In hindsight, I totally mucked up yesterday's short trade. After stating that I would likely fade the gap fill and that the suckers would try and buy the opening weakness and push the market higher, I went short right at the open with a 5 point stop on the ES expecting it to be a full blown trend day. ie sell off from the open and never look back. For the first 5 mins there, it did look that to be the case. However once the paper sellers stopped, the locals who were then all long having absorbed all the supply were able to push higher along with all the gap faders. However the locals then failed to find paper buyers after a nice 6 point run and so were forced to flatten up after that which then took the market lower again. After that it just became an avalanche as those who faded the open began to cover their longs as there were just no buyers to be found. For me the error was due to a couple of things:
- Getting the market structure slightly wrong by not anticipating that there would be an upward bias on the open as weakness of late has been bought. This would have caused me to fade the gap fill at a slightly higher level.
- Setting my stop too tight on a day where we were bound to get an expansion in the range (or volatility)
- Trading the ES instead of the TF as the ES showed remarkable resiliency to the early onslaught. It is likely I would have covered my short position in the TF within the first 5 mins as it absolutely got smacked about 3.5 points.
I will remember this lesson for next time!
Hi MC - a fair bit of directional play from your side at the moment? Is this a change of direction or just that vol is still a bit low to sell as yet?
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Hi dP, This market is not really geared for income trading on the options side. Nothing thus far has looked attractive and certainly trying to trade the same thing month after month is not that great a strategy in my opinion (see Mark's blog at Option Pit). At this stage, it' s a good time to possibly sell some out of the money puts on the goods stocks. I think the current sell off is nothing more than a correction but we have not bottomed just yet.
ReplyDeleteAlso dP directional trading is where the money is!! If you can get good at directional trading then there's really no need for anything else as all the great traders were directional in one way or another although I think having the income trading helps as well and is complimentary.
ReplyDeleteYes I agree with you, I am adding this to my skills, must say I am less than 50% which I find bizarre, given a toss of the coin should at least put me at that point!!
ReplyDeleteA good trading platform is essential for tight directional trading, this is one of the progressions to make I have come to understand
dP