Following the Rules
This year has been the most frustrating year I can remember. The market just will not behave and decide where it is going, which is really annoying. I remember that last year I was complaining that the market was boring. What I would give for a boring market right now!
Bulls in Control
Yesterday the MACD histogram closed in positive territory which is the signal that the bulls are in control, and we need to exit our bear trade. However, checking the candlesticks, we see that we have a Harami, which is a sign of indecision (yes, I know that that isn’t in the first books, but it is explained in Compare Option Strategies).
The volume also is worrying; the highest volume was on the lowest day (30th September), and the three positive days since then have been on lower volume which suggests that there was not much bullish conviction among traders.
Looking at the futures, they are down markedly, as I write this three hours before market open, the S&P is down 0.75% – in other words, not a very bullish sign.
So the question is: Should we exit or not?
What should we do?
Let’s look at the possibilities:
- We stick by the ITMB rules and exit. We will be getting out at roughly the same price as we got in on 22 September, depending on where the market opens. Right now, it is looking at a negative opening so you may be able to get out at a small profit.
- We wait until we see what the market does on open. If it drops more than, say, 1%, then you may want to stay with the bear trade. If it starts heading north then you may want to say it was worth a try, but I’m out.
Perspective Is Good
I have been getting some unpleasant emails, and I understand that people are stressed about what the market is doing.
But let’s keep things in perspective.
We entered the bear trade on 22 September, when it closed at $374.22. Right now, today’s open is looking like it will be around $375.70. which is a 0.4% difference. If you had bought the DITM option with a strike at 32% above the then current price you will be sitting on a loss of 1.2% (3* leverage). Annoying, I know, when we were on a 15% profit, but not the end of the world.
Let’s get a grip!
A loss of 1.2%?
In the scheme of things, it is not earth-shattering. Not every trade is a winning trade. If you can’t live with that then maybe you shouldn’t be trading.
Sorry, this is a bit of a snarky post, but as an author you have no recourse when someone says that your books said this (when you know that they didn’t) or they didn’t cover that (when you know that they did and can point them to the chapters and pages). You just have to suck it up. Yes, I know that it goes with the territory!
Apologies to my many lovely readers – I do really appreciate you.
As with everything in life, taking responsibility for decisions is important, especially in trading. Today is a decision point, whether to stay with the trade or get out. The 2 possible decisions are outlined above, with the outcome of each decision. You have to choose which one suits you best: follow the rules (knowing that you may make a 1.2% loss) or hang in until the market direction becomes clearer.
That’s not a decision that anyone else can make for you.
Because of the rules about SPAM I can’t email every time I post; I also have to be careful as I am not a financial adviser so I mustn’t tell anyone what to do, but just give ‘general advice for educational purposes.’
However, if it is a significant day when following the ITM or ITMB rules then I will definitely post here before market open so that you can check.
Just checked the futures – down 59% less that 90 minutes before market open. I, personally, am going to hang in there and watch the open to see what the market does. I have noticed that there is often an inflection point after 30 miutes. I’ll wait to see that, then decide.