So, Where Are We Now?

This was the first day in a while that reminded me of trading during holiday seasons past. Actually, a 13 point range in the S&P is only modest relative to some of the crazier sessions that we’ve become accustomed to recently, but the pace seemed a little slower, a little less frantic, today. I was out of the office, and had the rare treat of being able to trade futures a la Todd, which I always enjoy.  I felt that the opening range was a little too tight to make taking the first half hour break to the upside worthwhile, but when a while later the lower end of the range was broken, I was able to make some money, and then took a subsequent short and long, each good for a couple of points with a minimum of stress.

I’m ever so slowly learning to be more deliberate with my entries, which makes reaching profit targets easier and reduces the stress that comes with being under water for prolonged periods, even when the absolute level of risk is well controlled.  I like green, and really dislike red, even though the latter is part of the game.

I have some longer term equity holdings in place, all protected with short calls sold when the stocks were somewhat higher. The stocks are now submerged, but the short calls have been effective in playing defence during the recent downturn, and the net open positions are almost exactly at flat. The calls all expire in January, so time decay will start to pick up in a serious way, and two of the larger holdings go ex-dividend tomorrow. Since the annual yields are over 3%, it’s a nice addition to the total return.

I don’t have a lot of confidence in the macro environment right now, so I’m only looking for stocks that pay 3% plus. When I find them, I immediately look to write calls against them in uptrends, and write puts during downtrends. This isn’t rocket science, and can add nicely to overall returns. I’ll miss some home runs, no doubt, but I’m very happy over time with a succession of singles and doubles, with few strikeouts.

Despite a pretty decent move to the downside in the SPX, the index actually reached a level yesterday (1209.18) that looked capable of providing support. It held, and although today’s close wasn’t appreciably higher than yesterday’s, it’s now 11 or so points above the potential support level. We’re still very exposed to headlines, positive or negative, but my sense is that players are sufficiently short that the upside is more vulnerable to a surprise. I’m about 40% net invested at present, and given the calendar I’m probably not going to put anything else on between now and the end of the year.

It’s important to remember that while Todd focuses in his course materials on day trading equity futures, his techniques apply to all markets and timeframes. I use exactly the same chart setups for longer term equity holdings that I employ when I’m trading futures. Familiarity with how price action tends to work creates confidence, and confidence is one of the things that makes a huge difference in traders’ returns. A confident trader waits for the right setup, enters trades at good levels, and then patiently waits for profit targets to be hit. Confident traders also recognize that headlines or other surprises can change market conditions, and leave appropriate stops.

Traders lacking in confidence will grab a bid or offer as soon as they see a setup, and then exit quickly if the price action moves against them, only to watch in frustration as it proceeds to reverse and head back to reach the original profit target. We’ve all been there, and we’ve all done that, but working with Todd’s methodology can make the learning process much less expensive.

Here’s hoping that everyone is doing well; all the best for the holidays!

About the Author Brian Keith


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