Made in Athens
Still, in good sociopathic style, I have been doing my best to exploit the fallout from the latest Greek crisis. Following the breach of its 200-day moving average last week, I have been selling the FTSE short. I sold on Friday afternoon and caught a decent move down once the markets reopened on Monday. It's actually been rather a good feeling to be short again, after so many months of buying. Perhaps I should be thanking the Greeks after all.
Nearly oversold
As a result of all the blood-letting, many markets are looking really beaten up now. The S&P, Dow and Nasdaq are as oversold as they were during the carnage of last summer, with daily RSI readings of nearing 30 per cent. When momentum has reached such low levels and the markets then rally, it's typically a good time to buy, especially if we are still in a bull market. But with potential disaster around the corner in Europe, it's hard to see exactly what's going to trigger a move upwards.
FTSE target
In this environment, I would prefer simply to keep shorting the weaker indices for now. The FTSE remains a very juicy target for intraday shorting. I wouldn't be surprised to see it sag to 5249 before long. The main issue is catching the start of each move lower. In recent days, I have used the 21-period exponential moving average to good effect. When the price probes this line and then starts to sell off, I have gone short.
Where I short FTSE
I've had a couple of emails lately asking where I put my stop losses. The answer is as tight as possible. I just cannot stomach being heavily down on a trade nowadays. If I am not right about the FTSE within 50 points or so, then obviously my idea was wrong. I wasn't always like this, though. When I first started out, I regularly allowed myself stop losses 2.5 per cent away from the current price. Then I had a bad run and I halved my trading account within a few weeks. Nowadays, I not only put stops within 1 per cent of my entry price, but also try not to risk more than 1 per cent of my account on an individual trade.
There is no single approach to stop losses that will suit everyone. What matters is that your policy suits your style of trading and your personality. I know a couple of very successful traders who don't even bother with stop losses at all. ("Stops are for wimps," as one put it to me.) Personally, I wouldn't be able to sleep at night in that situation, nor probably even go out to lunch. If you take care of the losses, the profits really do look after themselves.
I have changed the format of Trader's daily outlooks on our website. The US indices report now appears in late morning, while I have added coverage of the euro/US dollar, euro/sterling, and sterling/dollar.
