The Messy Art of Trading Around a Moving Setup

By Andrew Nyquist
This is the part of the market ride that gets wacky. Folks fighting the tape (yes, cue the fingers at myself) start to “feel” worn out. And it is just when the tape-fighters throw in the towel that the market finally “reaches ,“ or rather sprints, for a top and rolls over. To be fair, I have been writing about my short-term target of S&P 500 1365-1370 for some time, and although that target is still above us, the slow grind higher in the markets has felt like forever… I mean, ta-ta-TODAY!

Okay, I’m exaggerating a bit for effect, but this type of slow, steady grind higher can easily create an illusion that the markets are nearing short term exhaustion and readying for a pull back. As early as late January (after the S&P 500 hit 1333 – a technical double off the ’09 lows), many investors were envisioning a pull back and/or pullback and thrust higher scenario; apparently there were too many of us, because the pullback part of the equation never developed.

So, what were we brokenhearted, whiny technicians left to do? Well, first and foremost I know how the “game” works, so I kept the whining to a minimum.  Even more important, I tried to keep an open mind (stubbornness is a trader’s worst enemy). The S&P 500 is only up 2% since late January, so it is all relative and truly representative of a grind you out market. I reminded myself to trade what’s in front of me (i.e. good stock setups), while continuing to trade around my short side bias [like a wild man]. This is important because markets have a way of crushing the “wanting.” (Just look at SP futures tonight)

Over the past few weeks I have traded around a short S&P 500 index fund position (SH core, with a select SDS trade a couple of times). Yes, it’s been both interesting and exhausting at times, especially while trading other developing setups. But as painful as it sounds, it really hasn’t caused much financial pain…yet. Here’s the generic timeline and poster for “The Messy Trade Around”: I entered a small short position around 1300 (10% position size) in mid January and added to it days later between 1315 and 1325 (boosted to 25%).  I then took a chunk off around 1310 (down to 10%), before taking a bigger lot between 1345 and 1350 (boosted to 50%). But as I conversed on Twitter over early last week, I realized that, although the market felt heavy and gloomy, it just wasn’t going down and may have another burst higher. So I took some of the trade off (again) on Tuesday and Wednesday around 1340-1342, before finally adding to it (again) late Thursday and Friday.

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I’m getting dizzy just recounting the events. It has taken every ounce of my open-mindedness and short term technical analysis to escape thus far with little financial tarnish but a very tired technical eye (My SH position is currently at 40% and equivalent to roughly S&P 1338). At the end of the day, it’s only one trade. And yes, I still like my SH position build, and plan to add more on bursts higher. But if there are two morals to this story, they’d be:   1) Trading around may be tiresome, but it can save your butt — It’s a strategy that works across equities as long as you are determined, yet open minded  AND  2) Don’t be wrong; it will save you a lot of time and effort. And, yes, the latter makes for a much smoother ride!


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Position in SH at time of publication.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.