On Fire

The point has been driven home: take all signals, all of the time. Last three were big winners, I'm now short from Dax U9 4895. Will close position at or before close of futures this evening, going into tomorrow flat.

Be consistent

In my last entry I stated that I could not do anything but be longer term short, although I may need to explain that a bit. Given that I use a model type approach to trade, and that a model is after all only a representation of reality (and an imperfect one at the best of times) I am due to follow certain rules.

The most important one, and the one I adhere to ALL THE TIME is to take every signal that the system gives me, irrespective of what my long term view may be. Not doing that would negate the whole point of model trading, because you just do not know when and where your next profit/trend/reversal is going to come from. To inject your feeling/view on the model is madness. After you've tested it, made it as robust as possible, put in place a methodology for monitoring the P/L series (control charts anyone?) then just let it go.

Today's action is an example, I'm short from Dax U9 at 4835, when the model gave me a sell that should last until tomorrow's late morning. When the signal came in the market had just rallied through resistance, and kept going up higher than I was expecting it to. Coupled with other asset markets acting positively for stocks, I was not feeling well disposed towards going short. But, as the signal popped up (as I knew it would) I did what I always do, which is to say I followed the model's output. No ifs, no buts (well, they do exist, but are correlated to volatility spikes, a subject for another time).

How did we go from this to markets up 40%?

And again

What can I say... this is becoming boring, but another very sharp rally on the back of better than expected US unemployment numbers means the Dax has hit again sell levels in the short term .

The problem here is that I can easily see mkts squeezing higher to hurt all the would be (and current) bears, so that the path of maximum pain is followed, and the greatest number of people are hurt before Indices decide to give back some of the gains seen in the last 3 months. But given the path bonds yields are taking (higher) I can't do anything but foresee weakness ahead in stocks.

UNLESS of course for some reason bonds stage a very sharp rally next week (US refunding upon us...) and thus the differential performance between stocks and bonds goes back to a more "normal" average.
I have to stick to the numbers: still short.

Market climate...

Breakout

After the mega squeeze on Friday evening in the US, Dax this am has broken above levels that were being watched actively by market participants, and now it either takes off or comes crashing down to earth.

I'm short biased, but i need to be agnostic really, and do what the numbers tell me is correct at this juncture. I will still take all signals that come along, but as a core position I'm adding some Sep OTM puts at these levels, because the chart above shows this am's action, and a sell signal came up at 9 & 10am at approx. 5103.

Thus adding to core short position, may trade around it with futures if any buy signals come in over the next couple of days. It will be interesting to see what if any follow through we get after the break higher, both in Europe and US side.