As i was answering some questions I was asked-and having to think a bit more- concerning the trades I made Friday, I have to recognize that entering the trades i did- in the manner i did- was because of my tendency is to trade MORE aggressively when the trade direction supports my Bias. The fact that the market took a soured look at net wage growth in response to an otherwise positive jobs report - was a minor market negative day -following the 2 prior rally days did not warrant taking as large a bearish position(s) as i did.
If I had not made those trades on Friday, would i still try to enter them long Monday with orders to fill at the open? Pent up demand will often end up with gaps higher- or lower-
A positive open on Monday will have me positioned on the wrong side of the market.
Potentially, I could accomplish the net same short term trade buying fewer shares of TVIX. Initially I bought the VIXY because i felt it was a more conservative way to trade the $vix- but I could have purchased fewer shares of TVIX and gotten 2x the movement.
If the market looks set to open higher Monday, I will likely have to adjust these trades to market sell at the open, instead of allowing stops to be hit- because my stops are relatively tight.
In the following response I outlined some position sizing/RISK approaches that may be of interest to those traders that haven't analyzed how much of their net portfolio they are willing to Risk- Useful if you hit a series of losing trades in a changing market condition-with increased volatility.
______________________________________________________________________________
I think we are likely entering a period of greater market volatility- I think the US market is highly valued- but will grind higher overall- but it may be more turbulent than what we have become generally accustomed to in the past 3-4 years. The market's growth the past years has been substantial, but slowing- Still- last year was well above the historic average of 7-7.5% . We are also well extended in duration, participating in (one of) the longest bull runs in market history without a substantial correction. By all standards, we are technically overdue- but the Fed has played a winning hand in controlling market fears- This run could potentially go on much longer - Moments & incidents that have disrupted it are very short lived - They were all called "Buying Opportunities" after the market resumed it's course.An Earnings shortfalls this coming week could be just such a market mover- Or a terror incident- or an Ebola scare- or The European nations going into crisis- or OIL dropping even lower....global growth fears- There can be any number of short term catalysts - Like the good jobs report but poor earnings-
that set me up for these present trades as I watched the market Friday pm. I may have misread the market's reaction - and the good times will continue to roll on Monday- This is the usual outcome when I allow my negative Bias to influence my decisions.
If the trades go in my direction for 2 days, I will likely be above B.E.
"Are they more Risky?" Leveraged positions- YES, they move in multiples of their underlying-If the underlying moves down 5%, the 2x leveraged will move approx -10% - some a bit more. They vary. Also, due to their daily rebalancing , they can lose even when the underlying goes up. Are they soley for day traders? NO, but generally they are not to be considered as good long term holdings-Good for shorter term holding periods- if you are the correct side of them directionally. Perhaps they are somewhat similar to trading on Margin? Margin allows you to increase your exposure- and that is fine if you hold a winning position. Leveraged ETF's are beneficial if they are going in your direction- but doubly not so if you get the direction wrong.
I do not want to simply match the market's return. If that was my goal, I could Buy the SPY and get that return in 1 trade. I want to be willing to Risk vs being so conservative on all trades and being safer. If I get my knuckles cracked and find i do not have a winning approach that I can effectively implement, I may change my focus. I'm willing to lose some to gain this market lesson.
In other accounts, I am much more conservative.
QID and SDS both initially went in my direction-, but then stalled and reversed. SDS entry $22.10 Sold @ 4% trailing stop $22.31
QID entry $ 39.57 sold $40.13 net 1.4% . Upon not behaving as i anticipated, I adjusted my stops higher
Had they both gone against me initially , I would have had a relatively small % loss. I think the $vix etf's will move proportionately larger than the SPY leveraged ETF. I have to do some homework on that.
In terms of leverage- QID and SDS are 2x the underlying. So, the potential volatility is twice as wide on average- If you are correct, the net gain in the short term is approx twice. For example- If you own the S&P 500 (the market) through the SPY - you own shares in 500 US companies. If you were long the leveraged SSO for the past 3 years (chart to be sent) - and you could withstand the 20% volatility swings vs the SPY 10% , you would have had a substantial gain over 2x the SPY.
Continued in following post- too long winded!
If I had not made those trades on Friday, would i still try to enter them long Monday with orders to fill at the open? Pent up demand will often end up with gaps higher- or lower-
A positive open on Monday will have me positioned on the wrong side of the market.
Potentially, I could accomplish the net same short term trade buying fewer shares of TVIX. Initially I bought the VIXY because i felt it was a more conservative way to trade the $vix- but I could have purchased fewer shares of TVIX and gotten 2x the movement.
If the market looks set to open higher Monday, I will likely have to adjust these trades to market sell at the open, instead of allowing stops to be hit- because my stops are relatively tight.
In the following response I outlined some position sizing/RISK approaches that may be of interest to those traders that haven't analyzed how much of their net portfolio they are willing to Risk- Useful if you hit a series of losing trades in a changing market condition-with increased volatility.
______________________________________________________________________________
I think we are likely entering a period of greater market volatility- I think the US market is highly valued- but will grind higher overall- but it may be more turbulent than what we have become generally accustomed to in the past 3-4 years. The market's growth the past years has been substantial, but slowing- Still- last year was well above the historic average of 7-7.5% . We are also well extended in duration, participating in (one of) the longest bull runs in market history without a substantial correction. By all standards, we are technically overdue- but the Fed has played a winning hand in controlling market fears- This run could potentially go on much longer - Moments & incidents that have disrupted it are very short lived - They were all called "Buying Opportunities" after the market resumed it's course.An Earnings shortfalls this coming week could be just such a market mover- Or a terror incident- or an Ebola scare- or The European nations going into crisis- or OIL dropping even lower....global growth fears- There can be any number of short term catalysts - Like the good jobs report but poor earnings-
that set me up for these present trades as I watched the market Friday pm. I may have misread the market's reaction - and the good times will continue to roll on Monday- This is the usual outcome when I allow my negative Bias to influence my decisions.
If the trades go in my direction for 2 days, I will likely be above B.E.
"Are they more Risky?" Leveraged positions- YES, they move in multiples of their underlying-If the underlying moves down 5%, the 2x leveraged will move approx -10% - some a bit more. They vary. Also, due to their daily rebalancing , they can lose even when the underlying goes up. Are they soley for day traders? NO, but generally they are not to be considered as good long term holdings-Good for shorter term holding periods- if you are the correct side of them directionally. Perhaps they are somewhat similar to trading on Margin? Margin allows you to increase your exposure- and that is fine if you hold a winning position. Leveraged ETF's are beneficial if they are going in your direction- but doubly not so if you get the direction wrong.
I do not want to simply match the market's return. If that was my goal, I could Buy the SPY and get that return in 1 trade. I want to be willing to Risk vs being so conservative on all trades and being safer. If I get my knuckles cracked and find i do not have a winning approach that I can effectively implement, I may change my focus. I'm willing to lose some to gain this market lesson.
In other accounts, I am much more conservative.
QID and SDS both initially went in my direction-, but then stalled and reversed. SDS entry $22.10 Sold @ 4% trailing stop $22.31
QID entry $ 39.57 sold $40.13 net 1.4% . Upon not behaving as i anticipated, I adjusted my stops higher
Had they both gone against me initially , I would have had a relatively small % loss. I think the $vix etf's will move proportionately larger than the SPY leveraged ETF. I have to do some homework on that.
In terms of leverage- QID and SDS are 2x the underlying. So, the potential volatility is twice as wide on average- If you are correct, the net gain in the short term is approx twice. For example- If you own the S&P 500 (the market) through the SPY - you own shares in 500 US companies. If you were long the leveraged SSO for the past 3 years (chart to be sent) - and you could withstand the 20% volatility swings vs the SPY 10% , you would have had a substantial gain over 2x the SPY.
Continued in following post- too long winded!