Thursday, August 16, 2007

If You Feel Like Throwing up, Go Against Your Better Judgment

I subscribe to the theory that when things are at their worst, when you have that knot in your stomach that makes you want to throw up, and you feel like there's nothing but gloom ahead, that is the time to do the opposite of what your emotions are telling you to do.

I call this the George Costanza Opposite approach to trading. Pay attention, this is some of the technical stuff I have ever posted here.

George one day realized that every decision he had ever made in his entire life had been wrong. So he decided that when he had a strong instinct to do something, he would do the opposite. No surprise, the decisions that went against his better judgment turned out to be the right moves.

I only had two positions today, so I had little invested in the market. By the time the Dow was down 300 points, I was stopped out of both positions. However, once I saw the red three hundred flashing before my eyes, I got really nervous. I know, it made no sense, since I was 100 percent cash. Yet there I was, pacing back and forth at my desk. I knew I looked like a fool, so I sat down. That's when I felt the butterflies.

Since I had no positions to exit, I told myself I should sell the market. I felt like I was about to miss the big move. Then I remembered something I had read before. When you just can't take it anymore, that is when a bottom is coming. I immediately went into Zen mode and cleared my mind of all preconceptions. I took a look at some charts and noticed how oversold the market was, so I decided to buy.

I bought ZEUS and RIO, even though the steel sector is on my short watchlist. I bought LEH, AAPL, BIDU, CROX and NOV (I'll post the trades tomorrow). Note that these are very short term plays. I still think the expected bounce might not last, and we could see more to the downside.

Since everybody has analyzed the indexes, I'll refrain from posting the SPY chart. Just remember that a positive hammer stick printed right at support on heavy volume. At the least, this is a sign that we will see a short term bounce.

One last point. It seems that everybody thinks a bounce is coming. CNBC, the Fast Money guys, respected bloggers and even crappy bloggers. This worries me. When everybody thinks the market will zig, that's when it is likely to zag. Maybe this will cause the expected bounce to be short lived. Or maybe I'm just too paranoid.

6 comments:

Will said...

Very good stuff, as usual. If they made a box which we could plug into the back of our computers which would secretly reverse every emotional trade we entered (i.e. go long when we felt like we just "had" to go short)... I'd be sleeping late in my beach house right now instead of getting ready for work! Best of luck!

Anonymous said...

The market speculator, don't know your name. Congratulations with right thinking for making money from market. Get huge profits from your longs today.

Best regards and profits from market,
Leon

Anonymous said...

I think you are betting on oversold condition, and hope you bought it based on rebound in the eve.But the explanation for that is really stupid. Anyway you are lucky, the market futures are up.

Good luck.

Tajir said...

You said "I took a look at some charts and noticed how oversold the market was, so I decided to buy."

What charts do you usually look at in order to determine that market is in oversold territory?

The Market Speculator said...

A quick note that I have unloaded all of my short term positions and am back 100 percent cash. Made some good money today and will post trades later today.

The Market Speculator said...

Will, you sound like Costanza! I share your sentiment.

Thanks Leon!

Thanks for the feedback, anonymous.

Tajir, for specific stocks I focus on stochastics. For the market, I look at a number of thinks, including stochastics, % stocks above moving averages, advance/decline and a few other measures.