Daytrading November 27 afternoon

Thanks Mitta and morning crew.


Half-time round-up:

The ASX looks set to close lower for the week despite a second day of gains as BHP edged above yesterday's seven-year nadir.

At 1pm EST the ASX 200 was trading 22 points or 0.4% ahead at 5233 with the energy sector +1.7%, metals & mining +1.3% and gold +1.3% leading the way. Offsetting those gains were declines in utilities -0.8%, IT -0.7% and telecoms -0.3%. The index closed at 5256 last Friday.

The rally came as US equity futures continued to hint at a positive start to tonight's holiday-shortened session when trading resumes after the Thanksgiving holiday. Dow futures were recently up 29 points or 0.16%. S&P 500 futures were up 5.25 points or 0.25%. The advance came as the prospect of European stimulus measures next week offset concerns about US rates and a slowdown in China.

“It looks increasingly likely that the Fed will move in December, in fact it’d be a shock to markets if it didn’t - the move has been well telegraphed,” Chris Green, director of economics and strategy at First NZ Capital Group, told Bloomberg. “With regards to China, our sense is that there are still significant risks to the global economy but on the other side, that they’ve got the policy ammunition to dampen that risk.”

China's Shanghai Composite eased 0.92% this morning, Hong Kong's Hang Seng 0.79% and Japan's Nikkei 0.51%.

Crude oil futures edged up two cents this morning to US$42.53 a barrel. Spot gold was $1.20 weaker at US$1,069.70 an ounce. The dollar was buying 72.26 US cents.


Further to the discussion about SGH this morning, here's one trader's thoughts: these 'news-shock' dumps are extremely volatile, unpredictable and novice traders should not touch them until they have more experience. By that, I mean watching and learning. Perhaps paper trade. Compare your expectations against the reality, then realign your expectations. My biggest 'novice' losses came in these sort of trades - and they were shattering at the time.
This is how I approach it now:
Step 1: Watch and wait until things get bad. Then wait some more. Wait until the fall is so shocking that you can't imagine it getting worse. Wait some more.
Step 2: Buy a small parcel. At most, buy a quarter of what you might imagine your final position might be. Keep it small to protect the downside and also to allow you to hold on if - as is most likely - the price keeps falling. Step 2: Set a slightly larger buy much further down.
Step 3: Set another slightly larger buy even further down. You're pyramiding into the trade, little by little, increasing your buy size to lower your average.
Step 4: Set another buy if you have the capital. If you haven't then you need to adjust your strategy in future - you need capital to keep buying until the bounce.
Step 5: Work out your break-even price and recalculate as you go along. The bounces tend to be sudden and fierce, so you need to know when you're in profit.
Step 6: Buckle in and hold on through the bounce. Depending on how much funds you have committed, you may want to let some go at break-even/just above. If you have the nads, hold on. I usually pyramid out of the trade in the same way I got in. First aim is to reduce my exposure, then lock in a good profit, then let the last bit ride with a trailing stop - that's the cream.
As an example, with SGH this morning, my first buy was at 79c, 2nd at 70c and 3rd at 60c, each buy larger than the one before. I would have bought again in the low 50s if it got there. Exited in the mid-high 70s, profiting on two parts of the trade and recording a small loss on the first buy.
Then I took a short break - this is high-intensity stuff and you need to recharge. Get a coffee, do some stretches, clear your head. If you're ahead, then you'll have a positive bias that will encourage you to jump back in prematurely. Don't do it. Be aware of that positive bias and treat any new trade as exactly that. You don't have a special relationship with this share just because you jagged a win. Approach every trade objectively.
Finally, spare a thought for holders. These sort of fiascoes can ruin lives.
NB: This is purely an intraday strategy, not advice to average down on an investment. Win or lose, with this strategy you exit the trade before the close. It's not full-proof - I've yet to find anything that is. Even when it works it takes discipline and a strong stomach. There are more relaxing ways to make a living on the market. Try those first and if they work, do those instead.