Trade The Journey

Trade The Journey

Lost or Discouraged!

Top of the Morning. I hope everyone is enjoying the return to normalcy after a challenging year and a half. The delta variant continues to hamper supply chains. Ports continued to crowd with shipping containers due to the high demand for e-commerce.

Supply chains continued to be strained due to the Virus, increasing prices for raw materials and some commodities. Consumers are feeling the increases in prices in their wallets, and consumer sentiment reflects this fact.

Inflation (CPI) remained elevated, although autos saw a cooling off. The infrastructure bill faces challenges ahead of it being passed in congress. The VIX ended the week slightly above twenty. The VIX has remained between fifteen and twenty-one for the last couple of months.

I’ll be further developing metrics to better describe the market developments during the week in the coming weeks.

Russell 2000
Resistance: 2317.39/2311/87
Support: 2139.13

Fifty and Twenty sma converged, with the 20 sma moving upwards alongside implied volatility. It doesn’t seem like the Russell will be making an upwards trend this coming week. On the weekly, the formation looks similar to a flag. Could it be distribution taking place at the top?

S&P 500
Resistance: 4481.07 and the 20 SMA
Support: 4430.38 and the 50 SMA

The S&P 500 has steeply trended upward with small pauses along the way. Could a pullback be in order? If so, one level I have in mind is the 4372.06 level. From a high of 4545.85, the S&P has retreated to 4432.99, a decline of over 100 points from the high.

Resistance: 35157 and the 50 SMA
Support: 34519.51

The dow jones has retreated from a high of 35631.19 to 34584.88, a retreat of a thousand points. The 20 Sma is close to breaching the 50 sma. If the dow further retreats, 34040.31 could be a level to watch.

Thirty-year yields ended the week where they begin at 1.91%.
Ten-year yields ended the week four basis points higher at 1.37%.
Five-year yields ended the week seven basis points higher at 0.88%.

As you can see, the curve is upward and has not flattened or inverted, but that could change once the FED starts to taper. I’m still learning how the rates are determined, especially in the longer termed bonds.

Not much to move the markets occurred during the week. Some of the major companies releasing earnings will include Lennar, Adobe, FED Ex, Nike, Costco, Carnival, and General Mills. Most of the companies releasing earnings numbers will indicate how the economy is fairing against the Delta Variant.

My personal opinion is to remain cautious in these still waters.

For the past month, I haven’t made a trade, evidenced by the blank pages in my trading journal. It’s been close to two months since my last options trade. I brought a call last month, but I didn’t trade any spreads.

I’m finishing advanced options and strategies for the fourth time, and I still feel unsure about my options knowledge. I have a theoretical understanding of options, but I’m not sure how it translates to the marketplace.

I completed my options spreadsheet worksheet, complete with a theoretical pricing model. It’s color-coded and ready to be used. I’m hoping this week will be the first week I put it to use.

My goal is to place a credit spread and develop some models for the greeks; not a complex formula-based model but a simple model based on observation. Complex models require more inputs and, in some cases, produce more error.

When I paper trader, I sometimes have a hard time deciphering the greek’s movements as the price changes. I know the static definition of what the greeks mean but watching the dynamics is a different story. Some spreads can invert, acting as a bearish position when it is supposed to be bullish.

I entitled this post lost or discouraged because of the time it takes to become proficient in trading. Every day, I study and practice paper trading to learn more about how the markets work.

I’ve learned that short-term movements are primarily random for the retail trader, and trading is probability-based. I like the probability aspect of options; you have a sense of the probability of price action through implied volatility.

Still, the knowledge is not enough, so I scour the internet for new books. With each completed book, I feel a new void with a new book hoping that each new piece of information will complete the trading puzzle.

I find it hard to admit that I don’t know what’s going to happen next. How can I hope to make a living based on trading uncertainty?

I keep rereading the options strategies book, hoping that the information will sink in better. Slowly, I have realized that each options trade will have a life of its own. There probably won’t be a continuing string of options trades where each profit adds to the next one.

There will be losses, and I haven’t truly accepted this aspect of trading, to be completely honest with myself. Options are wonderfully complex probability-based instruments, and they are difficult to become profitable trading.

Don’t get me wrong; I love learning about volatility skews and how market participants determine the implied volatility through supply and demand. My main issue is results and how those results can somehow make me a respected success in the eyes of friends and family.

That is not the reason you should trade or even compared your trading too. I get discouraged because I don’t see the effort translating to results. My last series of trades were all losers.

Trading is a lonely sport. I have to be cautious of my natural tendency to want to go everywhere now. If I can moderate my need for results and enjoy the process of trading, I’d be a lot more satisfied as a person and a trader.

Weekly cash-flow in Review:

If it’s not one thing, it’s another. New dental procedures mean more considerable expenses moving forward. I have always believed that in some way, I’ll earn the money needed to cover the costs as they arise.

Upward and onward.

Grade: D-
Reason: I made a stupid purchase, I’m still paying for it a week later.

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