When You’re Out Of Sync, Expand Your Timeframe

I’ve been stopped out of my short positions several times now in energy stocks.  That tells me that I’m out of sync with my trading ideas.  While you might say "duh…energy stocks have been going up for weeks," it’s the life I choose to lead as a short term counter-trend trader.  In my short term trading, I’m always looking to find high-probability reversal areas.  The count-trend style allows me to sell into strength and buy into weakness with very tight stops to keep me from losing much money if I’m wrong but to allow me to make a nice return if I’m right. 

This style is different from my investing activity, where I’m looking to jump on sustainable long term trends.  It’s a matter of time frame.  As long as never the twain shall meet, the styles both work very well.  That is, if you let a trade turn into an investment, you’ll probably end up with a huge loss.  And if you use too tight a stop on an investment idea, you’ll probably get stopped out before the stock has a chance to move. 

The same theory goes for my analysis.  If you find yourself out of sync with the market, expand your time frame.  Instead of looking at hourly charts, look at dailies and instead of looking at daily charts, look at weeklies.   Ideally you should looks at several time frames anyway, but it matters particularly when you are out of sync with the market.  Usually, a different trend is taking hold of the market than the one you are looking at. 

And that’s what’s happening in the energy markets.  It looks like the OSX and natural gas have both broken out of long term rising triangle patterns on their MONTHLY charts.  Both these patterns indicate the bull market in energy stocks could continue to have legs for a long time.

I’m still not going to go long right now since the energy stocks are still overbought in all time frames and the sentiment is off the charts bullish.  But I will be looking to get long if the OSX pulls back and re-tests its monthly breakout at 140.