July 31, 2014

Your Greatest Opportunities…

wouldashouldaAre amongst those woulda, shoulda, coulda moments.  Those times of hesitation and thoughts of I don’t know what to do.   Amongst the chaos and all the noise is where you’ll find your moments to shine.  Honestly, for me my opportunity is hidden in my opposition.

I would classify myself as a contrarian trader.   Investopedia defines contrarian traders or trading as:

Put simply – if you follow the herd, you will be led to the slaughterhouse. Contrarians get excited when an otherwise good company has a sharp, but undeserved drop in share price. They swim against the current, and assume the market is usually wrong at both its extreme lows and highs. The more prices swing, the more misguided they believe the rest of the market to be.”

As a contrarian trader I find myself looking for a place to sell when the market is running higher and conversely a place to buy when the market is running lower.  I’m often amused that as a day trader how I can have a very successful day taking the opposite side of the “panic”.  As a contrarian trader I share a common motto that I prefer to sell into strength and buy into weakness.  I would not classify myself as a bargain hunter – not yet anyway.  I was, though back in 2009 when the selling was totally out of control and Ford was trading at $1.50 and GE was trading under $6.  Buying into weakness on a day like Thursday suggests something totally different.  Panic often provides huge opportunities and computer driven panics are a wonder to behold.

eyeofhurricaneThe eye of a storm is at the center where there is calm.  In the midst of the many economic storms currently swirling around the globe making decisions is often swayed by crowd behavior or panic as prices race in both directions. Opportunities present themselves during chaotic, panic driven times. Opportunities often missed due to all the “noise”.  As a Market Maker on the San Francisco, Amsterdam, and London options trading floors I studied the psychology both employed and self-employed by the most successful traders.  Most if not all-successful traders have the ability to stand within the chaos and pull out opportunities without succumbing to the panic itself.


Update on Anatomy of trading the NDX

From yesterday’s post:

The triangle pattern will ultimately form a group of 3-wave patterns that would be labeled a-b-c-d-e and basically form either a contracting or expanding wedge, hence the triangle shape.  More importantly to keep in mind is that upon the completion of the triangle pattern the market will thrust out of the pattern in the opposite direction.  In the current example that would be down since wave “B” is an intervening rally and once complete a “C” wave decline would be expected.  

While some may consider that the analysis given yesterday via the labeling was correct and therefore the entire methodology is incorrect and that would be similar to throwing out the baby with the bathwater.  The internal labeling became clear during the overnight session when the NQ thrust lower.  Based on this action I realized that waves “c”, “d”, and “e” had unfolded within the space I had labeled as wave “c” on yesterday’s chart.  What is more important to bear in mind is that the triangle pattern was the correct pattern and the understanding that the result would be a thrust out of the triangle in the direction of the larger pattern in progress.

2014-07-31-TOS_CHARTS.png_NDX_HOURLYAs a trader I didn’t have to stop and attempt to figure out what was behind the selling.  Using additional Fibonacci relationships I could produce some potential support levels once the larger “C” wave down was underway.  Having an understanding of Elliott Wave alerted me to the structure underway ultimately forming 5-waves down.  This allowed for more accurate application of where Fibonacci support and resistance could be found on an intraday basis.  The updated chart shows the new labeling and includes possible support levels to finish the move.

The additional chart for today (NQ) 2014-07-31-TOS_CHARTS.png_NQ_DAILY_ALTERNATEtakes a look at the possibility of my alternate count being in force.  That would suggest a much larger correction is now underway off of the last week’s highs.  If this is the case, the overall pattern would remain an A-B-C structure where waves A and C were declines with wave B being an intervening rally.  However, the alternate count would be that within wave “A” the NDX has completed internal waves 1 and 2, with wave 3 now in progress.  I’ve included the Fibonacci retracement levels as well.  Since the markets are live and ongoing it is always prudent to keep an active preferred and alternate count in place.

opportunityTrading on Thursday was chock full of opportunities with volumes expanding as well as 2-way trade.  I anticipate this will remain the case for the next week or so as the markets continue to progress through corrective phases.  The trading was also active within the treasury markets and gold and silver.  It appeared that a much harder look at yesterday’s GDP numbers and FOMC minutes brought a solid round of asset liquidation to the US markets.  The ongoing geopolitical situations within the Middle East and the Ukraine will also keep capital flowing between asset classes.

Friday is a weekly options expiration and Thursday’s declines may have upset expectations for where stocks and indexes will finish trading on Friday afternoon.  For those so inclined I have found it helpful to check options volumes against open interest of the at-the-money strikes to help determine what traders are gearing up for.



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.

volatilityTrading 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.