A few follow up notes on yesterday's post...

I hope that yesterday's post was informative regarding shorting the tech index today. Hey... I appreciate elegant words and phrases (call it a hobby) and having the correct title for my post and all that however at the real core this post is about succeeding. I want to learn and hopefully succeed... and would love for you to do the same. Always feel free to disagree and post your thoughts if you want... just please be respectful.

So regarding the QID today I want to mention that trades such as this there is something to always be aware of. I mentioned on the last post that the best time to go short is when support (the 50 in this case) is broken with conviction... and that stops can be narrow with strong support turned resistance. However, it is not uncommon for the supp/resistance line to be penetrated and a re-test for among other things one reason: A lot of people put stops out in the region close to support or resistance and the market makers love to take out stops... In fact they make a ton off of this. Therefore you have to choose between two components in a trade such as this...

1. Make the stop very tight. Risk it being taken out by market makers but reduce your losses.
2. Make the stop looser... reduce the risk of the stop being taken out but if the trade goes against you obviously the loss is greater.

Perhaps the ideal situation is to write down a stop on a piece of paper before the trade (so you still know maximum risk when getting in) rather than place it and watch the markets closely but this is not possible if someone (like me) is not always able to watch the markets all day and even if you are able to watch the markets all day if you have a whole number of trades going on or aren't paying attention you can get burned.

I like to set the stop at least 1% from the support or resistance line (or more... it depends on the conviction of the trade) unless I KNOW that I will be able to watch the market that day and I don't have a lot of other things going on. Losing 1 to 3% (max) on a good trade on occasion still is a lot better then having a massive trade go against you in my opinion...

Ok... here's how I played the techs today if you are interested...
Rather than buying QID I decided after looking at the charts to short QLD. The baskets are somewhat different but the real reason is that calculating the QID at the point that the Naz broke resistance seemed more cumbersome than just using the QLD chart and double checking it with COMPQ. I was able to watch the markets this time and after the re-test failed I set the stop above the high of the day on QLD.... Then let the baby run... I will probably lower the stops now to prevent a winner turning into a loser if the market goes up tomorrow... however I would be very surprised if the 50 is broken again without a major catalyst in the market.

Bed time... actually past...
This blog is for informational purposes only. It does not give investment advice.