In the markets you can’t take on a “church of what’s happening now” attitude. If you do, you’ll end up chasing your own tail. You can’t observe that the market has a big rally on Fed jawboning and then decide the next day that you’re going to buy stocks.
You have to spend some time doing some serious research to develop an edge. And, once you find one you’ll soon discover that your edge doesn’t always work—and guess what, nothing does. However, through thousands of observations, some sweat, and a little blood & tears with actual dollars you’ll learn that while not perfect, an edge can work longer-term.
Your edge doesn’t have to be complicated. In the past, I’ve used numerous indicators and even made 2&3rd (and 4th…) derivative indicators of those indicators. I’ve also tried arcane methods such as trying to count bars and waves. The best day of my trading career was also my worst. I realized that is no Holy Grail—I was going to have to work at it. No one has all of the answers all of the time. I began peeling away the indictors until all I was left with was the chart. I now look at the blank chart first and then occasionally add a few moving averages, and that’s it.
In the above process I have learned that you should not ignore a Bowtie pattern after a market makes an all-time high. Further, back to back signals framed within bigger picture technical patterns—in this case, a double top–can be even more powerful. When these things occur you won’t always end up with the mother-of-all tops but every top will have some of these signals.
Considering the above, this is why I didn’t change course when the market went straight back up after triggering a signal. Yes, I dropped an F-bomb or two but I stuck with the plan.
The 180 degree turnaround on the Fed jawboning is concerning. Wednesday’s rally gave false hope to those who were hanging on. Further, the aforementioned “church of what’s happening now” players that jumped in with both feet are already at a loss. These fickle players aka so called “fast money” are quick to dump a market right after they get burnt.
I’ve never really worried much about a hurricane. I make the preparations (ammo, meat, ice, generator, chain saw, gas, and beer) and to the dismay of my wife, I ride the storm out. When Katrina was nearing my wife told me that I seemed quiet. I told her “Babe, this one looks like the real deal.” So, I got the F out of Dodge vs. holding down the fort.
Okay Dave, I know this column is titled “Random Thoughts” but what does Katrina have to do with the markets? Well, this one looks like the real deal. The sector action is abysmal. There are a few that are hanging in there are a relative basis but even those are beginning to lose steam.
Good grief Big Dave, you’re starting to bum me out.
Well, believe in what you see and not in what you believe is what I preach. I’m seeing some ominous signs now. I hope I’m wrong. I hope the market goes straight back up.
Okay Big Bear, now what? Yes, it looks iffy but nothing drastic needs to be done (other than getting some ice and beer just in case). That’s the beauty of following a system. You take things one day at a time and one setup at a time. If you get stopped out on existing positions so be it. You then look for new opportunities. The ebb and flow will control your portfolio. If the market continues to slide, then it will likely take you out of any leftover longs and keep you in your shorts. And, if the market decides to defy gravity, just the opposite will happen. On new positions: You probably want to be super selective on the long side. The indices look questionable and most sectors remain dubious at best. On the short side, since the market has swung back to oversold you might want to wait for the next cycle vs. shorting into an oversold market.
Best of luck with your trading today!
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