With the wild roller coaster ride going on, its no surprise many traders are questioning the markets. The real questions should be directed inwards.
Charts Courtesy of Yahoo Finance.
Market Commentary – March 2, 2015
With the equity markets at all time highs and central bankers poised to keep the flow of “cheap” money going, the questions most people are asking are 1) When is the drop going to happen? or 2) If the drop happens when is it safe to buy? There are no easy answers nor are there any “correct” ones. The only answers are logical ones.
Charts Courtesy of Yahoo Finance.
Nobody Goes Broke Taking Profits
An important concept to grasp when trading is to recognize when you have beaten the odds and it is time to cash out. This is where the market will resemble a casino. When you make an investment or trade you make a bet on a direction and magnitude, not unlike guessing the wind conditions. Instead of thinking of probabilities and distributions of asset prices and so forth, let’s take a step back. You made a guess (albeit an educated one) on the speed and direction of the wind. You got them both right. Or maybe you are close, you guessed North 5 knots and the wind is blowing Northwest 4.2 knots. Close enough. The point is that you are in a profitable trade. What do you do now? You have several options: Continue reading “Nobody Goes Broke Taking Profits”
You Asked For It – Priceline
The results of the latest poll are in and the most requested topic is Priceline. There are many reasons why Priceline warrants a discussion. Even though it is well below its all time high of about USD$1379, it is still one of the faster growing stocks of the past 5 years. Priceline was the first S&P 500 stock to trade over one thousand dollars per share. With the next earnings report due shortly there is much to talk about.
Ready For the Monthly US Employment Report – February 2014?
The US Non-Farm Payroll report is a popular day for professional traders. The day usually brings a sharp move the moment the report is released on the first Friday of the month at 8:30 AM (EST). Traders usually like to take advantage of the sharp move and close out a position seconds, minutes, or hours later. However, if you hold on for too long, you might be disappointed, as the moves may come back to earth. Be prepared with some statistics for the ETFs that track the S&P 500 (SPY), Gold, (GLD), and US Ten Year Treasury Rates (IEF). The numbers below represent, in absolute value, the size of the moves of the given category. For example, the overnight move (Day Before Close to Open on NFP) for SPY (S&P500) is on average $1.78 up or down. So if you are making a directional trade or a volatility play, understand the size of the move you can expect.
| Ticker | Spot Price | Open to Close on NFP Day | Day Before Close to Open on NFP Day | Day Before Close to Close on NFP Day | Typical 1 Standard Deviation 1 Day |
| SPY | $177.04 | $1.30 | $1.78 | $1.35 | $2.15 |
| GLD | $121.20 | $0.80 | $1.60 | $1.25 | $1.59 |
| IEF | $101.75 | $0.24 | $0.35 | $0.26 | $0.46 |
Don’t let trades outlive their usefulness.
Good luck and trade rationally.
Have Your Game Plan Ready
Don’t even think of buying or selling without having realistic expectations of what can go wrong and just as importantly, what can go right. Here is another intersection of game theory and trading. Without a proper exit strategy you can let the two of the worst game altering forces enter the equation; Greed and Fear. These two forces will alter your probabilities of success. Game theory counts on rational participants. You need to remain a rational participant. Once greed and fear enter the picture most hope of remaining rational goes out the window. Set your targets and respect them.