Will today’s outcome last?

June 14, 2006 · Print This Article

After the market struggled to sustain any type of gains intraday, the bulls stepped in during the last half hour of trading to move the markets higher. Today’s bullish results ended what has been a dismal stretch for the market. The question is, “Will it last”? Everything seems to be pointing towards a continuation of todays performance, I am just not sure how long it will last. The seasonality following June Expiration is historically very weak. This (along with many other reasons) is why I am a little leary about the sustainabilty of a bullish move. I think there just might be one more washout before the real money is made. Even so, I still think a short-term trade to the long side could prove to be very profitable over the coming days although tight stops are highly recommended (preferably at today’s low).

I few people (two to be exact) have commented about the lack of trading in the ETF Extremes strategy. In a way I understand the mentality. I had the same mentality when I first started trading and struggled to fully understand what it took to be a successful trader over the long-term

I learned quickly (especially in options) that placing value on the quality rather than quantity of trades was the approach of the elite traders. Who cares how often you trade, it is the ultimately the outcome at the end of the day that we are all judged by as traders. Is it worth risking all of your gains during one or two sessions on an account that took months to build.

It boils down to discipline. Just look at how many people over the last few weeks have stepped in thinking a bottom had formed. Equities, commodities, emerging markets, even sectors with inverse relationships to current market trends, almost everything (which is a rarity) has declined in unison. Yet, our strategies have performed with flying colors. I am not boasting (maybe a little) because we all know where that usually takes us, but rather, trying to point out that building an account takes time.

When I first moved to NYC I met an insitutional trader for one of the largest insitutional firms on the street. He likened his trading to “wood”. They call my style “wood”. He had been a succesful trader his entire career using this method, not allowing the daily market madness to suck him in. He only made a few trades a year (by most traders standards) and he patiently waited until the odds were in his favor. Consequently, he has been extremely successful duing his career and that is what counts at the end of the day.

Of course this does not mean he was able to eliminate all risk. There is always going to be risk in trading, ALWAYS, but limiting that risk through a combination of high-odds set-ups, capital preservation and money management separates the novice trader from the seasoned and successful trader. Anyway, I will continue this discussion tomorrow. As I always say patience, patience, patience!

RSI Wilder (5) for June 14, 2006