The market has shrugged off overnight weakness and pushed on towards the March high of 4377. At 12.24 pm, it's 17 points up at 4366. I'm short the index via puts and also short WPL in the same way. WPL is also up, 38 cents at 3493 as buyers respond to a reasonable quarterly report. At this point, April is easily my worst month of the financial year and in common with last June, the final and worst month of the previous financial year, I've started buying options.
I spent many years as an options trader and I know what I'm doing wrong; I'm punting them, not trading them or hedging etc. As with last June, it's motivated by trying to give the P/L a decent kick along but it's not what I'm doing for the rest of the year and is therefore pretty silly.
It got me thinking about how I do trade for the rest of the year and the way to improve my performance is to do that bigger and better. One of the issues with my bread and butter business is that I'll swing from trying to pick turning points to waiting for absolute confirmation or only trading continuations and so on. But rather than go through a ton of charts and my trading records as I'd usually do, I decided to think about how I like my trades to go and to work backwards from there.
I came up with the following. My ideal trading style is where my positions are in front quickly and the trades continue to move my way quickly; I'm out within a few days and focussing on other trades; I only have a few trades on at any one time; the trades have a good risk/reward ratio, tight stops and clear entries; I know exactly my trades and take them, including exits; the trade size is enough to warrant the attention; I regularly make a target amount each month.
A lot of this might seem pretty obvious but it's a good starting point and it automatically rules out a lot of trades. For example, I would only use options in XJO (the Asx 200 contract) because there is plenty of liquidity and narrow spreads, otherwise the time frame of the trade is too short to justify crossing the spread twice. I wouldn't pick a level to buy a pullback but would wait until there was some sign of renewed strength. I'd avoid slow movers and stocks in a range even if the signal was ok because the odds of a fast move are low. My preferred entry is early in a move so I'd avoid chasing stocks that broke out a day or two previously.
Essentially, the technical stuff is little changed, it's more about my trading strategy and thinking about what I enjoy most about the work. With that clear, the choice of which trades to take is much simpler.
In the meantime, I'm stuck with some underperforming option positions. I'm prepared to write them off because there's a reasonable chance that the market is topping out and I may retrieve some of the premium.
The only trade that is going well, in a small way, is a short position in TOL. In the light of my trading guidelines, I would be shorting this today sometime in mid afternoon. That's because I'm looking for a lower high and the stock has dropped below yesterday's low after petering out at 580 in recent days.
The 60 minute chart also came through with a sell signal this morning when the stock traded below 572.
Although the entry at, say, 572 is worse than the 575 level where I put on this trade, I'm giving myself a much better chance of having the position move quickly now that the retracement seems to be over. I also have a much clearer stop at 582.
(3.27 After taking a second look at this chart above, I realise that there was another sell signal on the 60 minute chart yesterday with the swing down to 572. Even though the daily hadn't yet broken, that might have been a reasonable entry too and would have been at much the same price as the actual trade the day before).
2.22 I think it's most likely that I'll have 5 or 6 trades on at any one time because there's usually one or two that pop up each day. One of those is a new long position in gold play, Intrepid Mines. I'm long IAU at 77 with a stop at 70. I was happy to get long if the stock traded through the Tuesday high of 74.5. I missed the boat at 75 and finally got set at 77. It's very oversold and there's scope for a quick bounce.
The 60 minute chart has a couple of buy signals; a minor one in the trading range at 75 and a more significant one when the stock broke Friday's high of 77.
On a weekly scale, it's the first break above the previous bar's high since this leg began in late February.
The index has had an interesting day. The intraday high is 4377.1 which compares to the high on April 2nd of 4377.5. It looked a certainty to break through but has eased back to 4364. I'd love to see a reversal now.
4.10 Up 14 to 4363, so we didn't get a late reversal. More tomorrow.
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