Wednesday, January 2, 2013

Wednesday uncertain, bias higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday uncertain, bias higher.
  • ES pivot 1394.33.  No overnight trading..
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias uncertain.
  • ES Fantasy Trader standing aside.

The United States Congress
So that's that - we finally went over the fiscal cliff.  Or maybe we didn't.  Hard to say actually.  One thing's sure though - the clowns in Washington put on their usual three ring circus and agreed to cut spending in reverse by adding four billion dollars to the deficit.  >CLANK< (that's the sound of the can being kicked down the road yet again).  And I was right - they waited until the last possible second before making a deal.  I just forgot that they could use January first as a bonus delaying day, and they did.

It's disgraceful, really.  What must the rest of the world think of us?  Hey all you Congerss-droids and Senators - have you no shame?  The only question left now is, having bought the rumor like mad on Monday, are they going to sell the news on Wednesday?

I'm going to skip the usual chart-by-chart analysis again tonight because Monday's rumor-induced move caused a bunch of distorted candles that I don't believe reflect the true technical forces of the market, and the recent spate of holidays has disrupted the normal rhythm of the markets, and also because we don't even have any overnight futures or currencies to look at right now anyway.  We'll get back to it once things settle down. 

My best guess at 1:30 AM EST is that we're going to rally hard off the open and then do some retracing later in the day.  But since I don't really have any solid evidence to back that up, I'm simply going to have to call Wednesday uncertain but with a positive bias and leave it at that.

Accuracy (daily calls):

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points

January    0      0      0           0        .000       0

ES Fantasy Trader

Portfolio stats:  the account begins the new year by resetting to $100,000.  With little guidance from the charts, tonight we stand aside.

Let me take this opportunity to review the idea behind the ESFT, since people have been asking me about it.  ESFT is a fantasy trading account.  I use my broker's paper trading system to buy and sell ES, 10 contracts at a time.  I post the trades live on Twitter @nightowltrader.  There are two goals for this: first to prove to others (and to myself) that I know something about technical swing trading, and second, to gain enough confidence to do this for real.

The only "fantasy" part is that my real trading account will not support trades of 10 ES contracts at a time.  Other than that, I treat each trade very seriously.  To eliminate market variables, I always buy on the ask and sell on the bid.  That way there's no doubt that the trade would have been executed had it been placed for real.  I enter each trade late at night and plan to sell at some point the next day, though I may hold longer depending on how things work out.  I only place trades when I believe I have a significant edge - I'm looking for more than mere fractions of a point.

 I end up placing a bit less than two trades a week throughout the year.  Each trade runs with no stops and no targets, making the whole affair quite risky, but also potentially quite profitable.  In 2012, I almost doubled my initial investment.  We'll see if I can do that again this year.

And why don't I use stops or targets?  The idea behind stops is to limit your losses, and targets are to lock in your profits.  But I've found that all too often, it ends up working exactly the other way around - stops end up locking in losses and targets end up limiting profits.  I prefer to let the market tell me when to get out, and it generally does..

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