Luna $ Ticks

September 12, 2008

Wishing versus Perception

Filed under: Trading SPX SPY — moontrader @ 7:18 pm

Those of you who have been following this blog probably noticed that the short term scenario of a deeper fall is not valid anymore. I was wrong about it but, if you want to survive in this market, you have to keep your mind open and be dynamic in your trade and analysis. You plan a trade, you have a target, a stoploss and a set of criteria and you believe the market will behave in a certain way. So, you enter in a trade, you start making money, but before your target is reached, you realize the market is not behaving in the way you expected. One day before, in the morning, your position had a 150% profit but, in the last minutes of that day, your profit was reduced to almost zero. That makes you uncomfortable and you start to think something like that: How can I let that profit slip through my fingers? I should have closed my position, what an idiot! What if I there’s something wrong? I’m going to close the position now. But hey, the market might turn around and go in my direction. No, no, I’m not going to let the market make a monkey out of me. I’m going to prove I’m smarter than the market. I’m going to hold the position and the market will go in my direction and I’m going to buy that swimming pool I’ve been dreaming with.

And then, guess what happens? You lose. And you lose bad. Because you’re not thinking anymore. You let yourself be carried away by your emotions and your personal problems. Treat the market as your enemy, and you’ll end up getting an enemy, the worst you can have.

Well, the market is not your enemy. The market is your friend. And, as your friend, the market is constantly delivering messages to you and you need to be patient to try to understand them. So, if you understand the message, don’t fight it just because you have a position. There’s a huge difference between wishing the market to do something, and perceiving the market will do something, but sometimes the line separating these two ideas can be blurry, especially if you have a huge position.

So, here’s my advice for today: try to monitor yourself whether you’re wishing the market will do something, or perceiving the market will do something. This can considerably improve your trading skills – and the chances you’ll get that swimming pool.

Back to our Technical Analysis. Yesterday’s rally from the morning’s bottom left me quite uncomfortable both with my position and short-term outlook. And I don’t like to feel uncomfortable. I got even more uncomfortable after I did the following calculation:

SPX 1211.54 = Wednesday’s low.

1200.44 = July’s low.

1313.15 = August’s high.

1211.54 – 1200.44 = 11.10

11.10 + 1313.15 = 1324.25 ==> which is close to that 1325 level I have been talking about.

Ok, let’s halt everything, my position might have reached the zenith already. I have to do something about it.

So, I kept staring at the charts for a clue of what to do. And here’s what I came up with:

After drawing the fib retracements, I realized yesterday we closed exactly on top of that important level: the close is marked with an orange circle. Plus, that was above Daily DMA 3×3. I knew there was a good chance the market was going to open heading south, and that would be a good oportunity to bail out. Since I was in a defensive position, it doesn’t matter if I lose or win. I would take whatever the market gives me.

If you see my comment in the morning, you’d see that I closed my position 10 minutes into the opening: I left it in the comment to have the time registered. Thanks to our friend up in the heavens, I had 20% profit (30% minus brokerage fees). And then I reverted it, since there’s a good chance we’re heading back above 1300. I was careful to let you know almost in real time what I was doing and, as soon as I changed my short-term outlook, I posted it. I’m sorry about it, but in this market you have to be dynamic, or you’ll be eaten alive.

Here’s the SPY Daily chart:

Just two things to notice here: Stochastics turned positive while we closed above DMA 3×3 for the second straight day. I have a tiny position in calls, which already gave me today almost 80%, but I won’t be holding it that much: by Monday I’ll close it.

That’s it. The dates 09/19 and 09/22 might produce a top instead of a bottom. Short-term trend is changed to positive, but medium and long term trends are still down, well down.

Great weekend to everybody!!!

Advertisements

14 Comments »

  1. Wow, great trade. That was like all of a 5 minute window to get long, because the market “tested” for all of 5 minutes :)

    Comment by Meta1 — September 12, 2008 @ 11:14 pm | Reply

  2. I like your trading philosophy. The only problem is sometimes I put on a trade that might last a week, and I won’t hit it perfectly, but still double my money by holding, rather than miss-time like yesterday and get whipsawed from short to long.

    ***Take your profits is the new mantra*** 150% gain, most are lucky to make 14% in a year!!! One trade makes your year if you take the profit. How crazy is that??

    BTW…I thought you said that Monday was supposed to be a big pivot day from the full moon…so you see a big rally up from here, correct?

    Comment by Meta1 — September 12, 2008 @ 11:19 pm | Reply

  3. I think 1300 is unlikelly because we constrained by upper fork
    My paradox is we get mixed signals and conflicting evidence.
    Fork theory says we should reach the median line. Yet Elliott Oscilator looks like about to cross or it’s a good fake signal
    First time it was so clear – ABC up, Wave 1 down
    now it’s like crazy

    Comment by Fork_Master_Serg — September 12, 2008 @ 11:34 pm | Reply

  4. Thank you for the enemy/friend thoughts! It helped me to understand my errors. I hope it will help to avoid them in the future.

    Comment by Paleface — September 13, 2008 @ 9:08 am | Reply

  5. Been meaning to drop by and say nice work… So, Nice Work, keep it up. Options expiration week is often a time when the crooks on Wall St help themselves pick the pockets of those not understanding the messages of Mr. Market, and trade on false wishes and failed hopes, in the short term.

    Comment by Dave_San — September 13, 2008 @ 10:23 am | Reply

  6. Good work…just curious…what do you use to determine primary trend and how do you use the MACD(8,18,9)? Thanks

    Comment by Steve W — September 13, 2008 @ 9:35 pm | Reply

  7. I think we’ll know by Monday/Tuesday where we are – wave 2 or 3

    Comment by Fork_Master_Serg — September 14, 2008 @ 12:21 am | Reply

  8. Well put, the discussion about wishing vs perception, and how that gets influenced by position size. I have printed it out and taped it to my wall! Have been reading you blog the past couple of weeks and I find it quite interesting. Please keep up the good work!

    Comment by Rick Z — September 14, 2008 @ 12:25 am | Reply

  9. Hi all,

    Sorry I didn’t answer to your comments, I’ve been away this weekend. Returned yesterday night to see futures meltdown. As I said before, let’s look for a break below 9/11 low of 121.60 – seems it’ll happen right after the opening bell – and then July’s low at 120.02. One thing has to happen right after the other, and 9/19 or 9/22 will be a bottom.

    Comment by moontrader — September 15, 2008 @ 7:57 am | Reply

  10. Incredible. Look at my comment above: “… let’s look for a break below 9/11 low of 121.60 – seems it’ll happen right after the opening bell.” Well, it didn’t: low today so far is 121.63. As I wrote in a post before, the strategy would be to sell when we break below 121.60. I need to feel confident in what the market is going to do, especially in times like this. I just closed my long position – which, btw, was winning almost 80% Friday – for a surprising 0% profit. I say surprising because I entered that position when SPY was 124, and liquidated it at SPY 122.40. And I closed it because it the market took a sharp turn, so I go to the defensive side of trading. Anyway, it’s the second time in less than a week I see my profits slipping trough my fingers, but at least I’m not losing. I’m now looking for an entry point again.

    Comment by moontrader — September 15, 2008 @ 8:58 am | Reply

  11. Dave_San, thanks for dropping by and the compliments.

    Comment by moontrader — September 15, 2008 @ 9:36 am | Reply

  12. Meta, I have to say that it’s been really frustrating to see these profits slip through my fingers, but the market has been extremely choppy. However, it feels good that I bailed out of my last two trades with no losses at all, and those were trades that didn’t work out. That means that my entry points were good.

    Comment by moontrader — September 15, 2008 @ 9:41 am | Reply

  13. I use MACD (8,18,9) which are parameters recommended by Jake Bernstein. Actually, his parameters are non-integer numbers, but you can emulate those by using these numbers. I’m referring to these parameters in MACD in Prophet platform.

    I determine the trend basically through MACD and DMA’s.

    Comment by moontrader — September 15, 2008 @ 9:45 am | Reply

  14. These were my trade alerts:

    BOT +XX SPY 100 OCT 08 130 CALL @1.13 NYSE, SPY MARK 124.12
    SOLD -XX SPY 100 OCT 08 130 CALL @1.16 BOX, SPY MARK 122.67

    Notice SPY lower and call higher. Crazy, no? That’s a high volatility market deformation.

    Comment by moontrader — September 15, 2008 @ 9:49 am | Reply


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

%d bloggers like this: