Tuesday 13th December 2011

For my 100th blog post I had planned to do something very positive... a well managed trade perhaps... or analysis of a nice trend such as we had yesterday in the Euro and which is again happening right now.

But how can I go past the unexpected occurrence in today's Crude Oil markets which moved 187 ticks in a matter of minutes.

What spooked the markets is largely speculation. http://www.bloomberg.com/news/2011-12-13/crude-oil-surges-above-100-a-barrel-from-lowest-level-in-two-weeks.html

The primary blame seems to be currently placed on Iran announcing military drills to practice closing the Strait of Hormuz in the Persian Gulf, although other reports state that this news was actually released yesterday! Perhaps more will come out later today. Or perhaps not. As a technical trader, the cause is largely irrelevant.

I didn't catch the move. I picked up some small profits from in the bullish move just after 00:30, but was standing aside at the time of the rapid rise as I didn't like the stop/start nature of the movement which would slam quickly for 20-30 ticks, then drift sideways before repeating.

But this blog is not about my trading so much; but rather about finding a lesson in each trading session.

For today's 100th blog post milestone, rather than look at the potential thousands which were available to someone in this market, let's look at risk. (Yeah, a bit of a downer of a topic for a milestone blog post, but it fits in nicely with the uncertainty of the market environment.)

The thing is... newbies look at price charts such as this and all they see is the dollar signs of profits missed. I see both potential reward and potential risk; for where you find one you also find the other. And I can promise you that someone, somewhere, was short in this thing and has just had their account smashed.

I'll be replaying this post-session to see how I could have perhaps managed a win. I'm always looking for ways to improve. But also I'll be replaying it from the following perspective... what if I had not already decided to stand aside for a little while... could it have been possible for me to be short at the time of price explosion? Any reason at all. And if so, how would I have managed it?

From a hindsight based technical review of the static chart, I'd suggest there's very little reason to be short at this time. I expect this will be confirmed during the replay session. But next time (because there will be many more price shocks during our trading careers)... both you and I may not be so lucky.

Today's lesson... (1) review and replay large missed moves from the both sides of the market, and (2) although I'm hopefully preaching to the converted here... ALWAYS have a stop in the market. Slippage may not be nice, but it's game over without one.