4th May 2012 – Attack – Re-Attack on the Dow Jones

This week has seen the failure of a Binary No Touch Trade on the Dow Jones and the re-attack of it based on todays poor NFP numbers.  The chart will explain it all.  As always there’s useful debrief points to learn from.

1. The Dow Jones has been in a nice up-trend since early December of last year.  When it double-topped in late March 2012 aligned with a turn down in momentum on a weekly chart I decided to take out a No-Touch Barrier Option for the level 13320 with my broker Betonmarkets . The idea was to pretty much set and forget the trade. Because of the strength of the move north and because I was going counter-trend my position size was halved in size from normal.

2. After Double-Topping price rolled over and dropped approx 600 points from 13300 down to 12700 area in approx two weeks (nice move eh?) before moving back north and creating a (sort of) symmetrical triangle in a up-trend. Standard texts would say that such a pattern should break to the north which it duly did. I was monitoring, but comfortable with the situation.  I figured price may likely test highs before heading south hence why my barrier level was a good 10 points north of the previous high. Safe. Or so I thought! 😉

3. Last Friday price was still pushing north but I was comfortable due to the candle wicks telling me that there was selling pressure coming into the market. In fact if Id been at my desk I may well have added to my shorts due to the patterns that were being printed.  Anyway I left the trade to run. When I did my weekend analysis on the Sunday there was a change of weekly momentum to bullish which did raise my concern.

4. Tuesday morning the trade was fine….by late afternoon on Tuesday it was all over! There was a strong move mid-afternoon which punched north. It broke through he last high, went about 16 points past my barrier level and then fell away. Trade over. Loss taken. Boo-frickin-hoo. I wasnt at my desk then, which is a shame as it provided a fantastic shorting opportunity. But there’s always another chance to enter a trade so I decided to wait for my chance.

5. Whilst there were other chances to take both a direct and binary entry short on the Dow I decided to wait till after the NFP numbers were released and see how the market reacted.  Well their numbers were bad and the market reacted accordingly..SELL, SELL, SELL! Across the board there was  major selling of all Indices and I was able to take advantage of that melee.  I re-entered a Barrier Trade for 13400 and got a good price. After my first attack failed I was happy to re-attack and take another position.

Have I thrown good money after bad? Possibly.  Have I just tried to average down on a loser? Nope, not by my definition. The first position was closed out.  Am I fighting the market? Very possibly.  Am I happy to back my judgement. Yes.  Will this mean a big fall in the Dow after a triple top then bad jobs number?  Who knows? Certainly not me.  I just take the trade based on my view of the market.

This position has a time line of end of day, 25th May.  I’ll keep you posted on its progress.

Until next time, trade well! (And enjoy the Bank Holiday those of you in the UK)

Paul