TTT 16-March-2024 | Buy the dip or Sell on rise?
Finding certainty within uncertainty
"Don't buy the dip. Buy the strength after the dip" ~ Brian Shannon, Alphatrends
Today,
I will show you the simplest trading system I followed during these recent turbulent times. And, my trade plan going forward.
I will also try to answer the famous question, “Buy this dip or sell or rise, Bro?”
The System:
The markets have been pulling back since mid-late February while the indices had been putting a rosy picture. This bearish divergence was all too evident from the breadth data too. Add on the fact that my portfolio stocks were volatile and breaking down from key moving averages (21ema and 50sma) and structural pivots.
I was slowly getting back to more cash. This is evident from my portfolio curve below from Zerodha.
Blue line = Total account value
Green line =Total invested value.
My PF peaked on 8-Feb-2024 and gave back about 10% from the peak until 13-March-2024 when I went to 100% cash.
The process of going to cash was NOT random.
I followed a mix of the following:
Sell everything onto strength (or on the first sign of weakness)
Sell partially onto strength and the rest on weakness (why keep half? Hope to catch a bigger move if the bullishness resumes).
Sell all into weakness (Why not book something? These are high probability stocks, where I had more conviction of these stocks doing well).
I am sharing a couple of examples below:
Central Bank of India: Sell everything onto strength (anticipating a fall on worsening breadth).
The previous day signaled an over-extension of price. The sell day was a bearish sell-off day. I sold in anticipation of more bearishness as part of the portfolio de-risking process.
Albert David: sold half into strength and half into weakness.
I sold 50% size at 15% profit and the rest on a major weakness (recent fall).
I have picked the worst example to show the system I intended to follow even though I had better examples eg Ireda, JPpower, etc.
The sell on weakness could have been timed better in hindsight. (Read the reason for the exit in my trade journal).
Why did I hold on for too long?
What was special in this stock?
Ans: Strong sector.
IRM energy: Selling all into weakness.
It was an IPO base breakout. And therefore had a positional view. I average up my positional bets as and when I get a chance. I had made 2 peak entries but had to sell both on clear bearishness when the price closed below the ascending channel.
ACR?
Screenshot of my trade journal for the above-discussed trades. This is updated by the end of every day.
Had I made more money, if I had sold everything during mid of February?
Yes, I would have.
Had I cried, if markets went up after I sold?
Yes, I would have.
Even though I felt bearish, did I have any way to say for certain that the markets were to fall 10-15% from the top?
No, I did not.
Is there any scope to improve my system?
Yes, for sure. 100%.
Am I working day and night for that?
You bet I am.
My trade plan going forward:
I am unsure if markets are going up from here, or down. My reading of the breadth tells me that markets found strong support on 14 March 2024. The bullish force was insane. This gives me a bullish bias to the market at least in the short term. But I still do not have any evidence of a bigger upmove.
All I know is that if it is going up, I would love to participate.
But can it break down and see lower levels instead?
For sure. I wouldn’t bet against it.
And therefore, I will bet small with a small risk to begin with.
If I see my initial positions working, I will try to derisk them as soon as possible (by shifting my stoploss level to cost or selling partially into strength). Only then will I add more positions (read risk). The breadth should also confirm increased market participation in higher timeframes.
Until market breadth confirms more participation to the upside, my trades will be short swings only.
To this end, currently, I have 3 open positions with a combined risk of less than 1.5% to the portfolio.
Buy this dip or sell or rise?
Both.
Depending on the system you follow.
See. I am a swing-positional player.
If you are an out-and-out swing player, you can still buy the dip but with minimal risk. Look to derisk at the first opportunity available. You certainly cannot wait for longer moves to book your gains.
If you are a positional player, you probably had at least some names that haven’t triggered a sell. But you also do not have many buy signals around currently. You will need the stocks to form good bases, and get tighter on its right side which could take around 1-4 weeks. And even then, they may not break out.
Rather, stocks might start making lower highs and descend to lower lows. This would be a sell-on-rise market. We are not sure of this yet. Nobody is. But the price action in the coming days and weeks will give you clues. volatile bases with high volumes, no price tightness, and high volumes on erratic pullbacks; these are all negative signs.
That's all for today.
End of the day, it all depends on your system man.
Your system is personal and unique to you. why?
Because your risk tolerance and holding period are unique to you.
The subset of emotions and biases that affect you are also unique; hence, how you react to certain events in the market and your account curve are also unique.
What’s common for all then?
The core market tendencies, orchestrated by the universal law of supply and demand.
You need to build a trading system tailor-made for YOUR emotional sensibilities. One that reacts effortlessly to all market tendencies.
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Sakatas “systems” Homma.