Posts Tagged swing
Look over your shoulder
Posted by Peter Webb in Bet Angel on July 3rd, 2009
When trading it’s easy to get carried away with a move in the market. The prices is rising and you instinctively want to follow it as it charges off in one direction or another. You sit there and ponder your move then make the decision to jump in. Just as you do it goes the other way and you sit there waiting for it to rebound into profit, it continues to fall and then you can’t stand it any more and cut out. No sooner do you cut out than the price moves the other way, you jump back in and then you find you exit too early as the price soars off in the direction you picked. At that point you look over your shoulder as you could swear that somebody was watching you and waiting for you to click that button!
Why does this happen?
The answer lies in a little bit of psychology, namely fear and greed. I’ve published this image before, a couple of years ago in the newsletter, but I think it illustrates very well why people get into the market at the wrong time, exit at the wrong time and then fail to take their full profits.
Initially as the price moves, you feel a need to jump on a price movement, fearing you may have missed out. It turns out you were too late and the move has already happened and as the price falls back below your entry point, you bail out. This time you get in again and as the price rises you get nervous so you close your position, to be safe. Of course it sails well past your exit point and typically, if you have been in and out already, your hand is forced again by your previous memory of your prior unsuccessful entry.
This graphic illustrates these issues better than words but the summary is, let the market be your slave, not your master. Don’t follow it, try and be contrary.
Outrageous risk – Part Two
Posted by Peter Webb in Bet Angel on May 15th, 2009
To recap. Last Thursday we backed the favourite at a fixed time of the day and let our losses run without re-dress. Basically it was dumb, reckless swing trading with complete abandon. By doing this we were opening ourselves to potential losses that could be massive. Only at post time did we bother to close our position. Other than that, we let risk run to its fullest extent.
My question to you, is did we: -
(a) Make a bunch of money
(b) Lose a bunch of money
(c) Neither
Well (a) seems unrealistic unless we were very lucky. You would have been incorrect if you opted for option (a). If you opted for option (b) you would have also been wrong, we didn’t lose a bunch of money. In fact it was (c) that was correct, we neither made nor lost a bunch of money. In fact we were only just short of break even on the day. This illustrates at least a couple of points.
The first is that just as volatility can work against you it can work for you as well. It’s a glass half full / half empty moment. While it may start moving away from you, it can also work spectacularly in your favour. It is no coincidence that most of my biggest ever wins have been on great swing trading races. Again, I don’t recommend this blind strategy as it can be dramatically improved upon. But you can’t escape that, as I showed in an earlier post, some of these swings can be significant. Therefore it’s unrealistic to assume that because there is a lot of movement it will only be in the wrong direction!
In part three we will have a closer look at that P&L and compare it to another and make a couple of suggestions.
When it’s scary to scalp!
Posted by Peter Webb in Bet Angel on May 1st, 2009
When I started this blog my first ever post was about three club monte, you can see the original blog entry here. Since I started trading, nearly nine years ago, my view has always been that there is a strategy for every market. Recognise the right one and it’s a breeze, well much easier anyhow. Use the wrong one and it will make your life very hard indeed.
If you looked at yesterdays races before they started you could see pretty quickly that it wasn’t exactly a scalping paradise. As the day wore on anybody trying for a one tick upside risked some pretty hefty downside movement. Looking at my stats, it was third most volatile day this year. At the end of the day, of the 35 markets I traded yesterday, a large chunk of them were the antithesis of scalping; very volatile with big movements. If you just scalped you would have had a tough day, by contrast swing traders had a field day yesterday.
The first race of the day was a classic example. The price moved from 10′s to 4′s and if you didn’t catch that, then one of the clearest cut swing trading patterns occurred when the horses were at the post. It sent the price right back out again. It would have been a clear signal for even a die hard scalper to change styles.
Today’s forecast is some more of the same. More races today are ideal for scalping so it’s a bit better balanced but quite a few will exhibit characteristics that are not at all suitable. Scalp those and you could get into trouble pretty quickly. Of course everybody sits in their own comfort zone but trying to scalp a volatile market is actually a common mistake that inexperienced traders make and is best avoided.
More reason to make sure you are equipped with tools that will allow you to take advantage of what promises to be another volatile day.