One Bear's Survival Plan
by Jerome "Mel" Hickerson
This is a difficult time to swing trade unless you just hold your nose and go long ignoring all the indications that some kind of pullback should arrive. Personally, I find trading that way difficult (except for day trading) but I know bulls are making money disregarding facts and simply riding the continuous momentum.
Many traders are trapped in underwater short positions right now and struggling to find a way to recover without simply throwing in the towel. What I am laying out here is certainly not guaranteed to work. It's just an idea to consider.
We're in a stretch where the market frequently hits the low of the day during the opening hour and then closes near the highs. Of course this pattern will change; but when? Meanwhile shorts are getting the snot beaten out of them most days.
Knowing that the morning first hour often is the low of the day, why not consider stepping aside some time during the first hour and re-enter the short position late in the day? Certainly this will miss the gains of trend days down -- but how many of those are there lately? (And observe that the down days recently, the 16th and 19th, didn't really do much good for short positions during the day.)
Observe on the chart below how trading in and out of TZA at 9:45 and 3:45 (just arbitrary times, I am sure better methods and timing could be found) could have minimized the losses on TZA significantly while maintaining the position for a market downturn.
Last October I pointed out the trend of Mondays to be bullish and several traders wrote to me that the trend was certain to end soon... Huh? Sometimes these trends last longer than we believe possible and the risk of trying this approach or something similar seems minimal to me, especially when compared to the beating short positions are taking. With this type of approach you are in your position overnight -- when the greatest likelihood of a significant down move is -- and you have the added benefit of freeing capital for day trades, long and short.
I still expect a downturn but bears are being brutalized daily. (Why is PETA ignoring this?) A survival strategy is necessary, even if this one isn't for you.
Just food for thought. Have a great weekend!
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"Mel"
Feedback is encouraged: mel@marketspath.com
