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Journal - 12/12/16 - Short hedge missed into Fed...

CBOT_MINI:YM1!   E-MINI DOW JONES ($5) Futures
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Today is a good day to talk about, since it will help users understand the trading. We had to close the June YMM7 contracts out today, not because we wanted to - but because the hedge missed... and just barely missed. If you noticed the two positions that scaled on YMH7 short - they were stopped out for just a one tick at 19911 (stop was 19910) before it reversed, including the final 2nd short position right at the highs. Sometimes this happens, but if the short hedge had not been stopped out, we would still currently be long the June contracts. However, that's not what happened and so control is best. For educational purposes, what this means is that if the hedged had worked, when price moved lower we would have closed out the first contract for roughly $500 and then there would be a short position at the high that could eventually move into the $1,000+ territory mark while the June contracts held out long were roughly down $1500 - thus balanced.


Every short term trader should have been taking small potential lottery shorts today near those prior highs. Every trader knew it was probable the fed would hike rates and invariably the dollar would have to rise, and on a fundamental basis, this means stocks absolutely could correct. It's worth the potentially large risk to reward trade there, and in our case a hedge for our longs. If you’re program is run by a short term counter trader, and he either (1) did not trade or (2) was not trading near those highs during the data release, I would question the program. It’s about about whether or not the trade gets stopped out or not, it’s the logic of how a trader behaves. Again, hedges can miss. But there is no way, at least on a $35K account, to never take any risk in order to pull down larger trades worth over $10,000 while risking $1-3K ... which is what we do.


With that aside... Markets are very interesting here. What's very clear is that the dollar is bullish , and so all of our FX programs are about to start crushing it here. If you are not involved in one of those, now would be a good time considering this environment has not happened in over a decade. In regards to this program - YM signals point to a short term top here. We aren't very interested in trading this instrument anymore until we can get a deep discount on the June contracts. We have a pending order at (muted) on YMM7 with a stop loss (muted) however we're skeptical that we will see it retrace that much. Trading is likely to get very slow on this program into the new year, with the exception that YMH7 recovers above (muted) and begins a new healthy distribution process. Due to the heavy volume on the dollar, traders short term will try to figure out whether both markets can rise in tandem (which is not supposed to be possible, but we think will happen anyway in Q1 of 2017) and for now the smart ones will lay off on equities.

We want to reiterate that these markets change very quickly, and surprise many. By early next week I could be getting long again, but it's just best to let the dust settle now and look for technical indications that there has been a deeper correction. We will likely get involved near YMH7 (muted) or alternatively back above (muted).

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