Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Trading-Part 3: The Search For Methodology (Market Sniper)

By -

This is the third installment in a series dealing with the development and the setting up your trading business. For your review, here are the links to the first two posts:

Developing A Trader's Mind Set

The Nuts And Bolts

The search for an appropriate trading methodology can be both rewarding and for some traders, very  frustrating. Most traders flit from one methodology to another in the search for the "holy grail" of trading. You will not find it in methodology. If this applies to you, review part one of the series.

There are two very basic methodologies, Fundamental analysis and technical analysis. If your trading time frame is long term, perhaps fundamental analysis is what you should be looking at as it usually  takes time for fundamentals to be realized in market price. Great fortunes have been built using purely fundamental analysis for trading decisions. The classic value trader should look at the classic by David Dodd and Benjamin Graham (Buffet's teacher) Security Analysis. Now available in pdf format  l You might also wish to pick up a hardbound copy as there have been many newer editions. Most shorter term time frame traders, however, use technical analysis for their trading decisions.

Methodologies in the area of technical analysis are dazzling in their number. Each has their proponents who sometimes insist that theirs is the trading method. There is no the trading methodology. We are all different. What resonates with me may or may not resonate with you and vis-a-versa. Resonance is crucial to you in your search for methodology. It must make sense to you. It must provide you with price points that will allow you to unambiguously enter and exit trades. It cannot create any internal conflict that would make you "up tight" using it.I also maintain that for a methodology to be truly robust, it must be applicable in any time frame you choose to trade and with any trading vehicle that creates a chart.

in your search, take a look at as many different methodologies as possible. May not trade many of them at all but you should become familiar with as many as possible. Otherwise, how will you know a "fit"? Look at RL, Pivot point trading, Elliot Wave, Gann, chart pattern recognition, volume/price analysis, various combinations of indicators, some may even look at astrology, etc. At least become acquainted with the various methodologies.

Become a student of market conditions of the vehicle your trading. Is the market trending? Is it in a tight range consolidation? is it trading in large range? You will need to know how any methodology's results will be under any market condition. If you are using a trend following methodology, for example, do not attempt to trade it in non-trending markets! There is always a market or a trading vehicle that is trending. Find it and trade it with that methodology. Sounds simple and it is. Many traders will attempt to trade their methodology under any condition. Not wise unless such a methodology allows for trading in all market conditions. It is your job to find out if that is the case before risking capital.

There is another way to trade that does not have an over riding methodology to it. There are many traders who just trade various trading setups. Gap fade traders is one that immediately comes to mind. They become proficient and expert at trading certain setups when they appear. To be consistent with this non-methodology requires extensive back testing of setups and knowledge of the long term expectancy of each setup. I personally trade with a robust methodology. I also have added tried and true setups that are not part of that methodology. If your trading by method, only add setups, indicators, etc. that are not part of the methodology that you trade only after mastering the methodology of your choice. Otherwise, confusion could reign.

In conclusion. Methodology goes to trading with a plan. How can you have a plan without methodology or, at a minimum, a proven setup? Find what works for you. Just because a trader you know is consistently hitting the ball out of the park does not mean that you will using the same methodology. So, take your time and shop around. The market will still be there when your ready. A last word: simple is better. Too many traders have so many indicators, it can lead to trader freeze. All the indicators do not line up. It is like a horse bettor. He may have nine specific pieces of information when he handicaps a race and makes his decision. Fifty more pieces of information will not create a "better" decision.

Yours in the continuing search for the trading edge, the Market Sniper.

The Dreadful Quandary

By -

Unless you're hiding in a cave with Osama bin Laden, you know that tomorrow morning's jobs report is supposed to be a real market-mover.

I'm feeling horribly conflicted. At the moment, I've got some nice profits from today's modest downdraft, and after September, believe me, I could really, really, really use those profits. So the nightmare scenario is for me to hang tight and have the market explode higher tomorrow, instantly turning these profits into losses. So the "bird in the hand is worth two in a bush" notion is throbbing inside my head.

Yet these are good charts, and good positions. And how foolish I would feel to cover everything, just for the sake of enjoying some modest, feel-good profits, only to see the full potential of these shorts blossom in a sell-off tomorrow. I've worked way too hard to accept some small profits as consolidation for all this labor.

But that's the nature of risk, isn't it?

A lot of folks in this position might say something like, "Well, I just know if I cover all these shorts, tomorrow the market will plunge." I'm inclined to say that sometimes too, as if the market gods secretly have it in for me. But that's just stupid, isn't it? There are no market gods; there's just the market. And it will do what it wants to do (Shalom notwithstanding).

Some others might say, "well, cover half the position." I guess that reduces risk, but it dodges the essential question: does one stick with charts until such time as they are stopped-out, following the rules I've mentioned many times, or does one play it safe, simply for the sake of playing it safe?

I have no conclusion from this. I'm just typing out loud. I'll continue looking at charts and figuring out what the logical next step is. But – as STU pointed out last night – the talking heads in financial media see the jobs report as a Can't Lose situation: if the report is bad, the mother-f*cking QE2 is forced into reality, and if the report is good, then the economy is good, thus high prices are justified.

Maybe the mere fact the bulls are convinced there's no way they can lose tomorrow is enough reason to know that they'll probably lose.

Your input and thoughts in the comments section, as always, are appreciated.

1007-indecision

Three Scenarios

By -

Recent events have compelled me to have a more open mind about various market possibilities. I present to you three different ideas about where the market could take us for balance of this month.

Scenario One: At Long Last

This is my favorite, naturally, since it pushes down to the target I've been positioning myself for; it takes us to about 925 before reversing and, for the balance of 2010, the market would pretty much head higher.

0908-possible1
Scenario Two: Bullish Breakthrough

Here we have the market breaking the 1130 level and fulfilling its target of nearly 1250, surpassing April's high price. At this point, I think every bear in the world would be dead.

0908-possible2
Scenario Three: Bullish Fake-Out (AKA Tick Everyone Off)

If you believe the market exists to fool as many people as possible, this is the scenario for you. It would push the market above 1130, get everyone buying like mad, and then flip around and create losses for all parties.

0908-possible3

The maddening thing, of course, is that if we crossed 1130, there's no telling if Scenario Two or Three is at play. Strength at this point would be the worst of possible worlds for bears, because it not only results in losses for existing shorts, but for bears that finally jump into the bullish camp, they are at-risk of losing there as well, should the market finally do what they've long wanted to head lower.

My opinion as to which is the most likely? I have none.

Resilience

By -

Let me start with an important premise: I love trading. Because if I didn't love trading, days like today would have compelled me to quit long, long ago.

My love for trading makes the thousands of hours I put into charting and doing this blog each year seem almost effortless. Most of the time, there's really nothing else I'd rather be doing.

So I've had thoughts racing through my head all day long, particularly after the close. I've been questioning myself, my methods, my approach………everything. By "question", I don't mean "dismissing"; I mean critically analyzing. I still believe my style and approach to the markets work best for me, although, unfortunately, it has been very out-of-synch with the market for far too long.

So what has all this thinking yielded? Two important questions I've been posing to myself:

Why not just resort to day-trading? It's tempting. When I read about nummy having something like 28 profitable days in a row, and Market Sniper having – what was it? – something like 50 – – not to mention day traders not having to worry about overnight gaps, it is horribly tempting to throw all the knowledge I've built over the past quarter-century into the shredder and just take that approach. But, simply stated, that just isn't me, and it's not my style. There's a reason I approach the markets the way I do; sometimes it works brilliantly; sometimes it seems foolhardy. Lately, it seems to be more of the latter. But throwing my arms up and completely changing styles just because I'm frustrated doesn't seem prudent to me, although I'm willing to hear other opinions.

What worries you more than anything? It isn't pre-election shenanigans; it isn't monthly OPEX silliness; it isn't the Fed; it isn't Geithner. What worries me above all is…….what if I'm wrong about the economy? What if all this government intervention, in the end, turns out to be a brilliant stroke, and it really does set the economy on the road to a robust economy complete with healthy, growing earnings, growing employment, and worldwide prosperity? What if my sense of "balance" and "natural" is just misguided, and the modern knowledge of economics has yielded a situation where things simply aren't going to roll over again? I have no answer. That's simply my question.

0901-depressed