Is it dangerous to be completely out of the market

[ironchef]

I don't get these posts. You don't have to trade index futures to be daytrading. I've been trading just two stocks (one airline, one tech) up and down during the last few weeks, and been doing great. You can have reasonable stops that don't get taken out in seconds and ride momentum up and down. This market may move a lot, but on an intraday basis, it's still a well-functioning market with plenty of bid and ask volume at all levels.

Obviously, a market like this won't work for all strategies, and that's fine -- no trading strategy works in every market. But for trading actual stocks without holding overnight, it hasn't been that far outside the norm.

Thank you for the comments. I have a couple of questions:

1. How far of a stop? The wide up/down moves make it a challenge to find a correct stop.

2. How do you know when the trend stops?

For all I know, you could just be lucky?

 

[trader99]

Why is this a great trading environment unless you consistently short the market?

I consistently LONG during this market! Both on individual stocks and on QQQs. Making money going long. I didn't short in this total bear disastrous move. I probably would have made more going SHORT.

 

[zoned_post_meridiem]

Thank you for the comments. I have a couple of questions:

1. How far of a stop? The wide up/down moves make it a challenge to find a correct stop.

2. How do you know when the trend stops?

For all I know, you could just be lucky?

Sure -- not sure if these will be useful, but:

1. Really tight -- at most 1%, but more often closer to .25% or even less. I rather get out too hastily than stay in too long in this environment.

2. I don't. My entry signals are momentum-related, and exits are a mix of time and profit target. I think this is a tough market environment for chasing trends.

I'd also say I "don't know" in a more fundamental way. I'm under no illusion that I'm smarter than the market, so I don't even try. Instead, I use basic algorithms, with a handful of input variables, which I backtest by modeling every permutation between them across a specified range. In this environment, I overfit the hell out of my model, because I really don't care if it works in the mid-February market -- it just has to work in this market.

But sure, I suppose there's no way to tell if you're just lucky. In that case, I'll just adjust when my luck runs out. I will say that from a purely statistical point of view, you can assess up to a certain level of confidence if you're just being lucky, and from that perspective, I'm not.

 

[zoned_post_meridiem]

I consistently LONG during this market! Both on individual stocks and on QQQs. Making money going long. I didn't short in this total bear disastrous move. I probably would have made more going SHORT.

Not *that* is remarkable. Most of my trades have been short this month. I'd feel a lot better if they'd been long instead (plus, no pesky uptick rule to worry about).

 

[trader99]

Not *that* is remarkable. Most of my trades have been short this month. I'd feel a lot better if they'd been long instead (plus, no pesky uptick rule to worry about).

If you shorted and made money then of course it makes sense. If someone long and made money then it's something else.

 

[zoned_post_meridiem]

If you shorted and made money then of course it makes sense. If someone long and made money then it's something else.

Does it? I was probably 40% long and 60% short; no idea which side had more winning trades -- I'd have to look back at the stats. But *shrug*, it doesn't really matter. When you're in a trade for somewhere between 5 seconds and 30 minutes, macro-market direction becomes less important. I rarely take notice of market direction on a trade-by-trade basis.

 

[trader99]

Does it? I was probably 40% long and 60% short; no idea which side had more winning trades -- I'd have to look back at the stats. But *shrug*, it doesn't really matter. When you're in a trade for somewhere between 5 seconds and 30 minutes, macro-market direction becomes less important. I rarely take notice of market direction on a trade-by-trade basis.

As a daytrader, we only care about the minute to minute or hours fluctuations. As an investors, it's a different story.

 

[ironchef]

Sure -- not sure if these will be useful, but:

1. Really tight -- at most 1%, but more often closer to .25% or even less. I rather get out too hastily than stay in too long in this environment.

2. I don't. My entry signals are momentum-related, and exits are a mix of time and profit target. I think this is a tough market environment for chasing trends.

I'd also say I "don't know" in a more fundamental way. I'm under no illusion that I'm smarter than the market, so I don't even try. Instead, I use basic algorithms, with a handful of input variables, which I backtest by modeling every permutation between them across a specified range. In this environment, I overfit the hell out of my model, because I really don't care if it works in the mid-February market -- it just has to work in this market.

But sure, I suppose there's no way to tell if you're just lucky. In that case, I'll just adjust when my luck runs out. I will say that from a purely statistical point of view, you can assess up to a certain level of confidence if you're just being lucky, and from that perspective, I'm not.

Thank you. I like your answer.

 

[wrbtrader]

I usually only daytrade but currently i have serious doubt about saving capital

I don't know but I feel it's quite dangerous to be completely _out_ of the market
What if markets closed and then reopen with good news? and market opens 50%+

with all current money printing

I think the appropriate would be 30-40% invested and 60-70% cash
in case S&P goes to 700-1000 redeploy remaining 60%

I think there is a sizable chance it goes to 300 but it still leaves me with around 40% of current capital and in case it explodes with hyperinflation at least some of your capital sheltered

what do you think?

More dangerous to be "completely out of the market" as in cash in duffle bags in your closet or under your bed especially if looting begins.

wrbtrader

 

[Laissez Faire]

The moves are greater, but what makes it a better market for daytrading than less volatile markets? In less volatile markets, one can more comfortable trade larger size to compensate for less volatility. I don't daytrade though, just curious.

Let's assume the average daily range is on the e-mini S&P 500 is 25 points and you can capture 20 % of that with 5 contracts using a 3 point stop:

25 x 0,20 x 5 contracts = 25 points

Current average 10 day daily range is 168 points, i.e., 6 times more than normal, but due to the increased volatility, I'd say you need at least a 10 point stop. Often more. Let's say you need to use a 15 point stop on average.

To keep risk at the same level, you'd then need to scale down # contracts by a factor of 5. So, now you're trading only one contract:

168 x 0,20 x 1 = 33 points

So, bottom line is that current ranges will give you a slightly better payout for the same amount of risk. Of course, there's also a bigger total # of moves on any given day, so the calculation isn't quite accurate.

Still, it's illustrative.

With some exceptions, the tough thing about this market is that the retracements and counter moves are huge and it can be hard to navigate the trading day. I'd say those who are crushing it in this market are either top level expert traders or they're taking on quite a bit more risk than they normally do.

I'm also quite sure there's people who lost quite a bit in this market, but won't easily admit that.