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Strategies & Market Trends : The Options Box -- Ignore unavailable to you. Want to Upgrade?

To: X Y Zebra who wrote (7496)	11/19/2000 5:57:01 PM
From: dli	Respond to of 10876

Personally, I consider the futures markets a field where T/A is applied in a "pure" form. The equities market there are strong influences from a fundamental analysis point of view, as well as technical. I agree in the sense that there's an additional level of abstraction in relation to the cash or spot markets which causes technical aspects to dominate trading in the shorter timeframes. However, eventually even there fundamentals filter through. There is no way any amount of applied T/A will "foresee" an unknown piece of news that can shake the markets in an important way. In my reasoning, (that you call circular thinking), such an event can be so important that will go opposite of what T/A was (up to that moment), projecting. I totally agree. Those real surprises are what causes the big gaps up and down. Often however, news is leaked and acted upon by insiders long before it is released to the public and that's where following the footprints of the big money can be quite rewarding. I attempt to ask myself: "what can possibly happen that would alter (otherwise), accepted behavior" ? Hence, in my case, the use of options. Same here. E.g. while I never hold common through earnings I am willing to hold options if the risk/reward seems favorable. In my eyes, this entire debate about price levels can be reduced to mere excess demand over supply in specific stocks, originated by the amount of money that has entered the market in the las t 5 years or so. I agree. The parabolic rises in many of the dot coms were actually engineered by the investment banks by keeping floats tight and only releasing the majority of shares much later through lockup agreements and secondaries. In the end it all comes down to supply and demand and that alone is a reason why those dot coms could probably never reach their old highs again with their much larger floats now. Here... I include the ".bomb now gone" companies. I can not believe that any amount of applied T/A would have predicted the explosion in prices that we witnessed. --The fall may have been a different story. TA is not about predicting anything, it's about developing if-then scenarios and assigning probabilities to potential outcomes. What TA could do in the case dot coms was to get you in on the right side of the market once an uptrend was established and get you out again once that uptrend was broken. I guess here we disagree, since I consider gridlock to be a great positive. Time will tell us. (Assuming there is no coup d'etat in the US) -g- We don't disagree about gridlock being a positive for the market. My point was that since it has been clear since election day that there will be continued political gridlock no matter who will eventually take seat in the White House there won't be any fundamental news to drive a sustained upmove in the markets. I'm sure we'll get a relief to compensate for the uncertainty discount but I do not see it going very far. While I understand your reasoning, from the perspective of "not hold positions overnight". However, I also see it as an incredible risk taking trade. As an example I will give you last week in which reversals of trends were so quick and violent that at times, not that the trader would not be willing to change directions, but it became a matter of: a) the problem of slippage (time for execution), and b) the risk/reward relationship of the trade. You are right that slippage increases in fast markets but that can be accounted for beforehand and in my experience is not a problem if you stick to highly liquid stocks (average daily volume 5 million shares and higher) and use a direct access broker that gives you instant executions and confirmations. Of course, if you do stuff like holding positions into Fed announcements then it's your own fault if you get burned. In the current environment trend following (which is what I like to use, hence my use of the DMI/ADX indicator), becomes useless as no firm trend can be established, particularly since Oct. At least so has been my observation in the trades I have made. That's right we were in a trading range NDX 2950-3500 all through October until we broke down from there recently. Employing a trend-following method in such an environment will whipsaw you to death. In my eyes, this is more of a personality of the trader than the efficiency of a particular technique. I am not afraid of trading under a down trading market; it is just that I find to be less efficient in a "jumpy market". I think this is a very important point you bring up here. I believe that to be consistently profitable one has to find a trading style that fits one's personality. Dave

To: X Y Zebra who wrote (7496)	11/19/2000 9:07:19 PM
From: Lost to Voodoo	Read Replies (1) \| Respond to of 10876

There is another factor in terms of news beyond the leakage Dave referred to. Sure, some news is really out of the blue and has a huge surprise impact. I find these items to be the exception rather than the rule. However, the same piece of news - as we've all seen - can either be interpreted wildly bullishly or wildly bearishly depending on the tone of the markets, etc. That's one of the reasons why I have a hard time trying to interpret/trade on news and basically avoid it as much as I can.