the stops on the underlying share price patiently waiting for the trend to develop over a few days for a larger profit?
I trade Australian share options only. Thanks in advance. i enjoy your blogs very much.
Where will TA live be for Tuesday?
REE,
I have a hard time using stops on options. I'd rather wait to see a price level breached and exit the position manually.
OA
FSTRtrdr.... www.tradingaddicts.com
TA Live is an excellent resource for ideas, analysis, instruction/training, and strategy, regardless of where you're starting from. First-class, all the way.
On an entirely unrelated note, "please to enjoy" this hilarious Steven Seagal movie trailer: http://www.dailymotion.com/video/xaempd_cockpuncher-the-movie_shortfilms
You buying or selling this close?
THANKS JEFF.
Now to timing.. so price level is breached middle of the day, do you usually exit manually at that time or wait and see how the rest of the day pans out?? I would appreciate knowing what your thoughts are on timing - exit when it breaches or wait til end of day? This has been another problem area for me to be consistent about. i am not a day trader but can't decide when I should exit during the day.
cheers