Despite all the “Xanga Shut Down/Upgrade” drama, I’ve been keeping quite busy being immersed market activity and honing my trading skills. This three+ month trading period (June, July, August September) has seen some quite dramatic moves where the market moves strongly in one direction, only to immediately give the move back over the next day or few days before moving in a definite direction.
Friday’s market activity show this in all its dramatic glory:
In the pre cash market hours ES (S&P 500 “mini”) futures started rising ahead of the jobs report, due at 5:30 PST. As it rose you can see “Bulls” on net traffic beating their chest and claiming that they predicted this move in advance through their “superior” technical analysis. Some traders credited the current news as being the give away as to what the market was going to do. The job numbers come out and are below expectations and after some volatility in both directions, the market keeps moving up. The move up despite the bad jobs numbers report is attributed to the reasoning that the Fed may rethink their decision to wean the market off qualitative easing (QE) since the economy still seems shaky.
Shortly after the market opens at 6:30 PST, ES begins plunging with no let up and increasing strength each minute. Many Bulls are taken by surprise as all the gains made in the pre market are erased and replaced with increasing losses. Market “Bears” are now coming out of the wood work and patting themselves on the back, claiming they saw this move in advance and that those poor Bulls were misled.
Shortly after 7am PST, the market lows of the day are reached and the Bears are giddy with delight, with Bulls all silent. The Bears also credit the news and/or their “superior” technical analysis. The market then bounces and starts heading higher. Bears keep positions open or open new positions thinking the bounce is a dead cat variety and will continue falling shortly. That’s doesn’t turn out to be the case as the move up has legs and by 8am, has pretty much reclaimed all its losses and returned to where it had opened.
Bears who didn’t exit or added to their positions cough up their gains and exchange them for big losses. Bulls remained confused for the most part and missed the last move.
At the end of the day and after a few more gyrations, the S&P 500 achieved a ZERO move for the day, remaining unchanged from the day before. All that fury and energy in both directions, but ending flat.
A trader who correctly predicted the pre market move, market plunge and reversal would have made a killing. Traders who got those three wrong got killed. It appears that most traders lost money, with the lucky ones just ending flat or with small gains.
What lessons can be learned here?
1) Many traders TA skills aren’t as good as they think they are – clearly the majority of both sides were faked out by the market reversals .
2) Traders who use the news as a basis for choosing positions should reconsider their strategy, as it clearly didn’t help them. A belief that news drives the markets means traders got euphoric, then deeply pessimistic, then euphoric, then “meh” all in the span of minutes. The more realistic reason for the big moves is due to trading robots driving the market back and forth.
3) High Frequency Trading (HFT) bots dominate the landscape. Market swings of this speed and magnitude can be credited to those super computers entering thousand of orders at light speed.
4) Trading is harder than it looks- just ask all the beat up traders. =)
5) Traders have big egos, that probably shouldn’t be so big. As the saying goes “Pride goeth before the fall” – traders lose mostly due to not exiting when the market turns against them, believing they can’t be wrong. Can you believe after all that I still saw one trader claim he “saw” the moves coming? Riiiiight.