Swing High

It is obvious that I let the evil emotion of excitement get to me while trading, clouding my rational perception with a combination of fear and greed. When the markets rallied so hard into the close on Friday, they certainly showed strength. The daily chart of spy did have a hammer and thrusting pattern, which is a potential reversal pattern. The key word there being potential. A reversal pattern requires confirmation in order for it to be true. So while the reversal pattern was present, it was not yet confirmed (in this case, a close above Friday’s highs would have been sufficient confirmation for a reversal). I should have waited until Monday’s close to see if the pattern was going to be confirmed on the daily chart before entering the long trade [I trade EOD because I am swing trader and a student who cannot watch or trade the markets all day long ]. However, my emotional state caused me to enter a long position in a triple-leveraged ETF tracking the S&P 500 (UPRO), worth about 10% of my portfolio, at the close on Friday. Because I didn’t wait for the confirmation, as a prudent trader would, I stand to gain perhaps an extra 1% on the next up leg. However, I also run the risk of having a failed reversal pattern (and a move to the downside) while holding a long position in a triple-leveraged ETF. The smart money waits for confirmation, and in doing so, sacrifices that 1% for the security of the confirmed reversal, which puts the odds towards the trader who is bullish in this case. I should have waited, and I should have a set of rules to review before making any trade. This will help me make sure that my trades are rational and devoid of emotion. It will also improve my discipline (and perhaps develop a trading method that better aligns with my trading personality).

For the next 50 trades I make, I will force myself to consciously focus on a list of trading rules and check off each rule before making the trade. Rules will include things like: is the pattern confirmed, does volume support the move, is the broad market moving in the direction of this trade with conviction, do you have a 2:1 reward-risk ratio, what is your entry and why, what is your target price and why, when do you know you are wrong and need to sell, is the 20 day moving average above or recently crossed over the 50 day moving average, are bolligner bands expanding (or has price recently closed above a donchian channel recently), what is your protective stop going to be. I think I will stick to these fundamental trading rules for now. After I make at least 50 trades, consciously going through the steps of my new rules, it should start to become an automatic habit. If not, I will do it for another 50 trades. Also as I work towards automation, I will gradually introduce new rules to the list and analyze the change in my performance. Naturally, some will stick and some will not. I may even decide to cut out some of the rules and experiment with simplifying my rules into a few basic components.

If you think that I started this blog to impress people, you are wrong. If you think that I started it to get a following or gain market share in the over-crowded market of trading related websites, you are more wrong. If think that I started this blog to make money from viewers through subscriptions or adds, the joke is on you as I have no such goal. The truth is, I started this blog for me. It’s all about my personal development as a trader. Writing an honest review of my personal trading performance and criticizing my personal mistakes to benefit my trading abilities is one of best ways, if not the best way, to improve my trading skills and knowledge. That’s all I really care about.

The funny thing about this “blunder” is that I still do not know what the result will be. Some traders would tell me to close the position here, but I plan to manage it instead. I will give the trade a chance by waiting until the close on Monday. If the reversal is not going to be confirmed, I will exit my trade. If it does get confirmed, then I will hold. If managing my mistake was more complicated then I would probably just exit at the open on Monday. Thanks for being a part of Swing-High.com! Always trade with a stop loss and manage your risk appropriately. Money management and risk management are a couple of the most important aspects of trading, and yet they are so basic and straightforward. Capital preservation comes before profits… always.

Happy Trading,

Jason

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Choppy day in the markets today. The S&P (SPY) finished up about 0.25%. The Dow Jones Industrial Average (DIA) finished down by about 0.2%. The Nasdaq (QQQQ) finished up 0.4%. The Russel 2000 (IWM) lead the markets big time, finishing up 1.5%. Finally, the Financials (XLF) closed up 0.25%. Interesting divergence among the broader indexes. The market is apparently indecisive on which direction to go next. Expect the next major areas of support and resistance on SPY to be 102 and 108. I will also be watching to see how SPY reacts to the resistance at the 50 day moving average.

The SPY had an inside trading day today (did not make a higher high or lower low). Everything about the neutral sideways action screams consolidation at this level, which can be expected after the recent moves. Consolidation is not a bad thing. In fact, it is healthy and welcomed by most traders as it provides confirmations of certain moves as well as set ups for other moves. The current consolidation on SPY could be a swing low, or a bearish pennant. Of course we will have to play it as we see it. Do not be early though. It is crucial to wait for confirmation of the formation you are trading. Always trade with a stop loss and manage your risk appropriately.

Thanks for being a part of Swing-High.com!

Talk to you tomorrow,

Jason

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The markets are chopping sideways for the most part today, so far forming an doji on the daily candle. The Financials (XLF), Dow (DIA) and Nasdaq (QQQQ) are showing relative weakness to the S&P 500 index (SPY) today. The VIX is up more than 1% and is above 30. The TICK and TRIN are both neutral. Price action in the broader market indexes seems to be in a consolidation phase today, which is a healthy thing to see after such indecisive and sporadic movements we have seen lately.

A Bearish Pennant patter is forming on the SPY 15 minute chart which could break to the down side. From there, expect to see support at 102. If the SPY puts in a swing low at 102 and re-tests the 108 area, that could be the start of a Head and Shoulders formation, which would be extremely bearish. We will have to trade it as we see it.

Thanks for being a part of Swing-High.com! Always trade with a stop loss and manage your risk appropriately.

Happy Trading,

Jason

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The markets showed strength this morning, but pulled back nicely from the early highs of the session. The Russells (IWM) and Nasdaq (QQQQ) showed relative weakness today. The VIX behaved as expected and finished with a slight pull back. The TICK and the TRIN were neutral/mixed today. All things considered, today’s action was unconvincing and supportive of the bear case. It is very tough to gauge where the market wants to go from here. I would like to see a consolidation here or at least a better pattern set up before I take any major positions.

Looks like we will just have to wait and see, but the markets still look like they want to go lower from here. Thanks for being a part of Swing-High.com! Always trade with a stop loss and manage your risk appropriately. Capital preservation comes before profits.

Happy Trading,

Jason

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Hello Traders,

The markets are higher today on news reports. CIT Group (CIT)  filed for bankruptcy over the weekend, which had the potential to act as a Lehman Brothers type catalyst leading to a “Black Monday”-type drop in the markets. However, Ford (F) beat earnings expectations by posting a $1 billion profit and providing positive guidance. Keep in mind, much of Ford’s earnings can be attributed to Cash for Clunkers, so weigh that with a grain of salt. ISM Manufacturing Index data came out better than expected this morning as well. Pending Home Sales also beat expectations. That makes it three to one for news supporting the bull side today.

The VIX has a healthy pullback in the making today at about -7%. The VIX is finding support at the 50% Fibonacci Retracement Line. The TICK is surprisingly neutral and the TRIN is reading slightly bearish. With the divergent action in the market internals, this pop today looks like a sympathy bounce.

The SPY is finding resistance at the 50% Fib line of a recent sell off which also happens to be the round number of 105 and the bottom of Thursday’s candle. The Russells (IWM) are still in a confirmed double top. The Financials (XLF) are relatively strong today, which might be attributed to CIT Group’s (CIT) bankruptcy. The Nasdaq (QQQQ) and Russells (IWM) are showing relative weakness intraday.

In general, I am picking up short positions and will continue to do so if the markets stay bullish. Today’s action is looking a lot like a sympathy bounce (much like last Thursday). I plan to play the downside with a basket of inverse ETFs (most likely: TZA, SPXU, FAZ, EDZ).

Thanks for being a part of Swing-High.com! Always trade with a stop loss and manage your risk appropriately. Check back this evening for your Post Market Analysis.

Happy Trading,

Jason

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