Living in Europe I mostly follow the index futures as the underlying cash indices only offer me mostly supplementary context during the RTH session. Although I do enjoy trading stocks and in particular their options the limited trading hours are not just challenging (and sleep depriving) for someone located in Spain but it puts strict limits to the type of activities or systems one is able to pursue as a trader. And this spells particularly true in the type of market we have increasingly found ourselves over the past few months:
I didn’t feel particularly inspired to post a market update today, so let’s mix things up a little and talk about trend trading. I wager that you’re familiar with the careers of world renowned trend traders like Ed Seykota, Tom Basso, Richard Dennis, or Bruce Kovner, which means you probably understand the basic paradigm behind ‘buying high and selling low’.
So I have not mentioned bitcoin or crypto over the past few months and some of you may have wondered why. For an answer look no further than what happened last Tuesday. Unless you’re living in a cave you probably know by now that BTC suddenly and out of nowhere punched higher and effectively ripped the face off an army of over leveraged small players holding speculative short positions.
Yesterday’s little shake out provided us with new context which we can now leverage to tighten down our trailing stop. To some this may appear counter intuitive – why would one run a loose trailing stop and then raise it after a new spike low is in place? Well there is in fact method to my madness.