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Posts Tagged ‘reversal day’

V day

V is for volatility.

The $vix.x hit 40+ and the market reversed from just over +100 points for the week. We have been expecting a violent reversal, and only liars or the extremely talented know exactly where and when it will come.

The V bounce gave a few clues but guessing against the trend is just that: guessing. If you have been prudently selling rallies, then if you took an attempt or two at logical resistance, that is all that was required.

The profits playing the trend the past few weeks on the short side more than compensate for any few small losses you endured today. If you played according to the plan, it was an exceptional day with serious profits.

The smart traders walked away after a great morning and let the market sort itself out. The really smart traders hit the reverse button after they realized the afternoon breakout was taking hold.

V bounces are mysterious creatures that occcur so infrequently that they trap the unsuspecting who average in and lose everything in one bad day.

News reversals are an important part of trading; the government must do all it can do right now to prop up the market or the house of cards collapses.

The “Too big to fail” concept evidently applies to AIG but not to Lehman.

A few cheap options on either side is another way to hedge a schizophrenic market like this one that is searching for a bottom. The other aternative is to stand aside until the market becomes more normal.

Secret code traders had no problem today understanding the rhythm.

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Well, what an interesting day. Overnight globex ramp up, then gap up at the open taking out last week’ s high.

Clear sailing, right?

Wrong. Another misdirection trade catching traders buying the pullbacks all day long. Momentum didn’t begin in earnest until the lunch breakdown.

Overight actiivity is always suspect since volume is low and price can be easily manipulated.

In a book I am reading, a theory of war was being discussed. CI (Commander’s Intent) theory was suggested, as “No plan survives contact with the enemy”. I instinctively knew what the author meant. Planning is important, but then we must react in the heat of battle, just as skilled athletes need to perform under pressure.

As a technical trader, the “why” doesn’t concern me. Stops are stops, targets are targets.

The range for the past three weeks seems to lie within the big yellow box.

Many breakouts are false; seeing the bigger picture allows us to take reasonable trades where resistance may give us better odds for a reversal.

There are many good traders out there like Bernie Mitchell; make sure you check them out and get an education from someone willing to mentor you.

It’s too costly in this business to learn from only your own mistakes. 

 

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I haven’t seen any of Jeff Cooper’s posts lately, but I would imagine he would refer to today’s action as Keyser Soze.

I first learned of the concept in an article he wrote a long time ago, referring to it as a reversal of a reversal, and presumably, taken from the movie The usual suspects.

Of course this information is little consolation if we ignored our stop losses today and averaged in against this “assumed pullback”.

Momentum begets momentum, as the 50% retracement area said I’m outta here and the price exploded to a new weekly high.

Seeing the 82 to 85 area as potential support was crucial for understanding the ramp day.

Today was not an easy day for most traders. Our judgement is going to be wrong on many occasions. If we cut our losses when we realize we have become the hunted rather than the hunter, we can live to fight another day.

As I said yesterday, I love volatility, and try to be prepared by remembering that anything can happen in the market.

Trend days, once recognized, cannot be safely faded. “Guessing the top and being wrong 5 times before being right once” will not undue the damage done to our account, not to mention our soul.

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