21Nov2008 - Post Mortem Review
I fully agree that the indexes have all broken long term support and consequently should force every trader to accept that the indexes have a high probability of continuing in their current direction; down !!
I can hear this coming from some of us " this support breach could be a fake one, which has happened from time to time, and so, why not hope that yesterday's index drop is one of those fake ones" and I can empathize with this sense of hope.
But there's a huge difference between pure hope and watching the index actions in the next session or two, if indeed one persists on wanting a confirmation. Just know that the risks of further downward metastasize action, compounds, if this turns out not to be a fake breach.
I quote the Journal of the American Statistical Association (Volume 20, Issue 150, June 1925. which says :
The chart is a post mortem and not a diagnosis, it is a result, rather than a cause, and its occurrence is an afterward rather than a beforehand
TA practitioners expect to learn about the future behaviour from the patterns of past behaviour. And since we have just witnessed a meltdown of the indexes beyond some perceived critical support level, we expect that in the future, the pattern will continue to be exhibited. This pattern could either be a continuation of a meltdown or that of a fake breakdown. Hence, you can understand when I said earlier that confirmation from another session or two could lead to much better clarity.
Having said this, I opened a couple of SHORT Put spreads last night (bullish strategy), when the DJIA was still above the support line of ~7900, it was a bet that the support at ~7900 would hold, and I knew full well that it could turn out nasty. Clearly, these positions got reasonably whacked. Would I hold on with a hope that yesterday could well be a fake support breach; sure, I would hope so, but that could be very costly (well, at least those Short put spreads have limited losses but still losses that I have the ability to mitigate, if i take corrective actions very soon). When I opened those Short Put spreads, it was decided beforehand that I would take actions (to hold or to fold) 2 days afterwards. Thus, given the limited losses risks, being the nature of spreads, I have the small luxury of "wait and see" how the indexes perform by end of Monday next week.
Also, I was very aggressive last night in putting on a Naked Short Put position as well. This, I will not wait longer than tonight to remove from my portoflio, as this is an UNLIMITED risks position. Fake or no fake, I accept that my bet was lost when support failed last night.
Good luck to one and all, and take care !!!
I fully agree that the indexes have all broken long term support and consequently should force every trader to accept that the indexes have a high probability of continuing in their current direction; down !!
I can hear this coming from some of us " this support breach could be a fake one, which has happened from time to time, and so, why not hope that yesterday's index drop is one of those fake ones" and I can empathize with this sense of hope.
But there's a huge difference between pure hope and watching the index actions in the next session or two, if indeed one persists on wanting a confirmation. Just know that the risks of further downward metastasize action, compounds, if this turns out not to be a fake breach.
I quote the Journal of the American Statistical Association (Volume 20, Issue 150, June 1925. which says :
The chart is a post mortem and not a diagnosis, it is a result, rather than a cause, and its occurrence is an afterward rather than a beforehand
TA practitioners expect to learn about the future behaviour from the patterns of past behaviour. And since we have just witnessed a meltdown of the indexes beyond some perceived critical support level, we expect that in the future, the pattern will continue to be exhibited. This pattern could either be a continuation of a meltdown or that of a fake breakdown. Hence, you can understand when I said earlier that confirmation from another session or two could lead to much better clarity.
Having said this, I opened a couple of SHORT Put spreads last night (bullish strategy), when the DJIA was still above the support line of ~7900, it was a bet that the support at ~7900 would hold, and I knew full well that it could turn out nasty. Clearly, these positions got reasonably whacked. Would I hold on with a hope that yesterday could well be a fake support breach; sure, I would hope so, but that could be very costly (well, at least those Short put spreads have limited losses but still losses that I have the ability to mitigate, if i take corrective actions very soon). When I opened those Short Put spreads, it was decided beforehand that I would take actions (to hold or to fold) 2 days afterwards. Thus, given the limited losses risks, being the nature of spreads, I have the small luxury of "wait and see" how the indexes perform by end of Monday next week.
Also, I was very aggressive last night in putting on a Naked Short Put position as well. This, I will not wait longer than tonight to remove from my portoflio, as this is an UNLIMITED risks position. Fake or no fake, I accept that my bet was lost when support failed last night.
Good luck to one and all, and take care !!!
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