A theoretical dialogue between my left brain (the rational and logical one) and my right brain (the emotional and creative one) whose purpose is to try and figure out (and trade) next week's direction (and beyond) in the equity and e-mini index futures markets:
Right Brain: "So, who can afford to buy the markets here?"
Left Brain: "Who can afford to short-sell the markets here? By my reasoning, the Risk/Reward Ratio favours buying here, albeit for possibly fewer contracts/shares, because as prices and short-selling risk increase, so may broker margin requirements."
Right Brain: "So, is the Fed (with their intervention with QE1 & QE2) responsible for this dilemma that is now likely facing those parties who were not direct recipients/beneficiaries of these remedies? They face the possibility of ever-increasing reductions in net profit as long as the markets continue to rise unabated. This includes me, of course."
Left Brain: "I have no proof that this was the intent of the Fed."
Right Brain: "So, when do I know when it's time to stop buying and think about selling?"
Left Brain: "When the 'risk' element of your minimum 1:2 Risk/Reward Ratio becomes greater than 1 on the timeframe on which you're trading. Your net profit/loss trading log will tell you whether you're on the right track or not...so pay close attention to it as well as to the price action after your entry with respect to the time spent in a trade and how close price comes to your stop/trailing stop before achieving your target."
Right Brain: "And when do I know when to start short-selling?"
Left Brain: "When your Risk/Reward Ratio is a minimum of 1:2 in favour of the short side."
Right Brain: "What do I do when this ratio favours neither?"
Left Brain: "Stop bugging me then and go outside and play!" "Or, drop down to a smaller timeframe than the one you'd normally trade, and try to achieve your ratio there...but be prepared for smaller targets and profits and longer time spent in a trade."
Right Brain: "Let's eat...I'm hungry!"
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