I am reading The Daily Trading Coach by Dr. Brett Steenbarger. My impression is that he actually trains traders, and is a psychologist, so perhaps he is worth listening to. Certainly he identifies the kinds of problems that I sometimes have — such as failing to get into good trades because I am not feeling confident or am nervous about having had losses earlier in the month.
One thing he talks about is keeping a trader’s diary. I have done that on this blog by logging each trade, but I haven’t been recording my state of mind or my observations of markets that I haven’t traded. So I have decided to write a daily entry about those things.
Today has been a risk-off day. The S&P, oil, the AUD, copper, platinum and even cocoa have fallen back sharply. Behind all this is further monetary tightening in China — the Chinese seem to be drip-feeding tightening measures in order to keep them in the public mind — a relatively poor survey of manufacturing output in China, and of course ongoing worries about Greece. The EUR has dropped sharply against the USD on the latter.
I am a little annoyed about the EUR. I was short last week and would be short still had I not tightened my stop to ensure zero loss on the trade. Why did I do that? Because I had already taken losses and was nervous about taking any more. Dr. Brett says this is a mistake, and I think so too. There is no point in playing the game if you are not prepared to take any risk, and in currencies, and especially in EUR/USD, the volatility means that you have to be prepared to accept many days of fluctuating profits and losses before the trade moves in your favour. On the other hand, there was logic to getting out because the last time the eurozone countries announced a “rescue”, the EUR gapped up over the weekend — I was worried about the same thing happening again, so perhaps I was right to be cautious, although this time I thought the market had moved on from rescue packages to worries about the solvency of the PIIGS in general. Incidentally the gap up a couple of weeks ago is a good example of how thick the markets can be. It wasn’t much of a rescue.
I have spent much of the day watching copper and gold. Copper has broken below the key level of 3.30. I could have shorted it earlier in the day, but last time it dropped like this it bounced off its 200-day moving average, which this morning was very close, and on which it is now sitting. I plan to sell a convincing break below that moving average. Gold pulled back sharply to the support level of the past two days, and then kept falling, reminding me why I don’t like leaving orders in the market. I waited for a convincing pause in the drop on the 1-minute chart (my usual 10-minute bars don’t really show what is going on in a sharp reversal), and then bought in. The breakout level seems to be holding and at present I am showing a small profit on the trade. It was tempting to get more leverage by putting the stop close to the bottom of the spike down, but in the end I settled for pretty good leverage and a stop well below the breakout level — so I can survive another serious re-test. The way that various markets are dropping today I think that was sensible.
I am feeling quite relaxed about the markets and have enjoyed today. I have done a lot less reading and a lot more thinking about market action, which has meant I have not had to rush anything. I am planning to keep my reading to a minimum this month so that I can focus on the craft of trading.