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    Friday, May 9, 2008

    Morning update w/today's plan


    The markets have been pretty good to me the last several days. I exited SKF yesterday with a decent profit (10 points or so), and today I'll enjoy the gap down in stocks (short EEM), and the corresponding run up in commodities. Both are trends I've mentioned at least every few days. Ok, enough celebrating, and on to how I'll trade today.

    Since the markets are contained in a tighter range, I've been taking advantage of the "counter-moves" to either add, or peel some of my profitable positions off. This doesn't mean my trade direction has changed, rather that I don't let profits evaporate while pushing for more gains. Instead, as stocks drop I book some gains on perhaps 20% of my total position, guessing that I'll be able to replace the shares on a move against me (rallies against my shorts). Because of the ranges, this strategy is working well so far. Today I'll leave positions alone until after 10 am, then assess the direction. By 11:30 am or so, I'll either have booked some profits, or added at higher prices resulting from a move up. In any case, I'm trading from strength, and I'm in control of all that is controllable. This has been a nice environment to capitalize on the typical ebb and flow of prices, as they gently drift in one direction (lower).

    On days like these, I'll start to compile a list of my next potential setups. For example, I've been scoping the ZB futures (30 yr Treasury bond) for a short side trade. But don't forget some long candidates in the stock market, too. This serves two important purposes. First, it keeps me balanced and flexible, as I'm "open" to ideas on the other side of my current positions. Secondly, I'm able to capitalize on the next move up, should it materialize. Don't confuse my being short stocks, or my negative economic outlook for the US, with my trades and setups. They are two separate ideas. I trade for money (and enjoyment), but I read reports, articles and blogs for entertainment only.


    Readers know I've strongly discouraged, through my own actions, as well as writings, shorting commodities for the time being. I can't count how many times, on numerous blogs, "traders" keep picking the top in Oil, rice, corn, etc. This has been a losing trade for a long, long time. If one does pick the top successfully, they will not ride it for huge gains, because fear will cause them to take profits way too early. If you visualize the trade, you can imagine how you'd feel losing 5 or 6 times shorting Oil, then once you "get it right" and have a $4 profit/barrel and see it start to creep up again, you (and me) would take the profit because it runs higher every time. This is just poor risk/reward trading. Oil has run from $100 to $125 in a short period of time. $25 risk vs. $4 reward is weak! One day, oil will start a downtrend, but until then, look to be a buyer or just stand aside.


    Regarding my commodity positions, I am getting close to sell signals and will act accordingly. Although I'd like to have had the same movement as Oil, a signal is a signal, and whatever profit I get might be all the market is willing to give this time around.


    For entertainment, read these:








     

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