The VIX was up 14% today alone, reaching closing highs that we have not seen in years! That could only mean fear, if not down right panic!
If you were a put buyer, you are probably smiling now, but truly, who could have predicted today was going to bring such fear when only days ago, the Dow rallied >400 points?
I have been following an Elliott wave strategy for several weeks now, and I am confident that it is the best strategy based on predicting markets. Yet, I don’t seem to get ahead at all. The rollercoaster that we have been submitted over the last few weeks is enough to make any cool-headed trader go mad trying to figure out whether to take profits or wait until we break even.
Yet my PCCRC paper trading account seems to be going steadily up. It is now 67% higher. Mind you, I started this account with $100,000 fictitious dollars in late June 2007. That is 8 ½ month ago. Wouldn’t you like to get that kind of performance?
Yeah, I know what you area going to say: “surely you are lucky, you could not reproduce this again”. But the opposite is true. My own account is giving me very similar results and I know that you can also reproduce these results, if you follow one or more of my 4 strategies.
It does make a huge difference when you are calmly observing the markets decline rapidly, imagine the panic among investors, and yes, even among experienced traders. This allows me to see the situation with a clarity that I never had in the past. I no longer panic, or hope that better times arrive soon, nor do I try to go short at precisely the wrong time, when capitulation is at hand. It really does not matter to me.
As a long-time believer in the Elliott trader, I have been bearish for years! Understanding the rally between Oct. 2002 and July 2007 was only a “B” wave and the “C” was about to happen. As I saw the markets go up, I had to come up with a method that would allow me to trade the markets without having to rely on Elliott forecasting because even with all my experience (since 1995), I could simply not pinpoint the top of the market, and the beginning of the “C” wave. In fact, I don’t even care much whether that “C” wave is already underway in the major indices. Even if my wave counts suggest so, I am not about to bet my trading capital on that assumption.
Notoriously, when a stock goes down, implied volatility of options rises, in about the same way that the VIX goes up as panic fills Wall Street. It is not hard to imagine that everyone that holds stock is either selling or buying puts to protect their stock assets. Could you imagine what Mutual Fund managers are doing now? The value of options rises to unreasonable levels. Great, but what if the stock market bounces back? Well in such cases, we are happy with collect Delta profits as the long calls appreciate.
The PCCRC is a “reactive” rather than “proactive” approach to trading. I have heard traders talk about their ability to recognize the right point to enter or exit the markets. They convince themselves that they could call tops, bottom and direction in general either by experience, or by some indicator such as Fibonacci numbers, etc. I know, I used to do that, and still do. But I don’t care to be the best stock forecaster in the world, I just care to make money consistently. So, be proactive. Don’t try to predict what the market is going to do, act retrospectively. If the underlying stock goes up, sell some calls. If Volatility goes up, begin to close your position. Don’t try to “predict”, do “research” or look at 10 indicators before making up your mind. Follow a series of steps of select your picks and then “react” taking profits whenever appropriate. No need to look for the top or bottom, no need to follow “the trend” or feel that if you did not enter the markets in Oct. 2002, you missed out on the opportunity of the decade. There are always good candidates to play the PCCRC, and if there is none at the moment, the next trading day may bring new heroes, and those heroes is what you should be trading, shouldn’t you?
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