Trading Review: March 16-24

Trading Review: March 16-24

 

Where I was coming from:

            Starting on Monday, I was heavily short the market. This was after a huge run-up already. I had been following the teachings of Danny and iBankCoin.com. He continued to present levels of resistance and statistics pointing to the market going down. I continued to see the reasoning and logic behind his presentation, and continued to double and triple down on the market. I ended up gaining a very large position in inverse leveraged ETFs, with about $6000 in SDS and $2500 FAZ.

 

            The idea behind the shorting was:

1.     The market was in a serious downtrend.

2.     No fundamental issues had changed.

3.     We were just “bouncing” from 666 as we had previously.

 

Here’s a picture of the market over the last month, including Monday the 16^th:

 

In hindsight, I can see very clearly what I should have done. 

1. Expect the trend to continue until it doesn't. This would have meant shorting at the top of the S&P channel on March 10th. 


2. Sell once your assumptions are shown to be wrong. Shorting at the top of the trend would have been under an assumption that resistance would be in play as it had in the past, and the market would bounce down. This is expecting the trend and betting with it. After the market busted through resistance at about 696, I was shown that my assumptions were false. 


3. Wait for a new trend to confirm itself. This means that, although it broke through some resistance, it doesn't mean we're in a rally and I ought to start betting with the longs. I should see the market follow-through, to show it's serious. This could be an IBD follow through, or breaking through another level of resistance. 


4. Go to step #1. This system might turn into the framework for a new trading system for me. 

The next level of resistance was about 721, the previous high within the bear channel. Following the system above, I would have gotten my follow-through above 721, and then started getting long. A new trend, a confirmed rally, was established. Instead, I got short again at 721. Once it crashed up through there like a submarine in the Arctic ocean, I started eye-balling the next resistance level. My thinking was locked in bear-mode, and I vent frustration in this post.

As Gio said, a wise bear respects a bear market rally. I did not. Instead, I spit in it's face and bought FAZ in the high 30s. Here is an image from a previous post regarding my thoughts on FAZ, given to me by Upsidetrader. It seemed to make sense. I set my stop position a little bit below the previous support levels and luckily got out of FAZ around 34. 

Another over-all lesson learned?

If you're going to bed against the trend, have a very solid reason why, and keep your position/exposure small. Keep a very close eye on the price. Put your stop to a price that shows you're wrong. 

I can see my errors clearly now. I see it in this post, too. And here, even after I had started to see the error of my ways. 

Though I am encouraged I started to get long and change my perspective. There's nothing able to change my mind bear to bull as buying a stock & getting long. 

It was also encouraging to see me start stating reasons, expectations, and contingency plans for trading in my "trading journal", like for HES here. 

Another indicator that the trend has changed: You're betting one consistent way, and you're losing money. My Shorts kept getting killed, and any longs I had were easy money. Locked in a bear mindset, I was blind to the coin being gained by my longs. 

My HES trade here was well-executed. It was planned, small, and conservative. I used charts in my blog to support my reasoning. The result? It made some money, and got out before a possible break down. Instead of betting against the trend, I just stopped betting for it when it broke a trendline.