Good Start to the Week

Today was an interesting start to the week. When I came in this morning, there was very bullish Chinese data that had rallied almost every global equity, commodity, and currency market. In addition, the cash sp made new highs and moved past the 200 day moving average. Clearly, the market had a bullish bias. I had a horrible night sleep last night, all because of thunder and lightning storms, so I was on edge very early.

I was patient this morning, did a lot of my readings and looked at my technical levels. Oil was up over $1.25, trading around $68. I waited until the release of the US ISM data at 9am to make my first trade. The number came in right around expectations. I tried making a trade off the euro, but I was too early in my execution, and I traded too large of size. I made the mistake taking too big of a loser, when I could have clearly gotten out sooner. This immediately put me near my limit. I lost way too much of my trading capital on my first trade. I had 25% left and to make it last, I cut my size and waited for good set up to ensue.

I made a few good trades, and a one or two just absolute bonehead mistakes, but by lunch time, I had made back everything I lost. What I need to take away from all this, is that by cutting my size, and staying disciplined (well, relatively disciplined) I was able to get back to even and put myself in a position to take advantage of the markets later in the day. Most of the time in the past, I chase my losses and end up losing a lot more that I had planned.

Typically, from my all my reading, I have seen that when the market opens up past R2 (second level resistance from the pivot) the market trends all day. I kept this in mind and tried trading from the long side all day, especially after taking a long break over lunch to recollect my thoughts. I finally was able to get long oil and trade it as it made new highs for the day.

There are a few good lessons to take away from today. First, dont risk more than you can stand to lose on any one trade. This seems obvious, but it is a problem I, as well as others, have. It is easy to say that the market should or shouldn't do this or that, but thats not important, whats important is how I (or you) react to what the market does. The biggest mistake, the one that takes me out of my trading the most, the one that led me to have the worst trading of my year so far, was when I held a loser when I thought the market shouldn't be doing what it was. When I trade well, I just react to the market, and if my position moves against me, I just get out.

The second lesson of today is having good reason for each trade. Again, this seems obvious, but it isn't so easy to follow. Many times, I hear that a market has gone too far, and someone decides to sell a rallying market. I am guilty of it. The question is, where are you wrong? If you sell it after it breaks through a resistance level, and elects stops, and hits an old hi, then there is resistance and reason behind your thought. Clearly, you have to execute the trade well, and know what you are risking. When you have reasons, typically you clearly know where you are wrong, but when you just sell a rallying market because you think its gone too far, you risk too much. Where are you wrong? If you aren't sure, then it becomes hard to get out. One might get away with this a few times, but as one keeps fading and letting trades move against him, inevitably one always get away.

One great thing I realized today was that if I cut my size and look for those good trades, I can make back a lot on smaller size. Not only that, but I ended up having a good day because I put myself in a position to take advantage of trades later on in the day. I figure there are several good set ups a day that if I am patient, I can take advantage of them if I am in a good mind set.

For tomorrow I need to continue to do my readings and wait for logical setups. Volatility is going down as the market continues to grind up. It becomes harder and harder to buy the market up at these levels, but it is also hard to fade and sell it. By staying disciplined and patient, I am sure there will be opportunity tomorrow. Keep following my rules, do my preparations, and look for those good spots.