Indicators

As the title of the post says I wanted to bring up the use of technical indicators. I for one have fallen for those indicators yet again. The last time I was convinced of a move supported by technical analysis indicators was in October 2008 with many attempts to go long into deep oversold conditions that have all but failed. It seems this here is equivalent to a bear crash scenario similar to what has occurred last year during the deep sell off.

It seems I have fallen for this same type of condition yet again, with similar losses as I had incurred the last time around. What is even more frustrating is that after the year end review I did I had adjusted my trade rules to ensure this will not happen again. End result is that I am seeing myself yet again with a month that has incurred large losses when they could have easily been avoided. I am glad I covered my shorts early last week as I had been waiting for a pull back that never came, however I do not consider that a success.

Looking back at the big picture, I have missed and traded against a 50% move in equities for the past 5 months. Regardless of how good of a trader you are, or how good of a trader I think I may be, this is a disaster. It really just became clear to me now, after having stepped back from the day to day trading and looked at the big picture. This rally has been extreme and I have been finding myself on the wrong side over and over again. I looked back at my long trades over the past 5 months and its not surprising that the majority of them were very successful. Many were done as hedges primarily and closed out way too early against technical signs but as a mere emotional resistance of mine to go long this market for more then a few points. There has only been ONE long attempt that had conviction that of course got stopped out as you may remember.

Now, I keep on asking myself if my bearish views have changed, I want to be 100% clear, I am still bearish on this market, however, from a trading perspective I have to respect the move. After a run up of 50% of course I cannot go long, even if I wanted to, retracements are not coming and any sign of weakness is being used to capitulate by many shorts.

The one thing that I am very surprised about is the demand and supply component. The 1K mark on the SPX and 9K on the DOW brings back a huge amount of long term supply so I thought. Many investors that have been long and have been averaging at key points such as the 2008 Q4 lows, the March lows and other important retracements, are now seeing their positions at a point where losses have been recovered and gains are starting to materialize. As you know the use of margin during this rally here has increased on bullish funds and many other bullish positions to levels only seen during our DOT COM boom. So one would expect this supply to materialize and long term investors to minimize margin, and minimize exposure on positions that have finally shown signs of recovery. As you can see VIX has been moving to the upside recently which is the first sign of many of those investors looking to protect those gains but are not yet at a point to make changes to those core positions.

I am not sure what this point is and when those positions will be re-evaluated for profit taking, however, 875 is my new long term reversal point. As you can see we are quite far away from this but I will stay clear of any large short position until this key point is broken. Until then I will continue to trade very short term regardless of my longer term perspective.

Forex Update: I had 6 positions going into last night and got stopped out of 5 of them at the respective high and low (depending on short/long), with 4 of those 5 being nice in the money now. Another learning lesson to manage positions properly as they trade 24 hours a day and have big moves even overnight depending on the pair being traded. As I am trading very small still I am only down $70 for the night as my other position is moving nicely.