Monday, May 5, 2008

Scan for Your Battles

At the beginnning of March I opined that under certain conditions we were going to see market rally to 13000 DOW and 2000 NQ. Now that those targets and I suggested liquidating long positions, are hit a few e-mails asked whether I see this moment as a short opportunity. My negative response caused feedback along the lines "If no long anymore, then why not short?"

Here is how I approach this. There is no such thing as continuous read on the market or particular stock for me. In other words, I don't have a clear idea what to do all the time. Sometimes there is a recognizable situation, and that's where I take action by initiating a new trade. Sometimes there is nothing recognizable, and I sit on a sideline or liquidate existing position - not because I see the tide turning but simple because I have no read anymore. Thus, the reason for exit can be "I read the move as exhausted" or "I can't read this move anymore". In a former case, yes, I may start hunting for an entry on the opposite side. In a latter case - no, I exit original position but do not look for an opposite direction trade yet.

All above has a broader implication for my trading approach. My process of hunting for a trade is entirely based on an idea of having my favorite setups and waiting until such setup shapes up and triggers an alert for me. I don't watch particular stock and hunt for an entry - rather I wait for whatever matches my entry criteria. View it as casting the net with certain mesh size and reviewing whatever got caught in there. Such net for me is a scanner which I have configured accordingly to my criteria and which scans the market constantly looking for what I asked it to. Covering NYSE, NASDAQ, AMEX, TSX, TSX Venture, OTCBB, Pink Sheets and indices and being easily customizable for any thinkable trading approach, it's all the search tool I need. There are three things though it doesn't have: no dartboard, no tea leaves and no "scan for winning trades only" setting.

Such approach can be construed as one of cases of "let the market come to you". Usually it's applied in a sense of waiting for certain price treshold where you render entry most favorable. This is just another way to apply this idea.
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