I am clueless on the market direction!

Honestly, I am lost as to where is the market direction. I have a directional bias but I could be easily wrong. The market has a way to make one humble!

Sometimes a trader does not need to know which way the market is going to move. My technical indicators give me some directions. It works nicely quite a lot of the time but I am prepared if it is wrong. There are times when I say the market "should" continue to trend to this major support or resistance, it is because I really don't have a clue. I am making an educated guess.

In this kind of trading situation, you can still trade even you are quite clueless. In that way, you can't be wrong, and pride and emotional attachment are not an issue. I trade on a statistical edge, a technical system where I get my bias and proper money management.

If it goes in my direction, I will make good money. If it goes against, I am prepared and will manage it to profitability.

While it is good to have a bias, it is bad to be totally convicted in one direction. Your dogmatic conviction of a market direction could be your biggest liability. That's how many traders make good money and lost it all.

I use options as part of the core strategy in my trades. I have a very clear strategy before I start any trade. I start with the fundamentals. I believe technical trumps fundamental in the short term but fundamental trumps technical in the long term. Once I choose the stock, I use technical to set up my entry and exit signals. Finally, I apply options to give me a statistical edge.

One of the keys to option strategies is to survive long enough keeping your cost basis in control and eventually succeed.

"Justice," the taciturn turtle said, "the exponential curve that is trading returns cares more about your ability to stay alive than the absolute rate of the return. If you are good, and stay in this game long enough, everything takes care of itself."

Sun Tzu said if you sit by the river long enough, you'll see the bodies of your enemies float by. The key is "long enough." If you live long enough, you have to be the survivor.. A question was asked to a very old man "how did you get to be the world's so old?" And he says, "Simple. Don't die." How do you get to be the world's oldest investor? The answer is don't crap out. As long as my fundamental is intact, I will manage the trade to profitability.

I keep good record of EVERY trade. If I am wrong, I have secondary exits through adjustments. I have stopped using stop loss since I started using options 6 months ago. There are little emotions of fear and greed. I try to leverage volatility to be playing on my side.

In the last 6 months, I have been directionally wrong 40% of the time. But I am 90% profitable on all my trades when I close it.

This month is the first I lost control of one trade that I lost more than 30% it happened to be GLD ratio trade! I deviated from my plan. For most of the trades, I seldom lose more than 10%. But I must have more than 5 trades that give me >100% gain. For the rest of the trades, I have an average gain of about 25%.

Last year was an exceptional year. I set some market directions on how I will trade for 2009 in the blog. I was right on my directional bias for oil, gold, silver and Canadian dollars but was slightly wrong on shorting treasury. It did not went up as high as I expected. It was stagnant. Fundamentally, I still believe that shorting treasury will be a great trade. I am still holding on to my trade. Although I was wrong, my trade for TBT has returned 30% because I continue to reduce cost via credit spreads. I know that once it moves in my direction, I should see good profit.

I was also initially wrong on the market direction at the end of Q1 but by April, I turned bullish. Although it remains stubbornly bullish against many of the bad fundamentals and my basic understanding of the market, I continue to trade the bullish trend with some fear and trepidation. There are many perma bears with very sound reasons why the market will collapse anytime. They have been wrong since April this year. But the market has defied logic and reasons. If you stick to your conviction, you have lost opportunity of a 50% upside on your portfoilo. Also, there were the Elliot cycle practitioners warning of the end of wave 5 and the S&P will go down to 600 in the next cycle. All of them were wrong so far. They will be right one day. As for me, I continue to hedge my trades and neutralize any excessive bias assuming that anything can happen while trading with the trend. I continue to remember the fundamental will trump the technical longer term. But as long I am not going to see a sell signal, I will keep my bullish bias.

Lets see whether I can do just as well in 2010.