Wednesday, July 11, 2007

Technical analysis Vs. the COT

Sounds like a battle of the titans doesn't it. LOL First off let me say that I do use TA to help me time entries and exits so I'm not anti TA by any means.

Here's my problem with TA. OK Tom's call yesterday was correct but what do you do today. Yesterday I posed the question to an investor how do you know when to cover your shorts? Today we are getting a lesson in answering that question. Should you have covered last night? As of the close if you shorted the Q's you have lost almost all your profits (in the after hours you are currently underwater). What do you do? What's a legitimate signal to cover? Lets say TA told you to sell Monday morning. Yes you were a winner but what if Bernanke had decided to say something very positive yesterday. I find it highly likely the market would have used it as an excuse to become even more overbought. How can TA know what the Fed Chairman is going to say? I see people getting constantly getting whipped back and forth by this market. There is just too much leverage being used in the market today. When we go down we go down big because people have big positions on and can't hold on thru any kind of volatility. These big moves make one think the end is near. But then the big money who are smart enough not to use leverage just come back in and buy the dip. So I'll ask again according to TA what do you do today? Do you cover quickly before you lose all your profits? Of course that would just accelerate the upside or do you hold on and risk losing on the short side again for the umpteenth time? The easy way to avoid whipsawing back and forth is of course to use a system that keeps you on the larger long term trend.