Since DOW/SP500 is now EXTREMELY overbought, the reaction next week should result in a significant retracement. S&P500 daily charts show updated rising wedge and possible head and shoulders pattern with target of 1150 when confirmed. Recent aggressive buying and short covering is revealed by very bullish candles. [Warning: Nine_Ender is an unbalanced internet stalker prone to aggressive emotional outbursts who clearly needs professional help]
your 1150 target is 16% away right now. won't get there without a major crisis. Libya, Japan and Greece all failed to move the market even to the beginning of the year level. What could then?
Thursday before expiration, the market was probably at a number of frontiers, such as would the commodities market continue or pass the reigns to the paper market?
according to the last week performance the oil is ok: USO +4%, XLE +7% but GLD -1% JJG (grain ETF) -5% so not every commodity is up.
There are times when fading a move works incredibly well and other times when it doesn't. You have to know what kind of market your in - i.e. what's your measure of volatility - and whether the market is non-stationary or trend-stationary. Flat out denying fading as a strategy is....well, simply wrong.
Oh, you are entirely correct, and I have even taken on experienced traders as clients who spent their entire careers fighting the market. They made money on one hand, and on the other would readily admit that it really was an exhausting methodology and in hindsight felt that the way they went about using their resourses (time, capital, trading models, energy) were not really optimized. Ultimately, they thought that they could have made more money not fighting the markets. I have stated elswhere that generally speaking (and I do hate generalizations), experienced traders will tend to trade with the trend for slow grinding markets, and they will tend to fade "abnormally large" multi-sigma one-day moves or single news-driven events. So, I really do not dispute your point. I have seen it first-hand - it is indeed a strategy.
I went through a phase of counter-trend trading and realized over time that the majority of my trades went on an adverse excursion that was on average quite a bit further away than my eventual profit. When something happens a majority of the time over a period of time that includes varying market conditions (bear and bull), what does that tell you? That tells you you have a strong statistical edge. !!! (That's my symbol for a really big light bulb appearing above my head.) I had a discussion with a counter-trend trader about the whole fading strategy. Since most of the trades went against him at first and he was bidding or offering at a level that was still a nice price distance away, why not just immediately trade in the direction of the move-in-progress and get the added benefit of a huge profit in the event the bull or the bear is engaged in a feeding frenzy? A real-time example of this is frequently demonstrated in the ES Journal when emg announces a level at which he plans to go short or long for 1 point of profit and that price is usually 5 or more points away. His hit rate is phenomenal. Anyone needs to make consistent profits, just take the opposite side of his planned trade at the time he announces it and make his entry your profit target.
I personally know a group in Evanston that leases Apama for like $18K per month, and their entire strategy is based upon fading certain market moves on a highly conditional and rules-based regime. They staff their desk 24 hours per day, and are constantly scanning the newswires and markets in real time. That group obviously has the science behind fading moves in terms of metrics and rules well organized and to a large degree automated in terms of injecting orders into certain market conditions once established rules are satisfied. They appear to do OK, but certainly not exceptional. On the other hand, I have seen a certain percentage of traders who simply cannot do anything other than fade moves and add along the way. It is truly a psychological condition - they are going to buy into a sell-off or sell into a rally. That is the only way their brains are wired: fight the market. And from my observations over the years, the eventual outcome - in five weeks, five months, or five years, is ultimately never pretty.
why is not everybody rich from trading then? let's look at a very basic strategy that should make everybody on ET at least 50% on their capital (unleveraged) per year. 1. pick the stock just jumps Up the most at the open 2. buy at market 3. close a few minutes, hours, or days later 4. repeat the following day does anybody see any flaw in with my strategy? when should it work? when won't it work? --Dr. Shortie Breakout Out