Tuesday, August 18, 2009

Standing Back

While it's easy to look at yesterday's Qs action in hindsight and see the futility of any momentum trades, the fact is clues were there all day long that it was going to a slow grind to nowhere.
One of the problems with relying on daytrading to provide the bulk of your nut is that you've got to ride momentum and carve out whatever you can on the intraday swings. This tactical approach to trading can produce a kind of trigger-happy attitude that really needs to be contained in order to avoid the otherwise frustrating whipsaws that can test a trader's patience and sanity.
And then there are days like yesterday . . . which I consider a high-risk throw away for day traders. In the chat room the guys are always on the lookout for the breaks, either up or down, and the goal is to get multiple technical confirmations before jumping into the tar pit.
But this wasn't a down trend day. . .this was just a down day.
And the clues were all there to show that this was going to be a rough one for any buyers.
#1 . . the NYAD. It never got above .12. Without this prime indicator showing some strength there was literally no hope for a rally. The NYAD is my chief forecaster for market momentum and I watch it closely on 1 and 5 minute bars all day long.
#2 . . the VIX. Shown as an overlay on the Qs chart, there was never any time during the day when the VIXEN cross over pattern (see right blog panel) was even a possibility. These are low risk trades and without some momentum towards a cross momentum has to be regarded as dead.
#3 . . the underlying technicals. The 3 moving average signal was flat as a pancake both in the Qs and the NYAD (actually the Qs were slightly downslope most of the day).
#4 . . the ambiguity of the Qs parabolics signal. When you see this type of ebb and flow parabolic signal the safe course of action is to stand back until it gets resolved. The trick is you never know which way it will get resolved so patience is the best risk management tool you've got. Use it!


David Varadi said...

knowing when to stay out of the game is great advice bzb....it is more valuable than any indicator. no amount of skill or knowledge can rescue you from blowing money on what you know deep down to be an inherently unpredictable trading period.

old crow said...

I called it Gunslinger Monday. I made 4 QLD attempts hitting the bottoms waiting for a good rise, it never happened. Made coin but effort was tough on that one. I'm used to hitting tops and bottoms with extreme care with fast math MA's on 1 minute SSPro charts.