With thanksgiving over and a lazy month end markets look slightly higher but not enough for me to enter. I’m still sticking to my original strategy and when the Santa rally comes I will hopefully be ready. At the moment I’m getting itchy trigger finger but resisting the temptation to trade just for the sake of trading. It’s often better to sit tight and wait it out till the opportunity presents itself. I hope you are all having better luck out there.

Entry: 4300 – 4500 FTSE 100 March 2009
Exit: 3600
Stop (Mental): 4700
Point Size: 5 Euro ( 2 x 2.5)
Return Value: 3500

Total Profit Week: +880.00
Account Total : 6920.05

I dipped my toe slightly into the water last night a little too early with a tight stop loss on a long position. I had the right idea but the stop did its job and took me out. When in doubt a stop is your best friend. The trade was in the right direction and at the time the FTSE 100 was down 3% which would have made me 300 Euro by this mornings opening prices. I don’t feel too bad and for the moment I’m going to wait and see. I think there are two scenarios that I will be looking at.

Scenario One
Today is options expiry day and I’m going to see what way the market closes. Based on previous trends this day can lead to a reversal. Depending on the size of the reversal I might do nothing and let this long play leave without me. If this is the case my next trade will be shorting the FTSE 100 at the previous high entry of 4300 – 4400 (assuming a Santa rally takes us to this). Based on Dell results the NASDAQ could also bounce as most stocks are at their 52 week lows including Microsoft, Apple, Yahoo and Google. I am even tempted at these prices but I think we have further to go and will be stepping in once new lows are reached.

Scenario Two
The DOW closes lower after a volatile session in which case I would be willing to go long on the FTSE at 3750. Anything around the previous lows would interest me in a long position. My reasoning is that markets on very little good news are willing to rally. Slightly better than disastrous sales over Christmas could lead to a short term rally.

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I can’t help feeling there could be a rally sometime soon. This is obviously the greed aspect of a trade as I’m up 800+. My exit target is 3700 but this is very close to Christmas and volume is relatively low which could indicate the possibility of a bounce should the DOW switch mode and do a u-turn.

There have been many days like this where the DOW pushes lower and then flips to rally a few hundred points after a few days of selling. The flip side is I know markets will push lower but before they do they may spring a pull back before retreating again in the New Year. A Santa Rally is a powerful thing and caught me completely off guards last year. Markets like these are manic at best and can have the most irrational mode swings that can wipe you out. If we rally I want to take my profits and then short again.

When I originally posted my trade diary I was expecting to have to wait a few weeks before I could short but in these markets bounces of 10% are not uncommon. No sooner had I posted that the DOW rallied and I jumped in (FTSE 100 MAR 4400 – Sell -2.50). I had intended a 5 Euro size but beggars can’t be choosers and I’m not complaining.

Essentially what I’m getting at is that the sell off whilst rational doesn’t feel right it seems too orderly. Maybe I’m just being emotional and should follow my conviction but then again maybe a trailing stop could be the tonic. Interested to hear any views?

Total Profit Week: 0.00
Account Total : 6,040.05

I have closed out the last of my bad ill timed trades that resulted from punts rather than market analysis. As stated in a recent post I have changed my ways and will be documenting my strategy before I enact it.

Strategy Going Forward
Whilst I have somewhat missed the boat I know that these markets have become somewhat schizophrenic and will forget the downside and look upward again. My strategy is simply to short the rallies, nothing more complex that that. My entry will be starting at 4300 on the FTSE 100 with 4500 being my optimum entry point. I’m going to wait for the next rally even if it takes a few weeks. The position will be based on March contracts and my exit strategy will be 3600. Here is a quick breakdown.

Entry: 4300 – 4500 FTSE 100 March 2009
Exit: 3600
Stop (Mental): 4700
Point Size: 5 Euro ( 2 x 2.5)
Return Value: 3500