Actionable ideas for the busy trader delivered daily right up front
- Wednesday higher - low confidence.
- ES pivot 1367.42. Holding above is bullish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias down.
- ES Fantasy Trader goes long at 1376.00.
Last night wasn't at all clear to me. I thought we might form some kind of star today but as it turns out the Dow simply gave us a nice 74 point gain. I hoped to get some greater clarity in the markets and I think today provided some. Read on...
The technicals
The Dow: Today's gain retraced most of yesterday's loss. It also turned both money flow and momentum positive. And the stochastic is now giving a hint at forming a bullish crossover, though not there just yet. That said we remain inside a five day declining RTC. Still, there's a few positive signs on this chart.
The VIX: Today the VIX lost 4.59% on a bearish two crows pattern. Indicators continue to decline supporting this idea. And of course that would be good for stocks.
Market index futures: Tonight all three futures are in the green with ES leading the way higher at :32 AM EDT, up 0.4% which is pretty good for this time of night. In fact the developing green candle is almost as big as today's completed one. On the indicator side, money flow continues to rise for the fifth straight day, OBV is now rising from a low level, and the stochastic just barely squeaked out a bullish crossover. While a continued advance Wednesday is not guaranteed, I'd say from this chart it's more likely than a decline.
ES daily pivot: Tonight the pivot rises from 1363.83 to 1367.42. With ES pretty much flat in the overnight so far, we were above the pivot before and we're still above by a comfortable margin, all in all a positive sign.
Dollar index: Today the dollar continued its wayward ways giving up all of yesterday's gains gapping down to form a hammer virtually identical to the one we saw Friday. The indicators are similarly confused. If I had to guess, I'd say the dollar's going higher tomorrow just because it's now at the lower end of its recent trading range, but that's a pretty weak argument. There's not really much to tell from this chart once again.
Transportation: Today the $TRAN delivered a decent 1.17% gain that confirmed yesterday's hammer, with a bonus bullish engulfing pattern. This caused the indicators to hook back up - it's all looking pretty favorable right now.
History: According to The Stock Traders Almanac, Wednesday historically has no particular edge..
Accuracy:
Month right wrong no call
April 6 6 2And the winner is...
It's still far from a slam-dunk, but I'm a bit more comfortable tonight calling for a higher close Wednesday. There's an interesting pattern in the Dow lately of two up days following each big down day. If that continues, we should see another up day on Wednesday.
ES Fantasy Trader
Portfolio stats: because we did not trade last night the account remains at $138,625, after 32 trades (25 wins, 7 losses) starting from $100,000 on 1/1 Tonight we are going long at 1376.0.. Reminder - you can now follow these entries and exits live on Twitter @nightowltrader. And let me note that I always buy on the ask and sell on the bid to make things more fair. This way there's no question that the trade would have executed for real.
Posts
Michele,
ReplyDeleteDo you use stops? I scanned your blog searching for a post describing your stop strategy and was unsuccessful. If I missed it -please direct me to the post.
TIA
Really? I've actually written about this topic twice: first this post titled "To Stop or Not To Stop" here: http://nightowltrader.blogspot.com/2010/05/to-stop-or-not-to-stop.html, and then this post last year, "How to Set Stop Orders in the Stock Market: A Quantitative Analysis, Part I", here: http://nightowltrader.blogspot.com/2011/09/how-to-set-stop-orders-in-stock-market.html. Check them out.
ReplyDeleteAnyway, since you've asked the $64 million question, the short answer is that right now, no, I do not use stops. I know, I've heard all the arguments and I used to use stops back in my early days of trading but I found that I made more more money once I stopped using them.
All too often, I'd find that my stop would get hit and then my stock would instantly reverse and head higher. There is nothing more frustrating than that.
Stops can be very dangerous. I'll bet that everyone who got stopped out during the flash crash now wishes they had done things differently. And this kind of thing happens every day, though less dramatically.
Honestly, this is the one aspect of trading I've wrestled with more than any other. For now at least, I believe that it is better to simply keep a close eye on your stocks and make a critical assessment of your risk tolerence than to set arbitrary points at which you're going to bail. Setting stops is like planning to buy high and sell low. That's not the way to make money.
But it's really a very complex topic, worthy of an entire book. Maybe some day I'll write one :-) Thanks for asking!
Michele,
ReplyDeleteAppreciate your response. I have been wrestling with this question for some time now - and yes - a friend of mine was stopped out in the crash of May last year and has vowed never to use stops again.
And yes... I have been stopped out, only to see the stock head back up (once I was stopped on a penny!!).
There are so many stop strategies out there - the ATR stop, 5% stop etc.. Some traders I talk to always use stops and think I'm nuts when I don't use them on occasion - and yes - it could take a book to weigh the pros and cons of using stops. Part of the money management strategies. A lot has to do with the market that we're in. As long as Benny and the Inkjets continue to manipulate the market -it's prudent to place a stop if you can't watch the screen. It has become a trader's market now - and if you're swing trading - watch out!
Well... I'll stop for now! LOL
Right you are! The problem with stops is that there's no good way to place them. Essentially people are saying "I think if XYZ hits this level, it will continue lower, so I better get out here". That is the same as calling a bottom, and I know of no one who can do that.
ReplyDeleteI'm afraid I have to disagree though about using stops to safeguard your position for when you can't watch the screen. If you're that worried about your position tanking while you can't watch it, then get out before you leave.
I think the risk of coming back and finding you got stopped out and your stock is now higher than that price is greater than the chance the stop will save you a larger loss. That's the issue I was trying to address in my experiment. Complicated stuff for sure.