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Trader’s Log

When I first created this Traders Log I had planned at some point to start adding new posts. Other time priorities, however, changed this expectation. I do not anticipate adding posts in the foreseeable future. I will leave the posts I originally provided in place. These posts relate to trades that motivated me sufficiently to write a comment to reinforce market lessons. They are notes that I wrote to myself. But I believe that most traders will find at least some of these comments helpful and quite possibly personally pertinent. The number of entries are far fewer than the relevant trades because, in most cases, I didn’t take time to write up the trade. Unless otherwise noted the charts were generated on the Thinkorswim platform on Ameritrade.

Jack Schwager

#19 JUNE 28, 2012 SHORT DESPITE SHARP NEWS SPIKE RALLY

Posted by on Aug 5, 2012 in blog | 0 comments

Situation–Went short S&P on limit order near top of flag forming near low end of trading range, looking for downside breakout. Used 4-cent stop. This was reasonable trade. Noticed there was sudden sharp rally, which turned out related to news of decision to support Spanish banks. Market stalled near entry. Considered lowering stop sharply or getting out but stayed with original stop and was stopped out as rally carried much further. Mistake—Sharp rally occurred between US close and Europe open on big news item. At a minimum would...

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#18 MARCH 2012 THE MONSTER MISTAKE: THE INADVERTENT TRADE

Posted by on Aug 5, 2012 in blog | 0 comments

Situation: I had initially gotten long when market lower by buying FXI calls. As market rallied, I hedged by scale-up selling in NQ, QQQ, XRT outright and long puts, anticipating a potential high in those markets. I thought I was approximately neutral. But then in March, equity starting evaporating as FXI weakened at same time Nasdaq and XRT stayed firm and even moved higher. Although I had not intended to place a ratio spread trade (or even generated this chart until damage was done), that is the trade I had inadvertently backed into. As...

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#17 MARCH 22, 2012 COUNTER-TO-EXPECTED PRICE ACTION AS SIGNAL

Posted by on Aug 5, 2012 in blog | 0 comments

The VXX was trading down more than 1%, not far from previous long-term lows, even though S&P was down early in day and nearly 2% lower than it had been at the VXX low a couple of days earlier. I had expected to see the VXX up a few percent and was shocked to see it was down. I was two-thirds positioned on a measured move based buy. The extremely poor action was a strong warning signal. I should have gotten out. I didn’t do anything and the market fell more than 5% more during rest of day. Mistake—I ignored that market I was long was...

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#16 MARCH 2, 2012 SHALLOW SLOPE UPTREND CHANNEL AS SIGN OF WEAK MARKET ACTION

Posted by on Aug 4, 2012 in blog | 0 comments

  I had large call position in DBA leaps. I was already concerned because of extended period with no follow-through after weak bounce following long slide. The extended, narrow, shallow uptrend shown in chart seemed like weak action vulnerable to downside breakout. I was almost tempted to go short so covered entire deep in-the-money long leap call position, even though I had to liquidate with zero time value for options given B/A spread. How it Turned Out The market traded lower for the next three months and was able to replace same...

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#15A MARCH 1, 2012 WEAK ACTION DESPITE CORRELATED MARKET STRENGTH

Posted by on Aug 4, 2012 in blog | 0 comments

The Euro had been strongly correlated to stock market (e.g., NQ). Then market witnessed a downswing and consolidation, even though NQ had moved to new high for upmove. This seemed like extremely weak action and went short. Trade worked. Liquidated less than two weeks later on lowered stop at 131.39. #15B MARCH 9, 2012 WEAK ACTION DESPITE CORRELATED MARKET STRENGTH  Very similar to trade above: market witnessed a downswing and tight flag consolidation near recent lows despite NQ moving to near highs of upmove. The market stayed in very tight...

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#14 SEPTEMBER 5, 2011 SHALLOW, EXTENDED UPTREND AFTER A DOWNSWING

Posted by on Aug 4, 2012 in blog | 0 comments

  The market witnessed a very low-sloping, narrow, extended uptrend channel (highlighted oval) following a downswing. This very week uptrend seemed vulnerable to another downswing. Overnight, the market collapsed by 1100 points due to a sudden, forceful intervention by the Swiss National Bank. In terms of Return/risk and time duration, this was the most profitable trade I ever made or presumably will ever make. A $400 stop loss point generated an open profit of over $12,000 in less than one day. I lowered the stop by nearly 1000 points...

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#13 September 2, 2011 REBOUND AFTER BREAKOUT AND SAUCER CONSOLIDATION

Posted by on Aug 3, 2012 in blog | 0 comments

The market had witnessed a sharp downtrend from a record high followed by an extended, narrow consolidation. This consolidation led to the implied downside breakout. However, market then rebounded back into the consolidation and formed a small saucer pattern near the top of the rebound and well within the prior consolidation. The ability of the market to rebound back into the consolidation and then form a narrow saucer consolidation suggested the potential for a near-term upswing. Went long the consolidation at night. The market rallied...

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#12 August 26, 2011 MARKET REVERSES ON SAME NEWS ITEM

Posted by on Aug 3, 2012 in blog | 0 comments

On the day in question, the market set a new low on the move as Bernanke’s address, was initially viewed as bearish. He was not expected to announce any new action and he didn’t. Subsequently, the market rallied sharply, finishing the day strong, as the address was supposedly considered constructive because Bernanke made a mildly optimistic comment about the longer-term economic outlook. The market continued sharply higher into the following week. Lesson: When a news event is initially considered bearish (bullish) and on the same...

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#11 August 26, 2011 MARKET DEFIES CORRELATION AS INDICATOR

Posted by on Aug 3, 2012 in blog | 0 comments

During this period, gold had been acting as a safe haven alternative investment to equities, moving in almost inverse lockstep fashion to equities. The correlation between the two markets was running out – 0.9. Preceding the day in question, it can be seen that the downswing and upswing in gold corresponded to an upswing and downswing (moderate) in the NASDAQ. On this particular day, equities reversed sharply from lower to higher. The strong reversal to the upside should have resulted in a decline in gold. Instead, gold rallied sharply...

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#10 August 18, 2011 TIGHT FLAG AFTER SHARP DOWNSWING

Posted by on Aug 3, 2012 in blog | 0 comments

This is same trade on same day as chart in entry #9. When tight flag pattern formed after downswing (red lines) suggested strong chance of another downswing. Lightened partially on this formation, which was right thing to do. Lightening more would have been even better. Lesson: Tight flags after near-vertical swings usually result in continuation of...

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