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US equities - overdone??

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Hi guys - new on here, but been trading with the usual ups and downs for some time. Like the forum and the info given.

 

What do you think? I'm inclined to believe the Dow rally is overdone here and we'll have a period of normalisation (maybe to the 18,200 point).

 

With the uncertainty that trump brings, plus brexit, issues in china etc I'm of the opinion that some bad news will send them lower at some point, not to mention the fed. Indeed it seems odd that these stocks are some 70 points off all time highs after one of the biggest election shocks of all time.

 

I understand these things are not rational, but what do those of you into the charts think?

 

Cheers,

Steve

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Hi   I'm no expert but the dow is trading right now around 18600 from a low of 17480 this morning, which even on today's crazy numbers is a range of about 5 X ATR - I have no idea of the reason (apart from the possibility that the algorithm trading bots have gone berserk)

Whatever - I cannot see how it can fail to have a pullback from here - I for one am already short.

 

Mac

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Glad to know that I (as inexperienced as I may be) have the same view. Thanks d

 

No doubt will continue to climb, but for me if you can sit tight it will without doubt come back.

 

Steve

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Hi folks,

New to the forums as well but really enjoy the community information. Trading the Dow for 6 months now using supports and resistances but the recent rally has caught me off guard. Already in a short position and unsure what to make of the movements. Can it go any higher? 19,000 plus or even 19,400 in extension is what the market data news is saying. Seems obscene given the uncertainty of the new president elect and like you say, Brexit among other factors. Does one stay short or cut the losses now?

Many thanks

Vasilis

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Hi @vasillis, difficult to say. I am still in with a considerable loss. My inclination is that they will drop at some point, but then again I said that yesterday.

 

The way things look, they could go above 19k, but from my own personal position I am so far in I may as well wait for the inevitable downside at some point (I know that won't sit well with some)

 

My own view is that index is trading very high to earnings. Of course, if you believe trump may increase those then maybe not. I prefer to be short here as we just don't know (and he's not in for 3 months).

 

Is trading on words as far as I can tell. I'll hold tight until they come true....

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Thanks for your insight and opinion. I suppose the market could go down at any moment given that it's trading unusually highly right now. How long will the overly optimistic sentiment last. I can see the index touching 19,000 but yet again, why should it? A pre-Holiday sell off should occur plus the Fed are due to meet in December, unless that's been postponed until 2017?

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Sorry guys but imo (for what it's worth) you are doing this all wrong. Trading is not about making predictions and then betting on it, this is not a horse race. The market will do what ever it wants and does not care about your predictions. Have a general bias, fine, but so what?

It is an easy mistake to make, all new traders think the most important thing is getting their predictions right but if you survive a few years you will come to realise predictions count for nothing and the most important thing is ‘risk management’.

 

Trading is about having 3 or 4 ‘set ups’ that have a higher than average probability of success and when identified on the chart will trigger an entry, you specialise in these set ups and learn to execute them like a pro. That’s it, let the market get on and do what ever it wants, don’t bother trying to second guess it, you can’t, the market can’t be rational (think about that) if it was rational everyone would always win, that can’t happen, will never happen, if it looks like it’s happening it means someone bigger and smarter than you is setting a trap.

 

Most important lesson, just don't listen to the boastful who are always making grand predictions, they will be wrong more often than right so that's not a high probability strategy to follow. I do appreciate those on the forum who flag up possibilities and potential set ups, that is useful and fun but keep the dose of salts handy.

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Well said Casey. The market can stay irrational much longer than you can stay solvent. You must dance until the music stops, so if that means adding fuel to the fire so be it. If i was looking for some good shorting opportunities that would last a while it would be looking at bonds such as the german bund which i often trade. How many times have speculators try to call tops on the DOW more than i can count fingers. For me long positions are the trades to look for, until proven other wise. 

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Agree  and  the longer you survive (and note the first few years are about survival and limiting the losses you WILL make so that you have time to learn something).  How?  Money management.  Win big, lose small.  And don't over trade.

 

You can trade using fundamentals or technicals or a combination of both.  Personally I do not know how you can spot and entry point without technicals...

 

There are many technical analytical techniques to learn and then create your own blend and test it rigorously before risking a single £1 of your hard earned cash.

 

After than the what and how depends on whether you are day trading or long term trading and you need to know what kind of trader/analyst you are listening to if you want to consider their opinions but in the end you must make your own decision for your own reasons, following someone else is a mugs game, although you can get ideas and education from others for sure.

 

However, as Caseynotes said, making predictions and acting on them is a fools game, it is gambling.  What serious traders do is identify long term trends and possible trend reversal points and then create scenarios (or route maps), which they assign a likelihood of being correct.  They then track these to hone the list down to their most likely one and if the market then ACTS in line with this scenario AND meets ALL of their trading event criteria they trade in a way that is high likelihood of success with low risk.

 

Even then they expect to be wrong more often than not in long term trading circles so the key is to ride your wins hard and cut your losses quickly.  Note being wrong is often about timing rather than overall route map, it may take several attempts to get in on a move, hence you lose more than you win but if you lose small and win big you make money.

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To answer the original question ,  et al, or at least to give my opinion as no one can answer the question unless they possess a working crystal ball, in which case I guess they will not be advertising the fact...  I think something pretty extraordinary happened mid week in the US elections.  I am not talking about a continuation of the revolt of the people against their political and business overlords (the so-called elites) as started by Brexit, although that is extraordinary and is very important to understand and assess against market sentiment, the only real driver of market direction.  No, I am talking about the immediate market reaction and counter reaction.

 

Consider the Dow daily and hourly charts below.  In the run up to the election the market was down on an apparent Trump momentum surge and increasing probability of a USD rate rise in December.  Earnings were surprisingly ok, at least relative to ultra low analyst forecasts (lies, **** lies and forecasting...) but headline revenues continue to decline (EPS engineering much???).  Then we had the FBI withdrawing their investigation and announcing the all clear for Clinton (guess that one might reemerge now...) and the markets surged up and then a Clinton victory looked (according to pollsters and MSM commentators) assured but then the first critical battle ground states started to tip for Trump and the house of cards collapsed.

 

At this point most people would have expected a market rout as Trump's position went from strength to strength as the night wore on and I myself had suggested such a route followed by a subsequent rally.  What I didn't expect was that to occur in one night!

 

So it looks like the markets decided to turn on a dime and revise their position that Trump was bad for the markets (or the economy or whatever...).  I am sure they liked his policies around coal and tax reductions for instance.  I also think it dawned on the markets that for the first time since possibly Reagan a single party has control of all parts of the US government (albeit that Trump isn't really a Republican as such and isn't liked or supported by mainstream republicanism).  There may also be some idea that The Fed will be reconstructed with Yellen & Co being replaced with less Keynesian Ivory Tower types. Maybe the USD rate won't be increased after all?  But USD rallied too, in fact almost exactly in the same shape as the Dow and S&P...

 

It just goes to show me that it doesn't really matter who is the President and the whole thing was a distraction.  The market does what the market wants to do based on sentiment alone.  Fundamentals drive sentiment but these are many and varied and figuring out in any logical way what the impact will be is nigh on impossible.  That leaves technicals but right now they are hard to use too as we are in the white space of all time highs on US large cap stocks.

 

The drop and counter rally to new all time highs on the Dow illustrates the ridiculous nature of today's markets.  You can see it better on the hourly chart.  This is not about fundamentals!  P/Es are sky high; EPS and Revenues are NOT growing; the markets are at all time highs despite lackluster GDP growth (also despite this metric being highly manipulated by the powers that be); high levels of mega M&A; unprecedented levels of share buybacks; GBP drops like a stone vs all but the more ridiculous currencies despite remaining one of the strongest economies and democracies in the world; Bond prices are sky high despite ultra low and even negative interests rates (who really thinks buying a bond you have to pay interest on is a good idea???); China is not growing despite significant Yuan devaluation; Housing is in yet another bubble despite the lessons of the credit crunch; the financial systems has not addressed the issues that drove the sub prime scandal nor unwound the fallout; Oil is falling despite being a crucial and limited resource; Copper is rallying hard despite building and industrial production falling and on and on.  This has to be the very definition of unsustainable.

 

As a backdrop to all of this the political landscape just keeps getting worse (or better, depending on your point of view).  Brexit and Trump, wars in Syria and Ukraine; China sabre rattling in the South China Sea; Iran vs Saudi Arabia; Australia going hard line on immigration; Merkel lets a million un-screened refugees into Germany (and consequently the rest of the EU, except the UK hehheh!); Merkel then loses a couple of regional elections.  But next stops are even more interesting: Italian referendum and Austrian Presidential election in Dec; UK to trigger Brexit in Mar 17; Dutch election; French election; German Election all in 2017...

 

So what happens next?  I cannot for the life of me see this ending well, in fact I think it will end very very badly indeed and no changes to political leaders or central banks will stop that now.  Political change will happen as a result of a major crash and maybe this time there will be reform.  Short term, as my hourly chart suggests we may get a small pullback before the exhaustion rally last leg phase I have been waiting for.  Possible pullback levels are the Fib 23 and 38% and if that happens (i.e. not a deep pullback) watch out for a low volume final rally and share reversal to signal the end...

 

Famous last words LOL!  there are other markets with better set ups. Until the stock markets turn trading is very dangerous.

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 &  what has happened has happened to all of us so don't feel too bad. It is easy for everyone to mutter sage advice but that probably doesn't help right now. When you are caught offside you are a trapped trader, yes you say 'I realise now I should have had a tighter stop' but...

When trapped you are stuck in a 'coin toss' situation, the rationale for the trade is gone, I'm faced with a loss, or hold on and hope price returns to my entry point and I can get out. 

There are 3 possible outcomes, one is insufferable, one miraculous, and the other is hilarious,

A/ Price continues to go against you until you can't bear it any longer or your account blows.

B/ Price pulls back to your entry, but instead of taking the opportunity to get out you think, oh, maybe I was right, so you stay in - price immediately rockets to put you back in the red. (see A).

C/ Price returns to entry and continues on and you have suddenly gone from red to black.

 

I have no Idea what your market is doing right now, I do hope your account is ok. The important point is that coin tossing is not trading. Learn how not to become a trapped trader because you won't survive too many excursions.   

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and Thanks for the valuable lessons and insight. I enjoyed reading both responses.

At this rate I'm just looking to minimise the losses, I am not fussed about the Dow returning to my entry point but I would take half way at this point so I can at least rescue some capital. As Mercury says in a time of such uncertainty and with ongoing global issues the market has risen to an all time hight just illustrates that the market will do what it wants. A Dow Jones drop to the 18500 mark would pretty much get me out so I can live to fight another day. Doesn't seem like much of a way to go, but it is!

Best,

Vasilis

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  we have all been there, not good for the nerves to experience it too many times and have learnt tactical avoidance of such  situations the better option. Dow yesterday looked to reject 19 000 and end on a daily doji (uncertainty), today's US morning session could be key and the possibility of the start of a pullback. Talk of the Trump rally running out of steam may see an attempt to retest the previous highs down around 18 600. Beware though, there is also the possibility of a new attempt to capture 19 000 which could be a spring board for further highs. 

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Can't tell you how many times I have done exactly that in the past  it is death for your account and spikes your stress levels.  Two things:

 

  1. When you enter a trade have a plan, a route map if you will, which includes the basic pattern you expect and where to take profits but also what you will settle for if the market reverses on you (i.e. don't move stops back away from the encroaching price momentum).  At the same time have a maximum acceptable loss and set your stop there (hopefully this will also coincide with a sensible support/resistance level) and never ever move your stop (when you do this is it so-called FOMO trading).  You have to learn to take the loss without emotion and reassess.
  2. When stuck in a bad position, having done that which you should never do, you have to ask yourself how bad does it have to get before you scratch and start again?  This kind of thing is very bad for confidence and emotional balance, leaving you with excessive worry and then madly chasing something to recoup losses.  This will drive you to make bad decisions.

Most successful traders will tell you that they would have a much larger account if they scratched trades that moved against then early.  Most will also have stories of times they didn't, should have and suffered as a result.

 

As it happens there is a chance we are in a Wave 3-4 retrace but given your situation you have to scratch you position if this does not materialise and the market goes on a rally again.  Pick a point you can live with and set your stops there and DO NOT move them again. a retrace moves in an A-B-C pattern and look for support resistance levels for the A,B,C points.  If this is a 3-4 retrace then somewhere between 18400-600 seems about right but who knows really, the rally has been strong and a Fib 23% might be all we get (621).  The last thing you want is to get down a decent level then not exit and see your losses expand again.

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Thanks again for your very good replies, definitely helpful. I was thinking around 18500 for the pullback but 18600 more likely, if it should transpire that a pullback is in effect. Again, knowing the markets they will want to push for that new 19000 high. Do you think the time of year might help matters? Normally we see a bit of a sell-off before Christmas. There's also the appointment of Trumps cabinet which might be a factor for a pullback. I have taken your advice and set my stops. Let's see what happens. It's certainly a help that I am able to find good insight here so once again thanks for taking the time to respond so well.

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  You would have to expect new 'news' to 'Trump' (sorry) seasonal rotations. Just looking at the 4 hour and am seeing a flag rather than a pullback so the bulls haven't given up on the idea of trying for 19 000 on this push and so aren't profit taking (yet). A pullback results from the meeting of resistance and profit taking with a view to regroup lower for an other attempt later, at the moment they are hanging on and waiting, clearly not intimidated by bear strength at 19 000. The bears seem unsure as well and not totally committed to push down hard, which sums up why flags are generally considered a continuation pattern though the longer they go on for the odds start to shift against.

 



 

 

 

 

 

 

 

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Sorry, haven't been on for a few days. Some very valid points, and I myself have learned a lesson here (that said, I did close out my position some time ago). In the past I have been inclined to hold onto a loss too long in the hope it comes back. Analysis of my account shows me that when I set tight (Ish) stops and dont amend them my p/l is somewhat better, most likely as a result of trimming the larger losses. I've been doing this for a little while now, and do lots of reading on various subjects to understand the basics of what makes the markets move (and over time have got more confident with my views, albeit I don't/can't use charts).

 

In any case, risk management is key. If I don't have a view of what my maximum loss or gain should be then I shouldn't trade and when I get it wrong we need to be able to accept that, take the loss and move on and understand what part of our initial reasoning was flawed and learn from it.

 

I don't think you ever really stop learning about this. Just gain more experience along the way, and as long as you use those experiences to your advantage going forward, you'll become more consistent and hopefully more profitable.

 

Anyway, it's good to get the views of others (even if they are not always endorsing your own).

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Good reading from everyone, it's certainly made me sit up and take notice.

As for my short positions, I have closed off some off them however th market looks like it's moving sideways at present, neither advancing nor retracting. It will be interesting to see what happens now. Is profit-taking going to occur? Will the Bulls push for another all time high?

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I concur , the Trump rally seems, at face value, to have run out of steam and pretty much since the 10th of Nov, although it depends on which index you look at.  The big question is whether this is signaling a termination of the bull run or a pause before another surge up (see Dow chart below for example).

 

Something funny is happening with the Commitment of traders data too.  The Dow jumped forward in terms of net long positions, close to the mid Aug levels when the last little correction occurred.  The Russell 2000 did something similar.  However the S&P went more negative, in fact to about level between Longs and Shorts (it has been heading more bearish since the mid Aug turn, which is still the top of this market so far) and the Nasdaq is tracking similarly to the S&P on both COT and chart action.

 

I can't help feeling that this divergence, the first time is a long time, is significant and at least points to more volatility and uncertainty.  The DAX and FTSE100 are not making higher highs and have diverged from the US markets also.  I wonder what a firm signal of a USD rate rise (or indeed an actual rise) would do to stocks?  Last time it produced a rush to the exits.

 

Not withstanding the divergent set ups the Dow offers 3 possible scenarios:

  1. This sideways movement is the top and the market falls from here
  2. We see a small retrace before a final surge up (that upper tramline is the monthly chart long term upper trend from the 1970s BTW)
  3. The market surges up on the final leg up from this consolidation and then falls back to Earth

I have no idea which is more likely at this point because the markets do not seem to be responding to anything solid, just to speculation and euphoria.  In such circumstances I would want to see clear evidence of a trend or trend change to get in.  Could this happen next week?  FOMC minutes?  Or just a realization that it is all too high for comfort.  One thing that I would note is that initially I had a stake in the ground Dow top around about 19000 to 19200.  Well here we are, let's see... 

 



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Lol   , I personally think the market will either go up, down or sideways. There is no point in expecting a flag formation to fail until you see a pullback (and even then the a failure to recover and make a new high). The bulls are not profit taking (yet) !!, they are acting with confidence, the big question is will they be able to hang on till FOMC Dec 14th when even Yellen herself has hugely hinted at a rate rise? Could anything happen in the mean time to upset the bulls? (yes, of course).

Trading is not really down to charts, it's about taking a calculated gamble on the future, to take a limited risk on a higher than average probability outcome. The chart is telling you what the money thinks will probably happen, bet against that at your peril, as a small retail trader you should be thinking 'jump on the band wagon' not lay down in on the tracks.

 



 

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Interesting podcast interview with independent equities day trader Peter To. Discusses his journey from poker player (and why he got out) into prop firms (the good and the bad) and into day trading (how he goes about it).

 

Pertinent to this thread he talks about the time he put all his money into gold and waited for the big collapse, was lucky to get out later at break even and learnt a lot about charts and commentators.

 

Long at 120 minutes but littered with gems throughout, lots of insight into his personal/emotional journey, very honest, some strong language.

 

Episode 98.

 

https://soundcloud.com/chat-with-traders/098-peter-to

 

 

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Good points all round. Looking at today's activity the market has reached that high point breaking past the 19000 barrier. All things considered this doesn't surprise me, the market finds optimism in just about anything (when it wants to). I'm resisting jumping on the wagon though as I feel that the Bulls can't possibly run for much longer, given that the index has touched an all time high in such an uncertain time it's due to come down at least some of the way. I closed off most of my short positions, at a loss, but kept one open for the inevitable (here's hoping) pullback. There's also one other aspect that confuses me - the rate hike. Good or bad, or both, for Wall Street?

I will check out that podcast, thanks for the recommendation.

Best,

Vasilis

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   The Dow and dollar are currently enjoying a 'Trump Rally' in the expectation he will carry out his pro business agenda and bring offshore money and jobs back to US. 

 



 

http://money.cnn.com/2016/11/22/investing/dow-trump-19000-stocks-alltime-highs/index.html

 

You are right not to just jump in and buy a high but consider market direction and wait to buy a failed dip (retest).

 

 

 

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Yes    that will always be a possibility in any market on any chart showing new highs but takes us back to the 'this is the top' S&P chart posted earlier.

Important to not forget, the market doesn't care about what we think or whether we have bought, sold or holding with our piddling little accounts. 'The Money' has piled into this market, because 'the money' deems this is the best place to be resting for the foreseeable future. 'The Money' knows there is a calculated near 100% expectancy of a small rate rise in Dec.

 

No matter what time frame you are using the same basic principles apply, no, you don't steam in and buy the high in 'fear of missing out' (FOMO), wait for a pullback (retest, dip) to fail which is often at the prior high, going back to that S&P chart, the question is where should the buy entries have been rather than persistently looking for somewhere to short?



 

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 is convinced the bull will continue it seems.  Others are just as convinced it will not.  I don't think it will go for much longer but I don't know when it will end.  The Chats with Traders podcast with Peter To was interesting if only to showcase another traders journey, although the migration from poker to trading was interesting too and the fact that Peter acknowledged his emotional trading and that he sometimes felt the need to stop and take a break (often a very good thing if things are going against you).  I am not trading stocks for this reason.  My bias is bearish so I will wait on the sidelines.

 

However the only real truth I heard in the podcast in terms of method was when he said the following (paraphrased):

 

"Successful trading is about 3 things: have and idea; be right about that idea; time the entry (and exit) right"

 

So the questions then are:

  1. How do you get your ideas?  I use charts to identify macro cycles and prevailing trends and support/resistance and then see what the "real" macro fundamentals are that may be driving the trend or may end the trend but it is all about herd sentiment most of the time rather than the logic of fundamentals for me.
  2. How do you know you are right? You don't!  At any time the market can go up, down or sideways and no one knows what will happen next.  Anyone who does not accept this should not be trading.  This is where risk and money management comes in and having a solid trading method.  In addition I seek multiple scenarios and try to hone in on the most likely ones.
  3. How do you time the entry (and exit)?  There are many methods and if you are discussing the market or a trade opportunity with someone you need to know their method and time horizon or risk getting influenced under a false premise.  As for me I only use chart analysis for this, nothing else makes sense to me.  Volatility about key data releases and events (e.g. Brexit and Trump) are obvious factors but the very often fit almost perfectly into technical analysis (GBPUSD did for me with Brexit as did USDJPY with Trump).

Sometimes it all works and sometimes it doesn't (or at least we aren't reading it right).  Often I find that when it works I get a feeling, almost like deja vu and when it doesn't I just didn't have that same feeling (other feeling were present and none of them good...).  In the current market it is hard to see anything working while Central Bank policy is driving everything.  At some point the people will realise that Yellen & Co have no clothes...

 

The issue I have with the markets just now is that the stock Bull is insane as is the Bonds Bull, overly reliant on central bank and government policy and corporate actions (engineering) rather than fundamental economics or real corporate performance.  I suspect there is a large dollop of not wanting it to be over because what then comes is going to be mega painful and deep down everyone knows this.

 

So how then can we answer question 1?  Well I can't yet and I am not prepared to go long because I am not a day trader.  I will wait until I get that deja vu feeling and then go Short (this could take some time yet).  However there are other markets.  I like Oil for a rally to the $60ish level (Brent) and maybe even a bit higher.  I caught the Copper surge and expect another leg up after the current retrace is done.  FX is challenging with USD influence and Fed rate rise or not overshadowing everything but non USD FX pairs offer some interest.  I am anticipating a retrace in Yen (Yen strength) before a massive surge against the Yen.  I also think a retrace rally on EURUSD and GBPUSD and EURGBP is on the cards before they all head down again.  Finally Gold and Silver are at one of my previously forecast turning points.  There is another below but this one is worth watching...

 

However, as always, I will be using technical chart analysis to pinpoint entries and price action to confirm.  I also use COT data and MSM headlines in a contrarian context so bring on the herd "jump on board stocks" clamouring and I will be gearing for a turn.  In the end we all have to find our own path and make our own decisions.  But don't over extend on the "belief" that you are right until you are, keep your stops appropriate and manage your trades on a risk basis.

 

Good luck! 

 

 

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Lol,  I’m not convinced of anything, the market will do what it wants. It’s easy to see what ‘the money’ thinks, has decided and acted. I talked about the ‘puke and rally’ on a Trump win when I started the election thread during the run up. That bus has gone, and new news could turn everything upside down at any time because fundamentals are the drivers in markets not technicals. ‘The Money’ has the advantage (news feeds, transaction speed, account size …) and will always be able to react faster and with more so I don’t bother trying to contradict.

 

I disagree with your thoughts on the Peter To interview, the parallels between his experiences in poker and trading were striking. Having an edge, honing that edge and executing with precision. That is the 3 things to successful trading, your ideas are based on your edge, you know you are right because you have studied your edge and know it works over average, and then hone the execution of the edge.

 

There is nothing wrong with having a bias or sitting on the sidelines, this thread obviously morphed into debate on the scenario of jumping in short on a bull run and what to do once you realise you are trapped. A common problem for new traders and one best avoided in the first place but there is little else to do but cut losses and survive, well done to &  for bringing it up, not many will admit it but it happens all the time.

 

My avoidance technique is to picture in advance what I expect to see after entry and if I don’t see it I exit. I want entries to be so obvious to everyone they just take off, if they don’t then I have missed something = exit. Exit early and hunt for a better looking re-entry until the setup has completely dissipated, it is surprising how often you get a second chance but if you have sat and watched price action mince about on your entry then rolled over your stop you lose the confidence to try again.

 

So, have a plan for execution and management, keep it simple, have a small number of setups and practice only them, know what you expect to see before and after entry, if the price action deviates exit. Getting good at entry and abort (small losses cancel small gains) actually boosts your confidence because you know what you are going to do for any development.

 



 

 

 

 

 

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Sound reading again, thanks to everyone who has taken the time to reply and get in on the discussion.

Read evey link and listened to the podcast intently. Interesting how the Dow is traditionally a 'follower' index yet for several days has been seen to lead the rally. In a market that is seemingly over-bought there is a margin for a pullback however the Bulls have indeed gone mad on this one. 19080 and still going. I have refrained from engaging in new trades for a few days now as it's too unpredictable but I have kept that 1 short position open in anticipation of a pullback. I could probably spend the next month just sitting and watching but I feel this is a gross misuse of time and opportunity. Problem is I don't have the **** to bet either way and all my indicators are so skewed I can't make sense of it all haha.

I will check in here evey day however as I find the commentary and discussion to be of the highest standard, so again my sincerest thanks for keeping the discussion going.

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I always find that its always best to hedge your risk against this losing trade, which is a key issue when trading, we have all made this mistake some time or another, but if you feel their is some strong conviction, then just hedge it with another trade to help balance your P&L

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Interesting thought , I have done a bit of that in the past and sometimes it works out but often not because there are 2 key dangers inherent in hedging in my mind as follows;

 

  1. thinking about hedging takes you away from analysing the markets for actual trades and it suggests that you don't have the conviction that you really need on your set up.  It can turn out to be just a mechanism for staying in a trade in a bid to avoid losses when the right thing is to just get out and take the loss before it gets any worse and reevaluate.  It can also seemingly replace good stop placement (and never moving the stops as a discipline).
  2. most importantly perhaps is the propensity to get whip-lashed to death in an uncertain market (i.e. losing on both the trade and the hedge as the markets move sharply one way and then the other.

With respect to handling the current markets and despite the "craziness", or apparent craziness because who knows what will happen next really, I rely on the following trading principles (and in particular I note your comment on staying out vs missed opportunities ):

  • Seek fewer better trading opportunities and avoid over trading, which is the death of many retail traders (hard if you are a day trader I guess but this is one of the reasons I am not)
  • Use a tried and tested analytical method (including fundamentals as appropriate) to identify good opportunities via scenario creation and likelihood assessment and seek high success chance and low risk entries.
  • Maintain rigorous discipline in initial money management (how much of your account you risk at any time) and iron will to set and not move stops.
  • Use indicators sparingly if at all, they are little liars and make you see things that are not there.  Focus more on other technical chart analysis (including support/resistance) and price action.
  • If in doubt stay out

As stated previously I am in doubt over stocks so until that clears for me I am out.  To be clear this is chiefly because I am Bearish and cannot shake that bias but I am waiting for a strong confirmation signal that the worm has turned.

 

In the spirit of my previously mentioned throwaway comment by Peter To, which I think was the hidden gem in that podcast, I have found some "ideas" and am awaiting (or already got) the "right timing" and to see if I will be "proved right".  They are as follows:

 

  1. Oil to rally up towards the $60++ level - currently the first stage of this rally has been put in, which I caught on the turn based on chart analysis alone, and now I am awaiting the resolution of the current consolidation phase (in Triangle form on the hourly chart).  This could go either way from here but down offers another lower retrace entry point Long.
  2. HG Copper to rally up towards 30000 as a final stage of the already long rally, which I caught at the turn based solely on chart analysis.  Again we have a minor (hopefully) retrace in play and when this completes the next rally should take hold.  On this one there is a credible alternative that the top is already in and this is a hard market to trade (I prefer to seek only major turns so at this point I would most likely wait for the retrace to terminate in the 30000ish area and get short)
  3. I am waiting patiently for Gold and Silver to complete the Weekly chart retrace before they set off on a long rally, this will most likely coincide with a move lower on USD and or Stocks but I don't need to see this to react to a good stand alone set up.
  4. USD pairs retrace.  I am less sure on this one as so much depends on the Fed and other impacting factors.  Here there are fundamentals cases for either a long USD rally or a sharp reversal.  Will have to wait and see.

 

 

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