The Only Way To Maintain An Edge
I cannot tell you how
good it is to stay in touch with other trading colleagues. Yesterday
afternoon I was on the phone with a colleague back in Chicago. He and his
fellow traders do quite a bit of option and FX trading. He pointed out to me how
the Dollar Index (DXC) was quite extended
based on his indicators and was due for a decent bounce. While I follow the
DXC, it is more of a cursory glance from time
to time. I looked at the daily chart too, interesting, his comments, and what I
was seeing dovetailed in nicely with my thoughts and present positions on some
currency pairs, as mentioned earlier this week.
I mention this not so much to back up my analysis
from
Monday’s column but to direct your attention to the
DXC over the next few sessions. As you may, or
may not know, the DXC trades inversely with
gold stocks intra-day. Given that I have been trading
NEM lately, I figured it was about time to quit with the cursory
glances and put the DXC on a 5-minute chart.
It helps dramatically, put one up.
The chart of the Euro
(EUR) above shows how rally in the DXC could
put further pressure to the downside.
Below is a note that I sent to my subscribers
last night.In light of recent market conditions, I felt it was timely.
Let’s simply lay it out there. Trading is
challenging of late, the intra-day range has been narrow and erratic, it is safe
to say that if you are playing the game the same way you did a few weeks or
months ago, it is likely not working.
Trading, like life, requires adaptation. I can
tell you that even during the go-go volatility days between 1997-2000 my trading
approach changed slightly. My approach in 2000 was different than in 1997 and
as a result more effective in the context of the environment. Fast forward to
2003, there is nothing subtle about the markets changing character, unless you
have been on vacation, the changes are blatantly evident. Average
True Range continues to contract and volatility intra-day has become
erratic, not following any pattern on a consistent basis.
That being said, the job of a trader is to
make money while incurring minimal risk. I can tell you that if I was trying to
trade 20-30 times a day (what I am known for) I would be incurring far too much
risk as I would be chopped up each and every day. The only way to maintain some
sort of an edge, which I have, is to push the time frame out. Presently I look
at 5-minute charts, it has allowed me to endure the chop seen on all 1-minute
S&P charts and as a result capitalize on the few opportunities that present
themselves each day.
Secondly, gold stocks, not your typical
HVT traders, continue to provide a few looks
each day, Newmont in particular. Lastly, I
have begun to share with you my thoughts and comments in the FX market, telling
you of specific trades I am taking in the hope of showing you other ways to
navigate a challenging market.
I know of no trading colleagues that are
trading the same way they did just a few months ago. One friend of mine, a die
hard listed (NYSE trader) now trades NASDAQ (I may speak to him again someday,
lol). Another colleague is focusing more on arbing against the specialist and
the ECN’s, pick you weapon, but you better pick soon.
In summary, trading presently requires you to
draw upon every experience you have ever had in the markets in order to figure
out the next move. The process is by no means as easy as hitting the scan
button on your ‘gee whiz’ software, while at the same time sitting back and
observing is the most productive use of your time. Making mental notes is far
more effective than chasing your tail looking for the stock du jour.
Enough said.
Dave
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As always, feel free to send me your comments and
questions.