Afternoon thoughts

It is a nice cooling Friday afternoon and i have the luxury and time today to stay at home and do some market watching. I really enjoy times like these and acknowledge the importance of observing the intraday price and market action. I think the knowledge gained in this process together with good record keeping is priceless. I never believe in the " 10-15 minutes work is all you need a day" promised by most "traders" and i think its total bullshit. The one and only way to be good at this game is to watch and understand it. For example, a simple observation like how the STI is holding steady at critical support levels and how the NIKKEI and SSE came back strongly in the afternoon sessions seems like bullish market action to me. All these is happening despite barrage of pessimistic data and a gloomy outlook coming from the US.

At the start of the week i went long some stocks and they are slightly in the red at the moment. I think that's perfectly fine they have yet to reach my cut loss levels but as long as they are hit, i will be ruthless and have my hard stops triggered. i think i am still at an early stage of my learning curve and especially when the kind of trading and analysis i do requires a high percentage hit rate, having a hard stop loss is vital to prevent my ego from getting the better of me. I have witness many traders/investors refusing to cut loss due to their "strong belief/ego" and in the end they are left with nothing. Mind you i take a lot of pride in my analysis due to the amount of time and work i put in everyday but i think one important rule of the game is to stay focus and not be emotional as when you become emotional that's when you fall for the mental trap.

Well one important lesson i would like to note down here is the timing of my trades. I may have nail it if the market takes off from here but could i have done better with the timing of my entries? I remember going long at the first sign of bearishness in the market and i think in today's context, as we can see right after the flash crash incident, the saying," the market can stay irrational longer than you can stay solvent" fits perfectly. In a market where 60% of the trading activity is being dominated by high speed and programmed traders, i think the EMH would cease to exist. Alright, then you may argue, one should not aspire to squeeze as much profit as possible from the trade as each and every trade varies. True, but i still think there is room for improvement and possibly i am going to make use of data and figures to aid my analysis instead of a plain artistic form of analysis by mainly using the media. To get the ball rolling, one eye popping set of numbers came in yesterday: the AAII sentiment came in at 20% bulls and 49% bears, more than a 2:1 ratio!! Moreover, we seldom get a low 20 figure and the last time we got that in early July the market was at the low and rallied 10%.

Lastly, i would like to point out this interesting article where even a technician/author that does "classical technical analysis" thinks that we are doomed and the market will run for cover.