Reviewing the SMB Archives

In August and early September, the market seemed to rotate around two distinct type of trading days:

1. The momentum panic day, driven by major news, with lots of volume in the SPY
2. An uptrending grind or ‘melt-up’, characterized by a wide ranges, low volume and steep pullbacks that would shake a lot of traders out but seldom break the trend.

The first type of day was most commonly traded during the 2008 markets. The 2009 market shifted to the latter.

The traders on our desk embraced the surge in volatility. Welcome to the momentum market again — Chop city! But then they gave some back on the slower days because they didn’t know how to put on the brakes. On the flip side, there were traders who prefer building a position into a trend, a Trade2Hold. They were not able to completely take advantage of the huge opportunity available on these momentum days. They were unfamiliar with how to ride the leveraged ETFs such as FAZ or SKF for a multi-point move.

Markets will always change–from momentum to rangebound to trending, from bullish to bearish, from mania to panic, and so on. These changes are often subtle yet painful and real. The change is usually not obvious until it’s too late. What can you do? You can hope for the “old market” to come back or you can adapt. It’s called trading.

A simple but effective exercise to speed up the adjustment period would be to review trades from past markets, either through your own trading journal or a colleague’s. Review market structure and tape from those days. Think about the intraday fundamentals during a historical period where the Average Joe was wondering if his money was safe. And then think about them again during another period where every self-proclaimed “market guru” on CNBC was betting on a “double dip recession” while in a strong uptrend. What were the plays that made most sense?

The SMB blog goes back to 2008. A lot has happened since then. That is a lot of material we can review. Here are some posts that can help you adjust to this unusual market.

2008
Bottom in Place? — Sept 2008
Preparing my Mind — Sept 2008
Fading Financials and Gold — Sept 2008
Making the Adjustment — Sept 2008
Capitalize — Sept 2008
Standing in Front of a Freight Train — October 2008
Last 15 Minutes — October 2008
Reversals, Reversals, Reversals — October 2008
The Best Stocks need to get Killed First — November 2008
How to Combat Over-Trading! — November 2008
Comparing Tomorrow with Today — November 2008
Take your Normalcy and Shove It — December 2009
SRS: Momentum Trading Requires Guts — December 2009