Warning: Following my trades may be hazardous to your financial health. See Disclaimer.

Thursday, March 29, 2012

Market Most Often Does The Opposite

It's indisputable that market wants to do the opposite of what you want, and most of the time it gets its way.  That's why we have the contrarian indicators such as the bull-bear sentiment spread, max pain in options open interests, put-call ratios, and so forth.  You can also add me to the list as I often spell out what I look for in the market. lol.

Even in the everyday trading, you can't deny witnessing it.  The moment you sold, the stock starts to go up.  Your stop loss got triggered during a stop run.  You want the market to bounce on a support, but it cuts straight through.  You throw in small token shares, and that stock goes up 20% in a day.  You oversize a stock because all fundamental and technical analyses look good, but that stock keeps going down for no apparent reason.  You capitulate during an exhaustion candle as you come to your sense on the magnitude of your loss.  And so forth.  May be it's just my own personal experience which I often attribute to jinx, and you're all spared from such taunting by the market.  Congratulations!

This is a perenial phenomenon. What triggered me to write about this topic is TVIX.  I went out of sync with it. I was lucky I missed the biggest drop due to the news from Credit Suisse.  I got it on possible support on lower channel line. The next morning it gapped down and ran. The next day it backtested the lower channel line and I cut loss. Yet the next day (yesterday) it gapped up and ran but ended in shooting star doji.  So I look for second leg down for a potential double bottom.  Guess what, this morning it gapped up instead.  Wild goose chase.  Catching a moving target.  Whipsaw.  Whatever.  What's particular about TVIX is its recent moves are violent, double digital percent moves up and down.  So it magnifies every emotion and psychology on the trades.  This morning I found had I used the alternative upper channel line, the TVIX prospects would have looked much different 2 days ago.


What are some attempts to counter the market?  Try your luck with the following:
  • Think like a crook.  Put your shoes in the wicked greedy financial institutions and do what you think they would do.  Think window dressing. Think boom bust cycles.  Think political cronyism.
  • Don't do the right thing.  America is bankrupt, and the rest of the world is in recession.  But don't get out of the equities, because the Dollars will continue to be printed and the banksters will continue to fleece the tax payers till the end of the world.  And when the world do end, nothing really matters.  So stay away from doom and gloom.
  • Do the opposite of what you think and want.  Until you admit yourself into the psychiatric ward, this should work.
  • Position sizing.  On a more serious note, if you can right size your position, you can reduce a lot of emotional interference.  Smaller sizes and bigger stop losses on high beta stocks.
  • Don't watch the market all day.  Once your in, every move on the market gets magnified to trick and plague your psyche. Go play piano for an hour before returning to your screens.
  • Go with the market. I am saying this because everyone is saying it.  But in reality, this is bogus.  It all depends on what time frame you're looking at.  Intraday charts say the market is on a down trend while the weekly charts say the market is on the up trend.  Should I turn a failed day trade into a multi-month swing trade?  Should I turn a swing trade into a day trade because the profit/loss during the day since entry have all of a sudden become significant?
The list could go on and on and that's not my intent.  I've done my own psycho therapy for the day.

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