Trading RM, LLC.

I wonder what Ball State alum Brian Collins has to say about yesterday's market activity:




Being a short term trader it is important to separate my opinions from what is really happening.  As a short term trader I trade what the market gives me.  If my PnL is saying do more I do more, if it says do less I say do less.  If my indicators tell me to get long I do, and vice versa. 

I (as many of you I am sure) have been inundated with questions about the market recently.  I am hearing from long lost friends asking if they should pull their money out of 401ks? Is this is a bottom?  (My favorite is family members who say "you must have had a bad day"...yes we only make money on the way up). I am not a financial advisor and I do not know where the bottom is.  I can pick several blogs and articles written by smarter people every day from July to today calling a market/housing bottom.  It has been documented that Alan Greenspan himself has indicated/suggested a housing bottom several times in recent years. (Google "Greenspan housing bottom"). 

The point is to listen to opinions, develop some...but in the end listen to the market.  Listen to what the market is doing as opposed to what you think it should be doing.   

I thought the S&P gave us the answer to the bailout vote somewhat earlier than CSPAN on Monday.   

I will most likely miss the market bottom.  I won't try to predict it.  But I will be with the trend before and after the market bottom. 

After the historic 700+ point drop in the Dow today, I felt the need to get back to the blog.  What a great time to be a trader.  All we have ever cared about is volatility, and we have plenty of that lately.  Speaking of which, the VIX traded at near historic levels on Monday.  I am going to be looking for a rally in the next few days.  This high reading in the VIX historically has been associated with nice bottoms.  We truly had fear and panic in the markets today.  Besides the VIX, you will also want to look at money inflows/outflows from the different sectors to confirm the bottoming action.  You have every talking head on TV saying how scary the market is and don’t invest, etc.  Again, that is usually associated with a short term bottom.

Being a great trader is about finding an edge and then exploiting it.  Sometimes the edge comes from the strangest places.  I am usually watching CNBC, but today an astute trader turned to a competing channel because the $700 billion bailout vote was being televised on a different channel without commercials.  (CNBC had commercials)  As the votes started to come in and time was expiring for all votes to be counted, it looked like the bill was not going to get passed.  I flattened out before the vote, even though I expected the vote to pass.  However, my opinion quickly changed.   As each and every vote was tabulated, more and more were in the Nay column.  I quickly shorted the market and was rewarded nicely and quickly.  We took out the 1136 S&P low by some 20 handles!! 

Today showed me why it is crucial to be able to react on a dime.  It is a lot harder to react when you have a large position on.  However, if you scale out before an economic number, or congressional vote you can see the forest thru the trees.  I have heard countless times over the last few months how something can not go lower.  How can WaMu possibly go any lower?  What about AIG, WB, MER, FNM, FRE, LEH and the list goes on and on.  Today we had the biggest point drop ever in the DJIA.  NEVER say that something can not go lower. 

Slow Markets, huh?  Of course, i am kidding.  Anybody watching and/or trading these markets in the last few weeks knows what has been going on.  I find it very therapeutic to talk with other traders/friends in the business when things are going nuts, like they have been.  I leave the building every day with a clear head regardless of my P&L for the day.  However, yesterday I felt like i got beat up.  I had a base hit day, but left feeling exhausted and confused.  The market is technically oversold and the VIX is in the mid 30's.  However, that doesn't mean we can't keep going lower. The market is looking for any excuse to go higher as is clear by some of these BS news stories that drive the market higher, only to see it retrace in the last hour of trading.  Last nite I got "out of dodge" and cleared my head.  I first went to the Trader Monthly Magazine Happy Hour in Chicago http://www.traderdaily.com/magazine/index.html and then met a friend at the Cubs game.  During the game I talked with a few people I know in the business about the markets.  Hearing what others are thinking and how they are trading is very interesting and at same time takes the edge off of your trading.   

Remember:  It's not only what you do during the trading session, but it is sometimes more important what you do before & after to clear your head and regroup that can pay dividends in the future. 

Traders need to let the market tell them what to do.  Having an opinion of market direction can be a costly proposition.  How will I know when to trade from the long side?  I am looking for the first time that the market (s&p futures) sell off and stocks don't go down.  This will be the markets way of telling me that it is time to get long.  We have not seen this in a while.  Sure, the market has gone up and stocks have followed, but when the market rolls over the stocks have followed suit.  The market always tells you what to do.....we just need to listen.

Good trading!

After three weeks away from trading, I returned to trade yesterday.

After hearing how there had been great trading during the span I missed, and seeing the market gap lower yesterday morning, I came in expecting a big trading day.

At our morning meeting for Trading RM, we emphasized that while this market is volatile, we still need to focus on utilizing our patience and waiting for our edge to show up.  Emphasizing this put me back in the proper frame of reference to trade

Yesterday, during the first half of the day I ended up not trading as much as I expected (the scenarios did not present themselves to me), but as I went home I felt the day had been a success. 

I stayed committed to my game plan, executed it, and was in the game throuhgout the day.