SDS October Swing Trade Review

I haven’t written specific analysis in a while and just wanted to jot down a run-through of my thoughts and two specific trades over the past month. Many of the specifics mentioned can be found in my StockTwits stream during this time period.

I had been trading TNA quite a bit over the summer, posting to the StockTwits stream, and using SDS and the ES_F to fine tune timing and execution.

My last bullish trade in TNA (I never made) would have been my most profitable. Missing this TNA trade was perhaps what got me geared towards trading SDS.

I pulled my bid on TNA at 27.34 on 10/4/11. I thought I could get a slightly better price above that days low– but this bid was well within my risk reward ratio!

Before I knew it TNA was a smoke show to the upside and I knew I had missed the trade. Things were seemingly out of control relative to news flow, I didn’t feel comfortable chasing after missing what came to be the best risk reward scenario.

I then became reserved to playing the contrarian as TNA exceeded my expectations. Gap after gap, I felt what didn’t seem to matter would eventually matter again. I drew up a very non aggressive scale-in swing for the SDS and began monitoring the flattening diverging MACD of the SDS.

The plan was to scale in with equal parts starting at 22.80, reaching a cost basis of 21.20, a sell stop of 18.50 and target of 35.00.

When SDS started moving sideways at 21.40 I got way to aggressive and lured by the next move higher scaling in 75% of the position at what turned out to be a top completely abandoning my trading plan.

My average was 22.60 (10/13) and as the S&P rallied from 1220 to 1290 the SDS hit a low of 19.03. Gaps started to accelerate the volatility. Hind sight at this point was that I had decided to honor my original trading stop levels with a much higher risk ratio.

I can’t put just one reason behind doing this and albeit not the smartest thing to do my conviction in the original plan had not been negated by price action- yet. So far I had screwed up, but price hadn’t confirmed that the original plan was lost.

At this same time other technicians were complacent! There was much talk of a triangle to break sharply to the upside in the S&P. The time frame used for this analysis was too short in my opinion. The volatility was too extreme prior to this consolidation.

I had severe doubts of the triangle forming in the S&P off the 1290 top being bullish. Still, I was not complacent with my short position at the level of entry I had.

I could do anything but toot my own horn about seeing the bearish signs and holding a bearish position- I was still under water and, in the ultimate sense of things, I was still wrong.

With SDS reaching a low of 19.03 and my last theoretical level to scale in at 19.80, I left my reserve cash alone and continued to let price tell the story. I have never been more patient. Hitting my internal reset button to condition myself to take this back beyond even was extremely difficult.

Wednesday before Thanksgiving holiday I got the chance to sell and took a profit of .22 cents. Of course the weekly target prices I had been tracking soon followed. I explained myself briefly as having tired hands after closing this trade.

Even with price action now reflecting the bearish sentiment properly, I did not feel comfortable with the level of my entry in the SDS position.

During this time, to satisfy my desire to trade the bearish turn in the markets (without adding to a position that had been wrong for so long and possibly being even more wrong) I instead entered into a trade for ERY at 11.88 with a stop at 11.20- initial target was 14.50.

This trade was simple. I wasn’t going to scale in. I had my stop and had my target. I ended up taking just under 30% and sold at 15.43.

The intraday low in ERY after my entry was 11.22, but my hands were not tired and momentum had proved my trading plan worthy from the start.

Patience. Discipline.