I have found, for my own well being, that reacting to the market is much better than constantly trying to predict it. Here is a trade from last week which occurred only because the bank of Japan fueled a further drop in the dollar. I couldn't predict that event, but I could react to it.
In the chart of the S&P500 below you can see how the broader market is stalled in a resistance zone from 9/21/10 through 10/4/10. This resistance zone is between S/R 3 and S/R 4. My gut had been telling me that the market would roll over before turning higher. But as you can see the index punched through resistance with strength. It was a highly positive market breadth day; and confirmation that the markets don't consult my gut for advice.
After reviewing long signal candidates I liked the look of CNH the best. In particular I liked the way that it's daily N band was just then peaking a good distance above, leaving unfettered room for movement. On the opening of the 5/6/10 trading session its S/R 1 and S/R 2 lines reset upward to this new peak. In an uptrend this is a good development.
My directional trade signal (which is outside of this blog's context) actually occurred two days previously on 10/4/10. Its method calls for a hold time of 5 days. Entering on 10/6 put me two days late in the trade; CNH had already begun its reversal.
This is where the sticky philosophical part comes in. Two days later, thanks in part to some timely analyst's upgrades, CNH reaches for the rafters. However the trade method is scheduled for an exit no later than the close on 10/8/10. Do I exit as my rules call for, or do I hold and risk an overnight gap down.
My exit at 40.00, based on intraday analysis, was not my best. However, recently I turned a winner into a loser in this exact same scenario; because of my gut. All quantitative arguments aside, I can tell you that that previous trade hurt more than settling for a 10% profit on this trade. Ultimately the resistance of the upper N band would have been the best exit.
Are you more comfortable with mechanical rules, or discretionary decisions? Would a careful self examination within that topic help your trading results?
The Dollar
An interesting note is that the dollar index may be at a weekly support point. The chart below shows it having just reached the S/R 6 support level.
Comments