WHAT WOULD THEY DO? - One of the things I talk a lot about is trying to think like the other side. That is to say, If I am looking to buy, I try to think if the level I want to buy at would also be an attractive level for shorts to book profit. Similarly, If I am looking to sell, I consider whether the level I want to sell at would be an optimal level for longs to book profit. The reason for this is that when I take a trade, I want to have everything I can in my favor so that the trade has the best chance of working out. So for example, on Monday, I sold USDJPY at 108.40.
INCREASE YOUR ODDS - This was after the market had rallied all the way from the 106.70 area earlier in the day. So after 170 points of movement, the market was not only overbought, but also at a spot where longs could have finally been ready to sell out and exit. This put me in a position to feel really good about the prospect for a short-term pullback, which played out right away, yielding a very quick 45 points profit. So just as they say in life it's important to understand your enemy, in trading it's important to think like the other side to gain a better insight into the prospects for your own position.
MAKING SENSE - Now as far as price action went on Monday, I think there was one very interesting takeaway. Last week after Trump won, we started to see aggressive US Dollar buying accompanied by a rally in stocks. I have said I thought the rally in stocks made little sense given the fact that the prospect for a more hawkish Fed was a disincentive to be long risk. And on Monday, we finally saw stocks stall out, despite the ongoing demand for the Buck, which was making more sense to me.
WILD HORSES - I booked 5% last week short the SPX500 and I have sold again in a similar area, with the same expectation in the days ahead. As much as this stock market rally has spooked many bears, I view the rally as nothing more than intense choppy trade before the market finally gives way. I suppose I kind of think of this process of topping out like riding a wild horse where you need to be able to hang on tight in order to be successful.