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    Friday, May 23, 2008

    Timeframes

    I frequently discuss the importance of specifically knowing the timeframe in which we trade. Some traders are able to be long for 2 days, while still having a "core" position short for months. The reason I mention this is I feel that barring a disastrous headline, the financial stocks might stabilize for a few days. They've gotten hammered again, but a breather could be on the horizon. Make no mistake, I will NOT be getting long any financial stocks in the US. The information is still useful, however, since this group typically leads the indexes up or down. I'll use this possibility of higher prices in financials to look to re-enter short positions, rather than try the long side in that group. Being I suspect it will be short lived, I might take a very short (days at most) term trade setup LONG in any of the following: RIMM, QLD, FXI, or EEM. I have not yet done this, and it won't occur until next week, if at all. This is where specific timeframes are crucial. My "better" or bigger trade signals are still occurring on the short side for stocks. If I miss the little long side, 2 day "scalp", I can still use the higher prices to get serious about the themes we've been trading for the last few months. These are being short IYR (or long SRS), short financial stocks (or long SKF), and short some indexes like the S&P500.

    When a trader attempts to trade in different timeframes, it's necessary to adjust position sizes accordingly. Surely a long term, significant setup will require more room to work than a day trade. Thus, the longer term position necessitates smaller size to be able to stay with the trade. I'll work on a page for this site just to discuss how I calculate the size I take on each trade. For now I break it into "units", so readers can gauge my relative bullish or bearish stake.

    With regard to specific instruments, this week is basically not relevant because of the holiday. On the ticker the last few days, I've been commenting on the rotation from various sectors and asset classes. As stated, the $US dollar might take a breather from the decline, but I don't see any massive buying pressure higher, either. This makes for drifting markets, and we'll have much more opportunity to follow through when all the players return next week.

    Keep an eye out for a trade trigger I will get from a catalyst on Tuesday. I cannot be sure the Consumer Confidence # signals, but I have a specific plan if it does. It could be fun to watch, and as always, I'll share exact actions taken when I make the trades.

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