Wednesday, January 04, 2006


Marketz : What a day !!

The day saw some wildswings. The markets opened to the upside, QQQQs began drifting down from intial highs of 40.69 down all the way to 40.24 and then stalled and slowly drifted upwards towards 40.54 area till 2 pm. Then the fed minutes came out and the rest is..history now.

A power packed mo-mo rally all the way to about 41.5 . Thats an intraday swing of more than 3 %. It appears that
Stephen Vita's prognostication of higher implied volatilities for 2006 is already taking shape. To quote :

"I will say this, however.......if we finally get some mean reversion in Volatility to a higher level -- where bigger moves occur much more frequently -- it will be better for Momentum Swing Trading, although I wouldn't want to see it reach the levels we saw after The Mania ended.....that was pure madness and I couldn't take another shock like that."

Thats actually very thought provoking for an active trader such as msyelf.

The slow but steady death of volatility on the indices and the presence of hedge funds favored day-trading over swing-trading in 2004 and 2005. Any substantial swings across sessions would get faded while there was still money to be made if you caught the big intraday move.

If implied voltailities go up or even entire a new higher range, that would call for a major change in trading mindset. Day-trading and Swing-trading are two very different disciplines.

Day-trading requires keen instincts and the ability to take quick decisive action either if one's instincts were confirmed or if they were invalidated.

Swing-trading is slow and deliberate, an almost intellectual exercise where one looks at charts, indicators and spots the levels. One sniffs out dips for entry close to these levels. And then you wait patiently for the market to make its move your way over a week or several days and look for the the the market to hit the predetermined exit points.

Well, this week is going to indicate if the market-action indeed favors swing trading (also called position trading). I know I am going to struggle with the transition, should it transpire. I have swing-traded in the past and still swing trade individual stocks, but have definitely had a more short term approach while playing the macro field. That includes the QQQQs, the SMH, XLE, IWM, DIA and SPY.

Alchemy of Trading is a darn good blog-so make sure you check it out.

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