stopsareforwimps wrote:
Can you share any more specifics on this? One thing that comes to mind, along the lines of what you said, is trading against "very emotional magazine cover" type sentiment.
Also buying the bottom of the steep V shaped decline perhaps.
ok, i'll give you example from yesterday/today.
1. i figure stocks is where emotional plays will be highest concentrated, so i ignore all bond/currencies and anything illiquid.
2.BIG gap down in all european indexes.
3. nikkei 225 CME contract goes limit down a few times
4. pull up 3 minute nikkei and dax charts.
5. stand aside while new lows are made in dax in morning trading. wait for a new low which doesn't penetrate very far and then bounces up.
6. observe decline in volatility for a few bars.
7. get long march dax @ 6542, stop at 6529. ride it up 70 points and back down. exit at b/e.
8. buy again after 13.30 GMT after failed attempt at new low, long June dax at 6562, stop at 6542. ride it up. shit takes off. moniter news for rest of day to make sure nothing new happens that will spark off extra panic.
9. mkt closes onside by approx 100 ticks. i decide this is acceptable risk buffer. This is all about overblown fear of radiation. reading about the hard facts of the reactor design types and procedures employed, rather than listening to a newscast loop of some whiney broadcaster trying to inject dramaticism, helped my conviction. Real worst case radiation scenario is only a fraction as bad as the tsunami damage which has already happened. very unlikely chance of another big downside gap after all the high volume selling in the morning. i.e. temporary exhaustion of selling by all those who wanted or forced to sell, and we are 150-200 points above the event lows so far.
10. morning today in europe, opens strong. after mid morning rally tops out and fails to make new highs after 2 seperate attempts, i take off half as mkt trades down through 6725 area.
11. i still have the first half on as i write this. i have a b/e stop in at 6562, and will sit tight. this remaining position could be a keeper.
net result: 1 long term position entered into at a good location(value) and for much lower than normal entry risk(0.1 ATR instead of 1.5-3 ATR i use in my "systems".)
Also 1 small short term trade of 8:1 reward:Risk.
two potential losers of 20 ticks risk.
i would have attempted that long a third time if necessary.
at no time did i put on excessive size. i.e. if it gapped against me by double the previous gap down, then i would have been in the hole for no more than a few percent on my account measured against the prev close. my onside buffer would have absorbed some of this potential loss.
I am not holding this up as an example of a alternative strat to diversify my longer term trading. it isn't for that. I just viewed it as an opportunity to make some extra cash, and keep my brain in the game.
In many ways it helps to view the strat i used in this particular instance as a sort of synthetic option play. i.e. core belief is that value is good and implied vol grew too large; rather than write put options or straddles, i self-broke my way into a cheap long ATM call type off payoff. far cheaper than any actual call option, and with no vega and theta decay to worry about.
Normally I am all for trend following, screw "value" , whatever that is , eh?.
But when EVERYBODY appears to lose sense of perspective i think you need to turn this on it's head, and look at value and animal instincts. make the trade others find too hard to accept the risk for, you'll get rewarded. just don't try and catch knives while they are still falling.
there that is my insight. another example of this type of thinking is when i bought a handful of UK bank stocks after it seemed that the volatility had blown out. it was a more medium term play, i.e. i held the biggest winners for a couple of years. (e.g. long BARC @90p now it is ~300p) and cut the weak ones for a 50% profit still.
rules:
don't try and bet the farm on these home-run setups.
keep it small so you can keep a level head.
wait for volatility to start decaying from it's peak on some time frame or other.
then, get in(don't wait for "confirmation" at some obvious level, as then your tight stop will be more likely to get hit , as it is an obvious entry play)).
use a tight stop.
be prepared to have a few cracks at it, but pace yourself- declare some kind of minimum attempt rate, so you don't overtrade and get caught up in nasty noise too often.
never re-enter lower than first entry- keeps you from buying " all the way down" if market just keeps going south.
don't trail stops tightly- markets are in a crazy way, let them breath.
wait for another opportunity if need be- no-one is forcing you to trade- This is your key advantage.