Thursday, January 6, 2011

Self destruction Tuesday!

Yes I shot myself in the foot on Tuesday when I shorted the ES at 1269.25 and let my fear overcome my plan as I bailed at 1268.00 for a 1.25 pt winner and not the 4-5 point target I had planned. Why did this happen? How did I let my fear ruin a perfectly good trade setup and plan? Well for one, sitting in front of the screen and watching every single tick movement go by has in the past not helped me as it has put doubts into my day trades. This also goes for listening to Trader's Audio on the TOS platform and hearing that there was some "paper" buying around. Secondly I was taking a counter trend trade and the thoughts of the bulls stepping in on weakness and ripping the bears a new one was at the forefront on my mind even though market internals started out weak and weren't bouncing. Early on I was watching the price action movement and there seemed to be some buying by bulls on the early weakness. However, once the "locals" were able to push lower, stops were hit and people started to bail which took the market lower. Alas it all came too late as I was already out within the first 20 mins of trading. One of those times where I should have set and forget on the trade and just let my plan make all the decisions as I have a loss and profit stop set up on all these futures trades.

Well enough of the self critical analysis. As a recap, market internals still finished +10,000 on Tuesday whilst the other indicators finished mildly weaker. As for yesterday's session, cumulative ticks finished at +27,000 and other internals finished quite positive. On the quant front though, studies are now pointing to some short term weakness so taking another stab at a short here with the ES at 1271 is not a bad idea from a risk to reward point of view. Volatility has certainly picked up across a whole range of asset classes and that is the first sign that we might get a correction of some sort here. Other good measures of risk assets like the AUD/USD have also come well off it's highs so that might be another red flag.

On the trade front I have condored my ZB short call spread somewhat, by selling 4 x of the 113/110 Feb Put spreads for "13. I say somewhat because I am short 6 of the 128/131 call spreads which have now trading around 9". I have a nice little profit on this trade and so by selling the put spreads I have locked some of it in the short term if we do get some sort of rally here in treasuries if the risk off trade does come to fruition.

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