Monday Evening

After producing a gap lower to start the day, the bears made a bit of progress in the early session. The bulls were buying the dip though - and spent the rest of the day on a steady grind back up to about where we opened the day session in S&P futures.

Monday afternoon

Market Cycle

Nobody is bigger than the market, not even the Federal Reserve.  No matter how much money they print, the basic market cycle will prevail.


I don't think there is any question that we are somewhere on the left side of this chart.  My opinion is that we are just past the point of "euphoria" and heading toward "anxiety".  We are certainly nowhere near the point of maximum financial opportunity.


While this is a big macro view for the purpose of investing, it also has implications for trading.  The days of JBTFD are probably behind us for a while.  This is a time to be very cautious with long positions and to demand high quality setups.  Honor your stops and don't be too quick to buy weakness.  For those who like the dark side, shorts are working again for a change.

Monday Morning Post

I had promised a rewrite of the Trader's Evaluation from the positive side.  The positive viewpoint is in blue below.

The first trading quarter of 2012 is officially over. Personally, I had some good days and I had some bad days. I thought it would be a good time to read through and reflect on a "Trader's Self-Evaluation Checklist" written by Brett Steenbarger, Ph.D.

1. What is the quality of your self-talk while trading?  Is it angry and frustrated; negative and defeated?  How much of your self-talk is market strategy focused, and how much is self-focused?  Is your self-talk constructive, and would you want others to be talking with you that way while you’re trading? Always stay positive about your trading.  Having a bad trade does not make you a bad trader.  Be certain that you will make money even if you aren’t or have not yet. 

2.  What work do you do on yourself and your trading while the market is closed?  Do you actively identify what you’re doing right and wrong in your trading each day—with specific steps to address both—or does your trading business lack quality control?  Markets are ever changing; how are you changing with them? Put work at night so you can trade effectively during the day.  Work on correcting your bad habits.

3. How would your trading profit/loss profile change if you eliminated a few days where you lacked proper risk control?  Do you have and strictly follow risk management parameters?  Remember one bad trade can skew your results especially if you don’t follow your risk management strategies.

4. Does the size of your positions reflect the opportunity you see in the market, or do you fail to capitalize on opportunity or try to create opportunities when they’re not there? Your position sizes should reflect your perceived risk I the market.  When the market is not trending or not trending your way keep your positions small.  When the trend is clear, enlarge your position.  If you are uncomfortable with your losses, then your position size is too large.

5. Are trading losses often followed by further trading losses?  Do you end up losing money in “revenge trading” just to regain money lost?  Do you finish trading prematurely when you’re up money, failing to exploit a good day? Money won’t be made every day.  Just because you lost money yesterday does not mean you can make up for it today.  There are certain set ups for each individual that will make you money.  Know what yours are.

6. Do you cut winning trades short because, deep inside, you don’t think you’ll be able to make large profits?  Do you become stubborn in positions, turning small losers into large ones? Cut your losers and let your winners run.  Take profits into strength, set trailing stops.

7. Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied?  Are you having fun trading even when it’s hard work?  Trading should be enjoyable.  Although we never feel like we take advantage of all our opportunities, you should be proud more often than discouraged.

8. Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs—for excitement, self-esteem, recognition, etc.—that are not being met in the rest of your life? Be certain that there are trading opportunities.  Don’t be trying to make up trade, get excitement, etc 

9. Are you seeking trading success as a part-time trader?  Would you be seeking success as a surgeon, professional basketball player, or musician by pursuing your work part-time?

10. Can you identify the specific edges you possess over the many other motivated, interested traders that fail to achieve success in the markets?  Do you really have an edge, and—if so—what are you doing to maintain it?