Market Reflections

Thoughts, ideas and musings on current state and evolution of financial markets

Consistently Profitable Trading 2009 and Beyond

High volatility and lower volumes continue from 2008. New president revealed his first budget with more than double deficits from previous years. He is promising to cut the deficit to half by the end of his term based on $1 – $1.6 Trillion (depending on interpretation) new taxes and 3.2% growth 2010, over 4% growth 2011 and beyond. The growth figures are supposedly derived from the enormous stimulus spending authorized few weeks ago. Whoever looked closer into this spending bill realized that the only real stimulus there is the $400 per taxpayer per year less income taxes. With few more items having indirect impact on the growth of economy only about half of the package will be spent in 2009 – 2010 (see for thorough analysis). Using my Hill-Billy friend’s “juicy” vocabulary unless he is “dumber than dog shit” (DTDS) he knows that there isn’t a “snowballs chance in hell” $400 per taxpayer will turn this economy around in just 9 months. Of course, he is a lawyer, when caught, he can always get away with “… if I promised I don’t remember …” On the markets you see the politicians promising quick fixes, bright and easy life in near future and markets oscillating between “wishing – hoping” euphoria and desperation. This is one possible explanation for high volatility and lower volume. While the “storm” started in the US it has engulfed to whole world by now. For the US to start growing again the whole world must be at least on the road to recovery. By some respectable economists it is likely to take 10 years or longer

How to stay consistently profitable these years is for us, the traders, to figure out. One thing is clear: the markets are different now from the recent past. Successful strategies that worked then no longer work and that is going to last for some time. I see two opposite approaches: very short term trades (minutes) or longer term trades (weeks and months). The first takes lots of clicking, very good focus and eye-finger coordination. I wish now I had practiced this on video games. The second approach, is swing trading. It takes extreme risk tolerance to ignore the politicians and prominent bank analysts with hidden agenda
. Ignore rapid changes in market mood as noise, count only on fundamentals and scientific analysis methods
. Everyone has to decide which better fits his/her trading style, account size, need for consistent profits and time for trading activity.

For the scalping approach the rapid changes in market mood are the profit opportunities. One has to detect early on when this is happening and attempt to ride with it until the next mood change. Fortunately exchanges and advanced brokers offer much more information for early detection of a market move than they did years ago. This data, most traders have largely ignored until now, tells you when a next move is in making and when it runs out of steam. Whether you see that from bid/ask sizes on different levels, bid/ask volumes of last bar/candle or time intervals between trades is again very personal. The conditions dictate a very rapid decision making with no time to devise an individual trading plan for each trade. One has to go with the one prepared ahead of time. Unfortunately, a large problem with scalping is implementation for a larger position. Hence it may not be appropriate if you like to trade tens and hundreds of contracts on shallower markets. If I see interest, I will tell how I do it. That may not fit your mold, but may give inspiration for developing your method.

For swing trading approach short term opportunities are a hindrance. The noise is noticeably larger than it used to be. That makes the great chart analysis tools of the past much more complex to use. No surprise, the Refined Elliott Trader greatness is based on statistics extracted from millions of charts of the past where the noise level was lower. The tool still works fine, but sorting out the most likely scenario for the future market move is no longer a simple matter. It takes significant background economic knowledge and understanding of correlation between markets to arrive at the most likely scenario from tens produced by the tool. Luckily, with this approach, a trader will have time to devise the best trading plan for each individual trade.

For the country and politicians the promised change has not arrived yet. Washington operates in “politics as usual” mode. For the markets and traders, the change is here. The change opens new opportunities and eliminates some from the past. There is no reason for desperation, we just have to change with the markets to prosper.

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2 Responses to “Consistently Profitable Trading 2009 and Beyond”

  1. Do you take donations or is this free like some of the penny stock pick site I know that take donations?

    • Raymond Raymond says:

      Yes, does take donations. Just follow the links on the right.