US equities - overdone??

[donaldprice]

Hi Mercury, the idea of hedging works usually best in a well diversified portfolio when for example you have stocks and shares a few longs and a few shorts, the problem of course in this case is that hedging risk is a bit more difficult because as you say you can end up in negative territory potentially in both and get wip-lashed on both securities even with small contracts, hence why you would have to be in positive territory for both and one would just cancel the other out unless you have the courage to allow for a wider stop loss.

[Mercury]

Agreed  in context of hedging an investment portfolio.  Indeed I know some people who use spread betting to hedge their real investment portfolio at high risk moments, such as the Brexit vote.  However I am not sure I subscribe to hedging trades, especially in the short term.  Perhaps a hedge entry on opposing markets (e.g. USD vs commodities) might work but the relationships do not hold all of the time so hard to use as a natural hedge.

 

For trading I prefer to keep it as simple as possible in terms of execution, analysis is complex so don't subscribe to keeping it simple on that so long as you can see the forest for the trees or course...

[Caseynotes]

I always thought 'options' made the simplest hedge on individual positions but must admit I have never used.

 

See IG education vid on this page for basics.

https://www.ig.com/uk/options-trading 

 

[Mercury]

I forgot to mention in my original post, as well as ironclad discipline on stops, money management risk and trade entry it is vital to ignore the regressive lizard brain telling you to jump back in when you get stopped out or jump in of an unexpected fast move.  This is the so called fear of missing out (FOMO) syndrome, which kills off most retail traders before they have had a chance to learn something.  Recognise 2 things above all else:

1. Losses are part of the business, accept them when the trade moves against you quickly or suffer worse still and treat it as a learning opportunity.
2. You will not catch every opportunity (some you will see but miss some you will not see).  Don't chase them after they have triggered, wait for another opportunity to get in if it is a long term trend OR find another market.

[Vasilis]

 

Interesting. Hedging isn't something I've looked into until now. I find that if you are going to enter then do so with the intent to see it through although that mentality has cost me of late. Does anyone ever pay attention to the market data? Chart analysis seems odd. Bullish with targets at 19,800 and 20,000 in extension. Bonkers. 83% of open positions are short. I'm not sure what kind of help and clarity one can gleen from that 'data'. Can anyone recommend any solid websites for market data?

[donaldprice]

check out CFTC and look and non-commercial positions, always take data with a potential pinch of salt, i like to use more technicals with fundamentals as a supplement only.

[Vasilis]

Thanks, great site. Looks like the Dow could be testing a resistance line here at 19,150 to 19,175. Sell off possibly in the near future? I think there's a pullback in the works here, let's see..

[Caseynotes]

 & 

Good point re; 83% open short (now 88%) safety in numbers? herd mentality? Until there is 'new' news (NFP, Rates) there is every possibility this market will just continue to drift up because,



which is why contrary indicators often work.



[Caseynotes]

A look at the recent COT on Dow futures show retail happy taking fresh shorts and hedge funds and institutions happily exchanging contracts with them.

 

 

[donaldprice]

The overall rally is without doubt excessive hence why you have the saying of buying the rumour and sell the fact. The policy of huge fiscal stimulus sounds great the importance issue is how they are going to combat the dollar strength. Its all very carrying out fiscal stimulus and having higher rates, but EM currencies will take such a hit and this will affect exports in the US, if anything this will make other countries more competitive than the US, which is where it could start affecting equities in the US. Also point out it the DOW may be overvalued but look at the nikkei 225 back in the 80s was close to 30000 during the teck boom, so this could just go on for a long time. This could however be very positive for mining stocks and stage a good recovery for copper, zinc etc.

 

[Vasilis]

Thanks for the heads up. Might be worth staying in with that small short for now. Also, All eyes on Italy this coming Sunday, a no vote could trigger a domestic drop and euro drop, will this send ripples across the pond? Who knows.

[Caseynotes]

This old (3 months) Tom Dante vid (30 min) on trading mistakes is doing the rounds again, well worth a look if you haven't already seen it and can put up with a bit (a lot) of swearing.

 

 https://t.co/57ggYjekcK

 

 

[donaldprice]

Never get bored of this video, its great for some entertainment. 

[Vasilis]

Hey all. Bowed out for 8-9 months. I can see the bull is still running. Hope all is well. Interesting to see where things go from here toward year end and if there's a push for new highs.