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Results of Monday’s Best S&P Turning Points: Shorting 4022.50 stopped out. The sellers stalled the rally for a while but lost the battle.
Today’s Best S&P Turning Points (consider wider stops and less size in fast moving markets):
Buy 3988.00 stop 3984.00. Short 4074.50 stop 4079.50.
The World Sentiment Index: (+100/-100) DROPS from +30 to -20 with China on holiday, remaining major world markets are modestly Bearish on lower volatility. Historically the close was higher than the open 61% of the time.
Catalysts: PMI Composite Flash @ 9:45. Richmond MFG Index @ 10:00. MSFT earnings after the closing bell.
Quick Tip: Asymmetry
In its simplest form trading is nothing more than risking money to make money. You need to be a net winner. This will happen if your losses are kept “small” (that’s a relative word) and you have…
1. More winning than losing events and/or
2. Larger winners than losers.
Successful traders look for asymmetrical trades. These are trades where the risk is small compared to the potential gains.
One application for asymmetry is frequently overlooked. Trade direction. Evidence shows that price tends to fall faster than it rises. Why is this? Fear can be more powerful than greed.
Look at enough charts, measure the moves, you’ll find it’s true most of the time. Tops tend to be “round”, bottoms tend to be “V” shaped.
Given this reality, shouldn’t your exit rules for shorting be different than for going long? Doesn’t it make sense to take quicker profit on plunges in price and give the melt-up more time?
It’s rare for a trading strategy to be symmetrical and have both longs and shorts perform equally well using the same rules. Review yours and consider if you’re asymmetrical (enough).
Trade Fearlessly,
Mike Siewruk
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