Dunning Kruger Journal

[maximumpossiblesuffering]

ES tested it's low of the day and VXX tested its high. Intraday, the is a potential double bottom brewing in ES. My stop on VXX is 30.14. YM is outperforming significantly by only being down .1% so far. This may imply someone has positive expectations on trade negotiations. Even the consumer stables sector is affected by trade relations as the multinational companies in the Dow have increasingly looked towards exports for faster growth.

I will close VXX by end of day if not stopped out and YM does not significantly take out its lows on the day.

Out of VXX at $30.28. Stop was not triggered for some reason. One consolation of trading small size, errors and glitches don't hurt as much. This apparent glitch cost me an additional $4.40. Now to investigate why this order was not filled.

 

[maximumpossiblesuffering]

Raising stop on VXX to $30.40 on short term support time allowance and time of day considerations.

 

[maximumpossiblesuffering]

Reviewed my trades for August and the first week of September. Although my account matched its previous all time high at the end of August, I had an open position that gapped strongly against me the first trading day of September. I also chased a trade last week that ultimately resulted in a loss. All told, my account is now only up $30 ar about .1% after being open for a little over two months.

By asset class, I am profitable in futures and futures option trades. I am unprofitable in stock and stock option trades. By time of day, I am profitable in after hours trades and unprofitable during regular trading hours. By trade duration, my intraday performance exceeds my overnight performance.

There are too few trades in this account to draw any strong conclusions. However, I feel there were some clear, basic mistakes made by myself as well as some evidence for hope.

Taking swing or longer term position trades against the underlying trend on the daily charts not just once, not twice, but at least thrice were my biggest losses and had a perfect 100% losing rate. I must burn into my mind that I am am playing a losing game by fighting long term trends with swing or longer positions. The nebulous idea that something too cheap or too expensive is an unsound trading "method". Reading market sentiment and responding accordingly is a better way to look at a potential trade.

I noted a couple of times in this journal that I was chasing a trade as I was putting it on. Although each of these trades briefly showed immediate "scalper's" worth of profits, prices soon reversed against me after hitting obvious support or resistance areas. I ultimately took a loss on both of these trades.

There were some good day trades where I entered well, during the early part of the US regular session, and I took profits at likely support or resistance before lunchtime. It seems that initial support or resistance, say the previous trading session high or low, initially holds. Given there are usually only 2 to 3 trend days per month, it is probably best for me to take this "easy" day trade money at support/resistance areas and be done for the day except, perhaps, overnight option ideas.

After reviewing option strategies and following the action on some options over the last few weeks, I feel more comfortable about focusing more on options trades. There appears to be some interesting opportunities as shown by unusual volatility surfaces in certain options. I will talk more about this in future posts, but it appears to be related to risk reduction strategies by, presumably, hedge funds. Briefly, my idea is to create either front end option ratio spreads or overwrite strategies where option volatility surfaces show: significantly increasing implied volatility as one goes further out of the money, implied volatilities substantially more than historical volatilities, and my assessment that actual volatility will not dramatically increase during my one week or less option trade holding period.

 

[maximumpossiblesuffering]

TSLA was up in US premarket trading the last time I checked. Apparently their accountant has resigned. Historically, whatever spin that some may try to put on it, has preceded accounting issues and a large drop in stock price.

God help TSLA if their financials are even worse than what has been actually reported. These are not good times for the auto industry right now. Ford, GM, Toyota, and Honda, among others, are suffering from weak consumer demand for their products.

Toal cost of ownership of a Tesla vehicle and some operational inconveniences are not impressive when compared to traditional gasoline powered only vehicles. Battery technology needs to improve to the point where capacity per pound doubles, in my estimation, and improvements in battery efficiency when driven in colder temperatures or increased battery life when operated in hot temperatures.

I feel TSLA is a $10 stock selling for $272 right now. Other than short squeezes, I see upside days as becoming rarer events.

Looks like ES is getting a strong start in US premarket. Without some clarity on trade issues, it is hard for me to get too excited, unless this is a "buy the rumor" play. China and other developing countries have seen their equity markets come under pressure to the point of reaching 52 week lows and economic performance concerns seem warrented. Australia trades a lot of resources to China and seen it's equities and currency depreciate significantly.

Over time, trade uncertainty will start spilling into the performance of the US economy and stock market.

Although LME and CME warehouse supplies of base metals has declined dramatically over the years, prices of base metals have been very weak lately. This is not a good sign for global economic growth. The withdrawal of metal supplies may have investment related and merely moved to different and cheaper storage locations, stockpiling by certain countries in case of global tensions heating up, or actual refining demand. In the case of nickel, China has apparently seen a build up in their finished nickel product supplies.

I'm thinking ES and correlated investments will see a trading range today and going forward will have a hard time making much headway into new record highs without getting a solid trade agreements with China and Europe.

Ultimately, a trade deal will be reached between all the trading partners, but will postponed business hiring and investment over trade-related uncertainty and potential supply chain disruptions be avoided in time to avoid a global economic slowdown?

 

[destriero]

Dude, passbook savings has more volatility than this account.

 

[maximumpossiblesuffering]

Increasing my risk allowance to $150 per trade or about .45% of account value.

I had three trades last week and left a lot of money on the table. I netted $7 profit. Overall, it seems many of my underlying trading ideas are sound, but my method of implementating trades based on those ideas could be better. For example, selling a deep out of the money put on crude oil and seeing it rally $3.00 in two days. My trade idea was based on a lack of symmetry in the markets with instead of crude leading the way, is was lagging. I also made an error in the determining the correct time of day for Chicage grain markets and entered a trade too early, instead of near the close, thus exposing myself to an unnecessary stop loss in Wheat. This would have been another very profitable trade.

Although I rarely trade Sunday nights, I was very active last night. I got short NQ and made a painless 3 points, Shorted a 10 oz mini gold and lost $.50, Bought a $10,000 mini CAD and gained 3 pips, and bought a mini NG near the Sunday session open for a position trade.

Favorable trade fundamentals are based on natural gas inventories being below the five year average and going into seasonal strength into a year that seems likely to see increased heating days. Natural gas production is rising in the US, but there are much less new wells being drilled than a few years ago. Well productivity typically declines very rapidly after first year of production, tampering off more slowly over the years ahead. In other words, natural gas production could level off if we don't see an increase in exploration soon. In addition, LNG exports are increasing to meet global demand. Japan is an important importer with their heavy need for natural gas and specialized LNG ships are being built.

The time frame for this trade is into January and initial price target is $4.50ish. Should the US see another "polar vortex" develop over the Winter, Narural gas prices could double to $6.00 in my estimation. EIA.gov is a great resource for energy product research, reports, and statistics.

Although US index futures were generally down the last time I checked, looking at rising Nikkei Futures (Japan equity market may be closed today), FXI (China ETF), EWZ (Brazil ETF), and Dow futures however, seems to suggest that a US trade deal with someone, such as Japan and maybe even Canada is pending.

Interestingly, VXX was down the last time I checked. Took a quick long early trade, but lost $.03 on a hundred shares on this lower confidence trade and my change of heart.

In the coming weeks, I am hanging on in my belief that volatility will increase and intraday trading will become particularly enticing and options strategies will have higher payoffs.

Later this week or by the weekend I will talk about some Psychological thoughts on trading.

 

[maximumpossiblesuffering]

More positive numbers in the US job market, strong US trucking volumes, steepening of yield curves over past month, lower SP500 volatility index, and all time highs in ES and YM are certaintly bullish signs. The Dry Baltic Freight Index is lower from its recent peak n July, however.

Base metals, energy, global equities markets, and foreign currencies have gained strength as well.

Trade tariffs are basically a tax. Just as the US Equities markets rallied in part during 2016 on tax cuts, it is interesting to see the US market shrug off trade tensions and tariffs.

Trade tariffs / taxes puts more money under Governmemt control that creates more opportunities for increased Socialism or Crony Capitalism. Either one of these developments stifles incentive and tends to increase income inequality over time, in my opinion. Lower productivity and innovation will be the result and the global economy will disappoint in the future.

Who knows how long the economic and stock market party will last in the US? Could it be years? When the turn does come, it will likely be severe as there are multiple structural issues such as Demographics and high government, corporate, and consumer debt.

The best action I can think of in our current environment and likely economic future is to be diversified in both our investments and personal skill sets. I am increasingly becoming interested in alternative stores of value such as precious metals, farmland, and certain capital goods such as what one would find in a machine shop. Yes, I'm thinking inflation and increased self independence.

Natural gas has not had much of a correction from its recent large two day move. I was looking to add by the close today or early tomorrow. However, I was assuming today's price would take out yesterday's low on consolodative type action. I will look to roll my October contract into November on by the close on Friday. It may have been better for me to have either bought the November contract in the first place or rolling out on Tuesday as the price differental has moved against me on Wednesday and today so far.

 

[maximumpossiblesuffering]

I see TSLA is below the open and $300. Bought a bear option spread in puts. Bought 1 TSLA 9-21-18 $295 Put / Sold 1 TSLA 9-21-18 $290 Put @ $1.38 debit. Stop will be at $.69 debit. Target $4.00. I see ES and TSLA just rallied. May short ES upward spikes for scalps.

 

[maximumpossiblesuffering]

Still not fluent with my trading platform. Thought my order was a spread, but saw that I was long a TSLA put, So I closed it out. Then I came to realize the way I had my watchlist and the way IB does spreads was the cause of my confusion. I actually did have a spread after all. I also exited my short option portion of the spread separately. All told, I received a debit of $1.65 after being up a point or so.

This TSLA trade an unexpected opportunity and I was not fully prepared for it. Usually, I try to anticipate opportunities.

In a meeting now, but will look for quick scalping opportunities in ES or its derivatives on the short side.

Correction: My TSLA spread HOD was only $2.00. It was not up a point on a day.

Natural Gas is now at strong long term resistance. If I had multiple contracts, I would take some off here. Instead, I will roll into November an look for opportunities to add to my position on corrections.

Stock and bonds are both up strongly. There may be opportunities on the long side in precious metals today or in the near future for swing or position trades.

Bought 1 SIZ2018 (1000 oz) at $14.29. Stop and objective to be determined. Stop will be about $.10 away or so.

 

[maximumpossiblesuffering]

Sold 1 QGV2018 (Mini Natural Gas) at $2.975 to close because of strong resistance and loss of momemtum on 5 minute bar chart. Was long at $2.775 on Monday. I figure even if natural gas can break through resistance, it will at least correct back to this level. This appears to be a case of very strong momemtum due to strong fundamentals versus very strong and established resistance.

I hope I don't get left behind and this situation really makes the case for holding multiple contracts if risk tolerance will allow it.

Happily, my account value has decisively hit an all time high. Looking forward to posting screenshots of results this weekend.