Originally posted by Runningbear
Aphie,
Looking at that IBM chart, if you draw the resistance line directly from the two previous highs, you would already be above it. You've bent the trendline to suit your opinion.
And what's worse you are assuming the current price is a high, when it hasn't proven to be yet. It may only have completed 30% of its potential move. It can't be a high until it has pulled back into the channel.
Im not saying it won't pullback, but your entry is close to coin flip.
Runningbear
So in effect, what you are saying is that I am taking a hunch and just drawing lines on the chart to prove myself correct for psychological satisfaction?
Well, that might not be so far fetched, really.
One of two things is going to happen early next week, and I need to make a decision. Either the market will continue to prove me wrong and, at some point, I will need to close my two positions (short and long). Otherwise, I could close my long positions for a loss and keep my short positions open to keep at or slightly above break-even and risking two naked puts on IBM for a few weeks.
However, I'm in a precarious situation. Honestly, what I should have done was recognized the volatility of the situation and opened up a corresponding bullish debit spread and had a profit so long as IBM made some strong move away from it's current point by expiration's time.
I just like options because there is practically endless creativity involved.
I don't see the market as reversing. There is still huge looming problems ahead and this market seems to be taking a bump up from a strong trend down.
If I'm wrong next week then I'll sell for a loss. Isn't that what you are supposed to do? You make a trade for a specific reason and if you are proved wrong, you get out and cut your losses, correct?
