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Odds and Ends

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Over the past week, I've been inundated with emails responding to last week's article, Options, Priorities and Balance, all complimentary and to a large degree expanding on the basic theme I laid out in that article. I didn't write the article to brag about my own trading success, as I know as well as anyone that pride goes before the fall. My motivation was to remind myself as much as you that trading is a means to an end, not an end unto itself.

Clearly many of you got that point loud and clear. If you'll forgive me a bit of indulgence, I'd like to share a couple samples from the many emails that came in. Just to show that I'm an equal-opportunity kind of guy, this first one is for the ladies. It applies to both men and women, but I thought it was telling that the author extended my premise to an area of life I hadn't considered. If none of the logic I presented last week got your attention, her email should.

"I just wanted to say thanks for the great article on "Options, Priorities and Balance." My husband has high blood pressure, so we keep a monitor at home. On a whim Monday morning as I was preparing for the market to open, I decided to take my blood pressure and discovered it was registering in the high-normal range. That's unusual for me. My husband kids me that I'm among the walking dead, since my normal blood pressure and resting heart rate are extremely low. During the market hours that day, I monitored my blood pressure from time to time and discovered a high of 161/88 when I was trying to make a decision about a trade. After thinking about what was happening with my blood pressure, the likelihood of volatile trading the rest of the week, and the need for balance in my life, too, I closed out my trades on Tuesday and planned for an extended time away from the markets. A check of my blood pressure on Wednesday revealed a calm 106/63 and a resting heart rate of 59.

I love options trading. It's a great balance for my other working life: working as an educational writer and young adult novelist. I'm athletic. My husband and I will be hitting the dirt trails on our mountain bikes this weekend, and I'm one of the few women over 50 I see out on those trails. Actually, I'm one of the few women. Still, trading too intensely was taking a toll on my health, and I intend to keep a better balance from now on. Your article was an affirmation for me, and maybe for others it was a wake-up call. We need that kind of education, too."

I found that letter especially interesting, because of the fact that I had completely neglected to consider the health-related issues associated with trading. To succeed in this business, it is necessary to love what we do, but clearly we need to manage the stress that comes with the territory. Afterall, what good is bountiful riches, if our health suffers in the process?

This next email really rocked me back on my heels and take notice. It is a strong reminder to all of us of why we work so hard to trade successfully. It isn't about the money. It is about the life we want to provide for those that we love.

"I totally agree with you. The patience that my wife has shown during these rough times are what makes me love her all the more and want desperately to do right by her. I am one of those traders who you've mentioned who have neglected his family life in his attempt to trade his way out of this market. Its easy to say you love someone when the pieces in life are falling in together, but when times are hard, it takes a special someone to stay by you and still believe you. My wife has said "if I can't stand by you when you're losing, then I wasn't really standing by you when I said "I love you" as you were making the money trading either". My kids are constantly try to cheer me up and sadly... avoid me, when they knew that daddy blew it again. (The problem isn't daddy doesn't know what he is doing wrong. The problem is that he is just doing the SAME wrong things). My kids are so mature and thoughtful. It's scary how much they have grown (16,11,5) and are aware and sympathetic. I appreciate your article and reminder."

This email alone describes why I put as much effort as I do into my writing, as I consider it my responsibility to help those that are struggling with their trading to reach that point where the markets can be used to generate consistent income. This reader is fortunate in that he has a strong family support system and I believe he understands the importance of regularly investing time in nourishing that system with time spent away from the markets.

I'll end this discussion with a heartfelt thank you to all who wrote to me following last week's article. Your compliments and gratitude are sincerely appreciated, helping to keep my batteries recharged as well. It was truly gratifying to receive the feedback from so many who clearly understood the importance of the message I was trying to convey.

A MOCO Update

To say that I was surprised by today's market action would be an understatement. While I was on the right side of the decline due to some trades I entered earlier in the week, I didn't expect things to fall apart like they did this afternoon. In fact, just last night I was talking to my Dad and expressed to him that I didn't think MOCO was going to materialize on this dip. I was expecting a more gradual decline, with the possibility of a short-term bottom near the 935 level on the S&P500, setting us up for one more failed rally before the final sharp decline.

Based on the carnage in the broad market today, I'm being forced to reconsider those comments, especially with the huge move in the VIX today. Shooting as high as 39.36 and closing exactly at 39, the VIX is now at levels not seen since late September and getting very close to my first entry trigger, a move over 40. Since we are getting close to that first trigger, I thought I would clarify my entry strategy for anyone that is planning on going along for the ride with me. Part of my motivation for clarifying my MOCO strategy tonight is the fact that I received numerous emails this afternoon, all of which asked the same basic question, "Is it time for the MOCO trade?"

If you're scratching your head and asking "what the heck is a MOCO?", you'll want to read my article, Getting Ready To Change Gears for the background and then Gearing Up For MOCO for the details of the action plan.

While I covered all the pertinent details of the trade I am planning on implementing in those articles, there is one key aspect that I want to make sure is clearly understood. Just having the VIX move over 40 is not enough to get me into the trade. It needs to be accompanied by at least an attempt by the broad markets to rebound from their lows. So if the VIX goes over 40 in the morning and the markets continue their downhill slide, I won't be tempted to start entering the MOCO trade until the slide shows signs of exhaustion. That could very well mean that I don't initiate the first part of my position until the VIX is trading at 42,43 or even higher.

So what will I be looking for to indicate that there might be a bounce developing? Standard support levels and price action are definitely a big part of that analysis, but I have begun to rely more heavily on the action in the Advance/Decline volume indicators, (ADVDECV.NY and ADVDECV.NQ in Qcharts). I've talked about these indicators at great length in the past and here are the links to those articles:

Interesting Observations
Observations With Greater Clarity

Take a look at these indicators on a 5-minute chart in conjunction with the price charts of their respective indices, and I think you'll see the handy correlative nature that has captured my attention. To make a long story just a little bit longer, I'm not going to be interested in buying dips in conjunction with my MOCO strategy without seeing early signs of a bounce in the market that are confirmed by corresponding action from the breadth indicators.

In summary, while I think we are getting close to the first entry trigger for the MOCO trade, I want to urge patience and caution. There is a defined gameplan in place and I for one will not be second guessing it. MOCO attempts to capture a large move off of an important bottom, and it certainly won't hurt to make the market prove its intention to rally before placing any capital at risk.

I know this has been a rambling discussion today, revisiting a couple of past topics, but hopefully you've found the journey useful. I think we have sufficiently cleared the deck so we can delve into fresh topics next week.

Best Trading Wishes!

Mark

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