July 1, 2014

How do you Buy at New Highs?

Interest rates have continued to fuel the ability to tap into cheap money allowing algorithms to run the broader indexes to new all time highs and new contract lows in many of the volatility indexes and ETFs.  The holiday shortened week has produced the continued ‘mother’ of all squeezes (short).  As the world turns it’s focus towards whom amongst them will take home the title of Champion in the 2014 World Cup currently taking place in Brazil, the markets remain on auto-pilot on an the quest for the brass ring.

frustrateddaytraderThus the question how do you buy at new highs?  The easy answer would be the so called ‘greater fool theory’.  You buy on new highs believing there are additional buyers behind you.  Keeping an eye on the building momentum the objective is to sell a few ‘ticks’ higher for a profit.   The entire process could take a few milliseconds to several hours.   The strategy works when it becomes mechanical and has factored in all costs to determine proper risk management and position sizing in achieving the set trade objective.  Adding in the human emotion factor might produce a preset idea of what would happen next.  When it becomes man versus computer guess who jumps first and asks questions later?  Reactions then, become mechanical and not emotional.  Emotional reactions will likely produce additional emotional reactions a degree or two higher.


emotionalhooksEliminating the emotional factor is ‘way’ easier said than done.  Old habits really do die hard, and scars are forever.  Dealing, understanding, and accepting them in building new and improved mind muscles is accomplished in a similar fashion as building strength and agility through working out.  Failure to be consistent most often leads to failure in execution.

My response to the initial question in the title, how do you buy at new highs, continues to be, ‘as a day trader.’  The relentless climb to the top of the mountain screams to be sold on an evaluation level and also as a certified contrarian, a purely emotional level.  The emotional problem would require more forward thinking than most have programed in and others have programed differently.

In essence then, the ability to ‘tweak’ strategy becomes the all important task at hand in trading in several of today’s markets.  Whether that be in an index future, an ETF or individual equity, including the awareness factor(s) are crucial to success.  Having a handle on momentum and volume make it easier to see direction.  Too often it is the emotional factor(s) that prevent acceptance of a particular level as to its validity.  Breaking old reactionary habits derived from emotional responses also takes awareness and the willingness to build new more effective habits to an old responsive reaction. Ha, you say, easier said than done.  Yes, you would be correct.

wouldashouldaThe “Ouda” sisters are often ushered into the decision process out of what might be called an instinctual response.  It is what we know versus what we don’t know. The Ouda sisters, Wouda, Couda, and Shouda bring with them their ugly twin brothers Doubt and Fear. In trading that spells hesitation, lack of trust, and panic decisions.


Ok, back to the point – how to buy at new highs – I continue to advocate day trading over position trading.  Trade often, trade small and trade the number. Using a trusted worked out strategy would include an algorithm or a combination of algorithms.  Trading the number implies that you are employing a strategy that includes risk management, position sizing, based on an entry and exit strategy.  Having the correct tools will always maintain a high priority position to achieving a sustained path to success.


ifyoucantbeatthemRemember; if you can’t beat them then join them.  The bigger players will always have an advantage in one way or another as their budgets swamp mine when it comes to shaving ‘micro’ seconds off of data transmission.  Being a ‘gnat on the elephant’s ass’ is not a bad position to be in nor does it suggest in any way any disrespect or grievance with how others trade, choose to trade, or have the ability to trade.  As a trader my objective remains to stand amongst the chaos and pull out as much opportunity as I can.  By adding the correct strategies and tools and adding a solid sense of awareness both market and emotional I can put a solid dent in leveling the playing field and tilt the positive results factor a bit more in my favor.


Steer the course and don’t compare yourself to everyone else.  You are not they and they are not you.  Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves.  Don’t be swallowed up by the chaos and false emotions swirling around.  Remember it’s just a number.


Three-keysTrading the number remains key to being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them.


Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.