The answer to the question “Is this rally is real?” depends on your timeline for trading or investing. For long term investors, 9 month to 5 year timelines, which is the majority of average americans managing their retirement accounts, the answer is no, the rally is not real yet.
For shorter term traders, 5 days to 2 weeks timeline, those of us with an avid and daily interest in the market, the answer is… it’s time to treat it like a rally. Which, for me, means reversing short positions where applicable, and/or entering new positions as indicated. In this case I found 2 symbols from Asia that fit the bill.
First for long term investors and those investing their own retirment funds (Timeline 9 months to 5 years)
Nothing has happened long term. I’ll do an update on the monthly long term charts in early April. So far this month there have been nice price movements, and some decent volume over the last week or so, however for now it is still thin on long term positive sentiment signals. The party is only for short term players…at least so far.
Short term perspective (5 days to 8 weeks)
Short term traders, those of us follow the market on a daily basis, it’s been exciting week or so. All the sentiment and volume signals the market has had broad based short term rally over the last week or so of trading. On 5 day to 8 week timelines, excluding intraday day trading, it looked like a rally on rising volume in the 20 plus major markets and sectors.
I’ve also identified 5 or so broad based symbols that have confirmed negative sentiment.
My goal is to post all 20 broad market charts by tomorrow. But for right now I wanted to put up the 2 that I went long on this morning with short term trading funds.
My criteria was inexpensive, broad market based (very important!) Exchange Traded Funds (ETF)s. The price must be where I can purchase a significant amount (100 min) and completely reverse, place short positions in equal amounts when the mechanical chart criteria had been met.
This is all on a shoestring budget of course.
In order to open, close, reverse my positions I use 3 sentiment indicators to signal trade decisions on the charts. The first sentiment indicator is the price itself in relation to the moving averages. The second sentiment indicator is the moving averages in relation to each other. The third and final sentiment indicator that I use to give trading signals is the 2 line MACD.
The difference between my indicators and anyone elses, is the numbers I use. The numbers I use for the sentiment indicators are related to repeated psychological and behavoiral habits in humans when dealing with financial market forces.
In this case the signals were on the daily chart, for long positions. On short term trade entry I’m looking to lower my risk (my main proirity) by getting in close to the moving average price, which I will be using as my main stop reverse price quote. My actual stop will be placed base on several factors including the stop reverse price quote.
I am entering now, but the plan is to be 100% exposed either short or long as much as possible. Believe it or not I’m doing this because I believe I lower risk by doing this. I know it sounds crazy, but give the idea time to sink in.
All of my stop orders are automated. They just happen when a set criteria is reached, weather I’m there monitoring or not. It’s just better for my psychology that way and mentality is everything. I will adjust the chart Moving Average Prices by .20 or .30 cents more when I actually place my stop order.
My stop orders are good for today only. I must go in everyday and check and perhaps adjust my stop reverse price, adjust it slightly for some psychological factors, and place a stop loss trade for that trading day.
Projected earnings are based on the moving averages. Usually the price is stopped out for gain or loss based the Simple Moving Average. Because it is based on moving averages, the stop reverse price for this type of trade must also be checked and updated and reset every morning.
I don’t leave my stop orders in place overnight. Some trading platforms, like optionsXpress allow trade dependent mechanisms. In other words I could set up a first trade, then set up a second trade that triggers off the first trade. So I can set it up so when my account automatically sells to stop loss on a symbol, it also intiates second trade of the sell short order that the chart mechnisms indicate.
I do not use these mechanisms because for now I’d still rather be flat for the rest of trading day and re-evaluate that symbol the next morning. Daily opens can cause whipsaw closes when your using autmated stop losses.
I find market makers often open the price far enough from the close price that they stop me out of positions, which very soon I must replace again thereby increasing my cost. So in those cases where I’m closed out of my position on intraday trading, I’ll stay flat that position for the rest of the day and re-evaluate in the morning.
This is rather than immediately reversing position. The area near support can make the price seem irradic. Often in cases where the price opens far away from the previous day’s trading, I would like see where the trading goes from the market maker opens it, before being automatically being closed out of a position or put in a automatically put in a reveresed posture.
Ok so down to business.
The 2 symbols where I actually have put some little short term skin in the game this morning are Hong Kong (EWH) and Japan (EWJ). I didn’t set out to pick up two entire Asian Nations when I analysed the markets through my trade criteria, it just worked out that way. And man, I have to say, I feel like I got them at a bargain.
Seriously, two entire Asian Nations for under $12 a share.
I set my buy to open at market open this morning, on both symbols. EWJ filled at $8.06. My projected loss is currently .59 cents per share plus commisions to sell this position at my current stop loss trade set for $7.47. I also must pay the comission to open a short position of equal value.
Therefore total approximate risk on the day opened the trade, today, on approx an $800 position is $70, or 12.5% as a percentage of funds at risk. In my case that works out to approximately 2.3% of total funds available to place at risk.
The risk at inititiation the first position on this kind of trading strategy is the highest risk point. Risk at entry is always at a maximum range number and tends to get smaller over time during trending and as the trade matures. If it gets that chance.
The risk for a projected profitable trade is 0%. It’s important to guard against being closed out of position too early. It’s also critical try to stay in as long as possible when the market is basing, rolling out sideways, instead of trending up or down.
The percentage of trade value vs money at risk scales up well. The more one is willing to risk, the lower that risk number becomes, the more likelihood of success.
The long term objective of my short term trading is to stay exposed to the most likely prevailing sentiment direction for as long as possible. I do this by keeping the lowest risk profile possible. This keeps losses to a minimum, and allows me to have suffiecient funds left when the market treands to recoups losses if any, and start forcasting for profit stop reverse prices.
This low risk profile is also served by continually being positioned to catch a trending market as early as possible and take advantage of the as much of trend as safely possible.
My report card for the EWJ is; Sentiment is positive. Momentum is increasing. Status is buy. New short term positions are recommended. Stop reverse price is $7.47
EWH, set at buy to open at market this morning. Filled at $10.47. Stop Reverse Price is $9.67, I set my stop loss trade at $9.47. Currrent estimated risk is $1.00 per share, so on 100 shares risk equals $100, plus comissions on stoping and reopening the position in the riverse direction, those commisiions totaling $14.
This risk vs money placed at risk is approximately 11.4%. In my case risk vs money available to place at risk is 3.4%.
The risk for a projected profitable trade is 0%. It’s important to guard against being closed out of position too early. It’s also critical try to stay in as long as possible when the market is basing, rolling out sideways, instead of trending up or down.
The percentage of trade value vs money at risk scales up well. The more one is willing to risk, the lower that risk number becomes, the more likelihood of success.
The long term objective of my short term trading is to stay exposed to the most likely prevailing sentiment direction for as long as possible. I do this by keeping the lowest risk profile possible. This keeps losses to a minimum, for as long as possible until a symbol begins to trend. At the point the symbol trends trade recoups losses if any, and starts forcasting profit.
Report card for EWH is; Sentiment is positive. Momentum is increasing. Status is buy. New short term positions are recommended. Stop reverse price is $9.47.
Also possibly of note
There are one or two more broad market ETFs that are pretty much equal in risk (Close stop reverse prices), and equal in price range. I didn’t put a position on in either on of them myself so I’ll identify them in the next post, which will be the remaining of the 20 or sector charts and my report cards (which contains different analytical information from 3 sentiment trade indicators)
