September will be remembered by many investors as an unsettling month. But, as a trader, I don’t care much about which direction the market is going — as long as it’s going somewhere. Like August, September had more than enough action and produced outstanding results at 35.24%.
Buy and hold investors took their lumps, as the S&P 500 slumped 2.6% and many other indices much more. And, swing trading was nearly impossible due to the constant reversals. But, day traders found plenty of opportunities among the frequent, huge swings. The challenge was in figuring out which moves would play out, as there were many head fakes — particularly at the daily close.
The daily chart reflects the overall choppiness……but, the 60-min chart provides a much better sense of the crazy, intra-day swings as well as the gaps up and down at nearly every opening bell.This led to more frequent trading than I’d like. But, the results were positive. So, we’ll take the bad with the good, and pray for more trending markets going forward.
There were 21 sessions in September. The median move in the first hour alone was 20.4 points — most of them gaps higher or lower.
In fact, 17 of the 21 gapped higher or lower by at least 10 points at the bell. And, trends were very hard to come by — with huge gaps lower one day frequently followed by sizable gaps higher the following day.
During September, the median daily range was a whopping 35.8 points. The smallest daily range was 14.8 points and the greatest was 67 points.
Our old friend USDJPY was responsible for most of the volatility in September. The pair, which dictates almost all moves in the “markets” these days, was stuck in a Pennant Pattern which straddled the most important Fib level on the chart: the .618 Fib at 120.11.
September’s results came in at a strong 35.24% — much higher than we would expect in a less volatile period such as earlier in the year. Unfortunately, these results came at the expense of much greater activity. We averaged 6.5 calls/day, which is at least twice the number I would prefer. This was partly a result of the enormous volatility, and partly a result of the head fakes that continue to be so prevalent.
HFT’s and algos were quite active in the midst of all this volatility, particularly when a recovery from a sizable plunge was required. Predatory algorithms, such those which push prices past an obvious reversal point and then reverse, after traders are stopped out, continue to plague the “markets.”
Drilling down into our daily activity, about half of our gains were from moves that were less than five points. These accounted, however, for only 1/8th of our monthly return. So, eliminating some of these would be a desirable trade off. I think it’s safe to say that most folks would have been fine with a 31% month involving half the number of trades.
Some of them can’t be eliminated — they’re the result of a bigger opportunity that’s scuttled by an unanticipated reversal. In these cases, I’d rather close the trade quickly than suffer a loss. At other times, it’s entirely possible. If the upside potential from a trade is only a few points, I’ll try harder to ignore it in the first place.
Five points is probably a good threshold. With a 10-pt threshold, by comparison, the number of trades would have been reduced by 85%, but the results would have been reduced by more than half. Since our membership includes traders and investors with a variety of styles and time frames, I will endeavor to better define the size of the expected move when making a call. That way, members may make their own decisions as to whether to pursue it.