I want to focus on what happened to me this morning with the hope that other traders learn from my experience.
Those of you following the blog for the past week are aware I was positioned slightly bullish (w/ hedge) going into the weekend, as per the forecast I posted on Friday - Monthly Bars. I also noted on Friday that despite the forecast showing strength into today, my bullish conviction was significantly reduced due to Friday's incredibly low VIX reading.
This morning upon seeing pre-market futures in the red, my inclination was that we would see further weakness past the open and immediate action would be required. About 5 minutes into regular trading (when the DOW was down -60), I quickly exited my losing positions and added to my existing short positions.
The net-net effect today was an increase to my account, albeit not nearly as much as it would have been had I completely been short from Friday.
Figure 1 - SPY
The point of this story is for traders to learn that THEY MUST NOT COMMIT TO AN OPINION, NO MATTER HOW CONVINCING. When the market proves you wrong, you are wrong - period. If you ever want to last more than a year in this business you must develop the habit of leaving your ego at the door and accepting losses like a professional trader - not some amateur wanna be "I wanna be a trader" trader.
By letting losses get ahead of you, you put yourself in a position where you are - what I call - 'behind the tape'. In other words, you are always one step behind price action. Your losses accumulate only for you to capitulate - yes, you got it - right at the top/bottom of a trend. And the cycle repeats itself over and over again.
If you learn to cut losses as soon as possible, I promise you trading becomes something completely different - and it even feels different.
2.- TRANSPOSED FORECAST
Many of you are familiar with my post dated June 4, 2009 regarding The Power of 9 (i.e. the preponderance of intraday impulse moves to be approximately 9 points). You are also aware I have no idea why they occur LOL. They simply do. It's an empirical observation I've made over the past year or so.
Similarly, I have come across something very interesting (that I can't explain) that occurs in my position trading forecasts that I'd like to share with you this evening, as it might help you exit your current short positions.
Over the course of trading these forecasts I've become aware of a 'inversion' phenomenon. That is, the forcasted direction is wrong, but the forcasted magnitude of the move is correct.
Based on Friday's post - Monthly Bars - we had the following forecast which suggested a 33 point move up to 955 from Friday's high of 922:
Figure 2 - FRIDAY'S FORECAST
Instead, what we got today was a 33 point move down to 889 (922 - 889 = 33). As a numbers geek, I get pretty excited when I see these relationships.
Next, what I did was transpose the former forecast as if the market had rallied and this is what I came up with:
Figure 3 - TRANSPOSED FORECAST
Interesting isn't it?
If the extent of this move matches that of this inversion, I would expect the markets to bottom out around ES 872...and get this, look where ES 872 is located:
Figure 4 - ES Contract (Line Chart)
Three words: A-ma-zing!
3.- THANK YOU
Lastly, I wanted to thank all of you for supporting this blog. Since the blog's inception on June 1, 2009 I've had about 13,000 hits to the site which is beyond my expectations to be honest. I know there are many a blogs that receive far more than this on a daily basis but I'm glad I have a consistent readership. It means I'm doing something right. Thank you.
Take care everyone and we'll see you tomorrow.
