Wednesday, February 27, 2008

Long & Neutral

Today we exited the Cabot Tides short position on the open at 43.77 for a gain of 14.6%. This is an excellent gain in just less than 8 weeks with an ARR of 95.1%. Not bad for a one trade.

For the VLA system we went long the QQQQ at 43.77. It is interesting to note the number of people calling for a 5th wave breakdown in the Nasdaq 100 based on the formation of a triangle. What the triangle is telling us is that it could be a 4th wave with a new low to follow, or it could be a b wave with new bear market rally highs to follow in wave c. Price trumps pattern - always. Breadth informs our interpretation of pattern. At the present time the Nasdaq summation index is rising, and there are other breadth indicators that are positive. Therefore, it would be risky to trade against price for a reversal here. This is where the market prognosticators mislead the inexperienced trader into taking high risk trades.

Regardless of which system you trade, discipline is the key. Discipline requires the willingness to take losses for the possibility of greater future gains. Hope and fear must be shattered on the altar of discipline.

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