The market has seen a bear market rally lately. I was not able to catch this rally since my system did not generate any signals. I am totally fine with it since it is very hard to catch all the moves. The question is how much longer this rally will last. I am wearing a bear hat now. My bearish view is strictly pertaining to swing trading. Here is why.
From the start of this bear market that started in Nov. 2007, it has been right to short into every single rally. Why is this rally different than every other? We can not rule out the possibility of mid term reversal. But that kind of probability is quite low until I can see some tangible signs indicated by weekly and monthly charts.
As a successful trader, you and I always choose the path of the least resistance. That path is of course on the bear side because we are in a very big bear market. You should always try to short 70% of the time and long 30%. In other words, follow the trend aka Path of the least resistance. Ok, so we know what the general direction is. Shorting is my strategy. We need tactics also.
The first is timing. That is I will not short into this rally blindly. I will wait for my indictors to show signs of weakness. Of course we all know technical indicators will be off the mark quite often. But that is OK. I will get out of my short positions as quickly as possible to keep my losers small. As you could see from my WLT, FAZ and GS, I had 10% paper profits from both FAZ and WLT. I had to close them since I don’t allow such positions turn into losers once they have a 5-7% paper profits before they hit their targets. People who have been following my portfolio for a while know this. GS was a completely loser. It just hit my stop loss.
The second is that I will keep shorting into the rally until my system tells that we are possibly going to see a major reversal. I will not hesitate to short into it just because my first attempt failed.
The third is that I will hold onto my winners once they start to move in my direction.
All these 3 are very important. If any one of these 3 is missing, it will greatly increase my risk.
Which direction do you think SRS and FAZ will give us the best Risk/Reward set-ups? I will go long on these on any signs of weakness in the general market and my profit target for FAZ will be at least 40% and 30% for SRS. When they were high up over 100 dollars, I could not short them. Now I should have no issues going long on them
Click the photos to enlarge them
FAZ
SRS
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