by Gavin M.
I have the ES futures chart below. I have been one of the people out there that strongly supports having more inputs to your trading decisions rather than just blind trust in technical analysis alone. I am not saying TA is not important - but it should not be the be all, end all of all trading plans.
We always teach our students and clients that tech analysis is like a road map. It gives you an outline of where things could possibly go but as a trader, markets are far from being idealistic.
You can see in the 1-Hour chart below how tech analysis can fail you miserably and can cost you considerably if you blindly trusted your supports and resistance levels. Watch how relentless the sellers have been disregarding all significant levels until the selling momentum waned.
I am quite sure the technical chartists reading this post will be so disgusted with what I am saying here. But would I have placed blind faith at 2070 or 2053? I think not. Because I did take a calculated gamble at 2053 and I almost paid the price as the chart went down to 2033 overnight.
Trading is the acceptance of all the things you can and cannot control. But at the heart of every trade is risk management. You risk something - you may just make something. If you don't risk anything, you go home with nothing. But if you don't manage your risk, it will cost you everything.
by Gavin M.
Technology is a wonderful thing. It also can be a good source of annoyance if misused. Twitter and various social media have allowed for the proliferation of trade ideas and groups on the internet. Traders who want to prove their skills can now boast, in real time, their performance online. There is definitely nothing wrong with that.
Whenever there is a new playing field, there will be cheaters and scammers. But I am not here to talk about that. I am talking about the effective use of Twitter and how society at large is devoid of tact and respect for one another. We live in a faceless online society where Jim Bob from Ohio can curse and annoy Mary Sue from North Carolina without even knowing if they are who they say they are and whether or not their profile pictures are even genuine.
Twitter, if used properly, can allow traders and other market enthusiasts to follow the global trading momentum. It can be a good source for real-time news. Twitter is even faster than the mainstream media. So it really would be appropriate for the purveyors of this fine internet tool to at least restrain themselves from unnecessary trolling of others and to encourage beneficial dialogue rather than to put other people down.
Following someone on Twitter is purely voluntary. This is to say, if you do not like what @USER is saying, you can block him or ignore him. You do not have to say anything that would lead to more conflict. As for my twitter, I employ the following rules for myself and for whoever out there follows me (real or not):
Social media is a great tool. But that is what it will ever be - a tool. A tool is only as good as the user utilizes it.
by Gavin M.
It's hard out there for bears. In a market where selling pressure can only last for up to three weeks at the very maximum, it's challenging to make money on the sell side of the trade. There is an unfathomable level of risk taking in the markets and it continues to be biased to the upside. With dwindling global economic data and worsening crises all over the world, it truly is a miracle why markets are continuing to ignore all of that and reach new highs.
The markets have continued to rise and fall on every word of Central Banks. What we have now is an Centrally-Planned global market where they move on whether or not Central Banks ease. It truly is a sight to behold. For example, last week, when the FED came out with a very dovish statement, the S&P 500 jumped 50 points higher and just stayed there for the remainder of the session.
Before you vilify me as a naysayer or a doomsday hack, I just want to be perfectly clear. I am a trader and much as I would like to go back to the old days where fundurrrmentals mattered, I have to trade what is right in front of me. So I jumped on the bullish momentum as well because that's what the market wanted. At this point, I do not know when fundamentals will or will ever be priced in. I do know, however, that every time we closer and closer to the highs, I get more and more cautious with my bullish bets.
The boom-bust cycles of markets dictate we reset every 6 to 8 years. We are exactly at year 7. So give or take maybe we have until 2017 or 2018. While that may still be far away and you may be thinking, "why the heck is Gavin even trying to scare me about going long?" I am just merely pointing out the fact that history has shown any market that goes up vertically on little to no merit will have a disastrous correction.
I only need to keep looking at IBB - the biotech ETF and that makes me incredibly nervous. It is reminiscent of the Nasdaq of 2000-2001 and we all know what happened then. The point that I am trying to make here is that the markets may still have some gas left in the tank. Perhaps it is enough to get you to the most recent highs or even make a new one. But, do not ever allow yourself to be complacent.
What good is buying a utility or a healthcare stock at $40 and collecting a dividend of 4% when it crashes down to $20 in a year or so? You do not simply buy at these lofty levels. Common sense can simply tell you that. You are better off buying stocks at significant corrections rather than buying it when it is close to the highs.
The FTSE hit a new high. The dow is inching back to its recent highs. The S&P 500 is retracing to the all time highs. And the best part of all, the NASDAQ is testing the 2000 highs. If none of those make you a little bit queasy, I don't know what will. Confidence in Central Banks are good and all, but I'd rather have confidence in my ability to know when to take profits and to keep my powder dry for the next opportunity whether that be a long or a short.
Stay liquid my friends...
Traders from Equity Sense will be writing on this blog on positions and other market-related things.