Swing High

The markets finished flat today after a relatively range bound trading session. The Financials (XLF) were the big winners today, and the Russell 2000 (IWM) also showed relative strength, which is a bullish sign. The market internals (TICK, TRIN, and VIX) all corroborated the indecisive action in stocks today.

SPY closed at support at the 50 day moving average and the 111 mark. 111.5 has proven to be significant resistance as SPY has been unable to break above it the past two sessions. On the daily chart of SPY we can see a bull flag break out and a solid run, but it was on low volume and appears to be slowing down now. Either way, it is extended at this point and I do not see a reason to enter long here. I will wait for a pull back, consolidation, or some other pattern to set up before picking up new positions.

It looks like my bullish call on UPRO on February 5 was dead right. If I did not get stopped out, I would have caught a healthy 17 point move. Right now am I analyzing why I got stopped out where I did and re-thinking the appropriateness of the stop loss I chose.

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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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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The markets were down hard today, but reversed in the last hour and rallied harder into the close. Volume stepped up and confirmed the move as well; 100 million more shares of SPY traded today than yesterday. The VIX, TRIN, TRIN/Q, TICK, and TICK/Q all gave strong confirmation of a reversal here. On the daily chart of SPY, we have a thrusting hammer on strong volume after a down leg. I am looking for a small bounce here. If we get a lower swing high, then the bear trend will be strengthened.

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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We saw some serious deterioration in the markets this week. All of this action culminated in Friday’s incredibly bearish activity, with the TRIN and VIX giving highly bearish sentiment reads. The TRIN was well above 2 for most of Friday’s session. The VIX popped 24% on Friday putting it above 30 and causing it to close above its upper bollinger band.The volume is picking up on the down moves. Market Breadth reached extremely bearish levels on Wednesday and Friday. (Side note: if you do not understand something I just wrote, please let me know so I can explain it thoroughly).

The SPY monthly chart closed below my thick red trend line. SPY also broke down out of its rising wedge on the daily chart. IWM has a confirmed double top formation on the daily chart. The Nasdaq (QQQQ), Russells (RUT), and Financials (XLF) have shown significant relative weakness lately which is important because they are often considered leading indexes.

I made a couple of day trades this week. I had a 5% gain with SPXU on Wednesday. Played TNA for a healthy profit on Thursday. Much to my regret I sat out Friday. However, I am mostly in cash, so I am content with my neutral position (especially because I am not net long). I do plan to start picking up short positions on Monday morning and throughout next week.

The markets are looking very bearish. Please do not read this the wrong way. I am not excited because stocks are declining and wealth is being destroyed. I am excited because stocks are moving quickly and in an increasingly decisive manner. I like to couple fundamental analysis with technical analysis, and the fundamentals have been screaming at me for over a year that stocks should go down. Now, finally, after more than six months in a “bull market” or “bear market rally,” the technicals are joining in on the bearish chant.

Do not let this scare you if you are a new trader. There are many ways to play stocks to the downside. The most simple play in a bear market is to move into cash. If you do not own stocks, you cannot lose money as prices decline. In fact, your broker most likely pays you a tiny amount of interest on your cash; you could also buy short term bonds. Many traders will short stocks in a bear market (sell high, buy low). If shorting is not part of the trader’s strategy, buying inverse ETFs is a valid play to benefit from downward moves in select groups of stocks or indexes. Options traders buy puts in bear markets to make money on the downside.

As you can see, there are plenty of ways to profit in a bear market. If you want me to explain a strategy in greater depth let me know. Otherwise, I will explain strategies at my discretion.

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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The major indexes are down hard today. The VIX, TICK, and TRIN are confirming the move lower. The SPY is forming a low base on the daily chart and the IWM is once again in a confirmed double top formation.

No trades for me today as there is too much uncertainty at this point. If SPY breaks down out of its high base I will start picking up short positions (most likely FAZ, TZA, and/or SPXU).

Thanks for being a part of Swing-High.com. Always trade with a stop loss and manage your risk appropriately. Check back later today or tomorrow for your Post Market Analysis and/or Weekend Review.

Happy Trading,
Jason

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