12/14/2020 — Selling The Top…

…and the bottom.

I can’t pick market tops and bottoms. Anyone who tells you that they can is a liar, and those that can aren’t going to tell you.

Online brokerage firms love to tout their magical software that enables hapless traders to build confidence by backtesting their strategy against charts of the past. It’s a useful tool (not what the discount brokers offer, but researching one’s profession) to help formulate strategies, calculate risk, and make trades, but far better suited for larger operations that possess the expertise, time, and bankroll to properly wield all that information. Knowing just a bit more than a little opens up a myriad of avenues to get in over one’s head, and delusions about mythical maps of the market’s peaks and valleys will likely lead to rags before riches.

When I sold-out a couple of my S&P micro futures today near the top, it was a good sale. The following market selloff made it good, not any premontions or divine advice. In fact, when I sold them, I felt that the market would continue to trend higher and that my sale would likely be a loser by the end of the day, so I sold some of my contracts — not all.

Having ample room in my margin requirements, I followed it with a sale of one put, expiring nine days in the future. If I were right, and the market continued its rally, the put sale would be made good through loss of delta, skew, and the ever present evaporation of time. If I were wrong then I would be thankful that I lightened my futures inventory near the highs.

By the end of the day, my put sale looked pretty poor. I sold the bottom of volatility…for the day. Tomorrow will make my sales better or worse, but I won’t know until then. And I won’t really know the final verdict on today’s trades until they are gone from my position entirely. Then I can go over all the data that my platform provides and waste my time by picking out exactly where I should have bought and sold each and every contract I traded. I find it better to leave the soothsaying to the gypsies, and try to grind out a few dollars here and there. It isn’t sexy, but neither are intra-day margin calls born of strikeout swings for the fences.

TD Ameritrade holds libraries of yesterday’s news, but what a trader really needs is tomorrow’s news, and you can’t pick tops and bottoms without it. Any trader who tells you they have tomorrow’s news is a liar, and those that actually do are guilty of insider trading. You can be the former, or the latter…or you can forget about trying to pick tops and bottoms.

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