There are a lot of reasons to be bullish equities, Bonds are breaking South from a bear flag, Transports are breaking North out of a consolidation area, Fed pump, Hey… even Egypt seems like its quieting down and lets not forget the #1 reason. The Markets are going UP.
My job is a Market timer. I have to pick tops and bottoms.I dont have to trade them, just pick them. I know a lot of traders who will pick a top, place a limit order where they believe the Market will turn and enter a trade. Some do very well picking tops and they have the discipline to quickly scratch or close for a small loss when the trade doesn’t work. Most traders get married to the trade and add to a losing position to average their cost or in an attempt to pick a higher top (or lower bottom). I have seen a lot of traders get spanked hard doing that. Fortunately I learned on their dime. I learned to let the top (or bottom) "set in" and get on board when the trend has turned.
I’m not greedy; I don’t care about the first 10% of the trend or the last 10% of the trend, all I want is the 80% in the middle.
The top pickers can argue that their risk is small because a new high takes them out. I have been told that my method is “way” wrong because I am too far from my stop, well that’s true only if my stop is a new high (or low). Either my trade works right away or it doesn’t. Time will take me out of a trade usually at a scratch or small loss. I also feel I have "probability" on my side if I’m a seller while prices are breaking or a buyer while prices are rallying. Doing so will usually get me green in a trade right away (time being very important) and even if the trade doesn’t work I can scratch it (my broker loves that).
The key word here and in all of trading is "PROBABILITY".
What is the "probability" of price going higher or lower? I keep asking myself that over and over and over. My wife says I say it in my sleep, she also says I snore, I don’t believe her on the second point.
So I am always on the lookout for a Market top (or bottom). It’s a constant search because no one knows when the Market will turn or how long a trend will last.
Right now a few things are lining up that we might be near a top. Will it be THE top or a pull back or never materialize? We don’t know. We just have to monitor price to tell us what the "probabilities" are.
Looking at this chart, and my prior post, we are ripe for a top. Also there has been a very unusual amount of sell paper in the pit. In particular Goldman has been a size scale up seller for the last two weeks. Are they covering their longs and waiting to see how price reacts in this area or are they getting short? No one knows but when ALL the houses are sellers my bet is that they are getting short. But even the big boys can get spanked trying to pick tops …………but not very often.
Tim Mack
"As I grow older, I pay less attention to what men say. I just watch what they do." -
Andrew Carnegie
2 comments:
Thanks for the update!
Very informative on "Trend Following" method. (Only trade on that 80%)!
Thanks again!
Tony
Interesting perspective on paper slowly building a short position. I didn't know pit traders like you put on swing trades as well.
If you don't mind sharing, what tells you a top or bottom has "set in" and the trend is turning? If you're willing to give up the first 10%, seems like a plain old moving average would do the trick.
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