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A Trader’s Guide to Hedging Strategies – Part II
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A Trader’s Guide to Hedging Strategies – Part II

by MoleDecember 13, 2009

By Michael Davey

Good to see you my reader. It’s nice that we’re both still here.

Part 1 of this series touched on plenty, but in detail covered almost nothing. Looking over the rough draft here, I’m afraid that’s not going to change much with this largely conceptual segment now.

Again, I’m knocking this out as I go and I really don’t know how many parts, how many pages and how many sacks of seal jerky will be consumed before we’re complete with this subject of protection and hedging.

Measuring Risk vs. Reward

You might expect a little math in this segment and we will actually touch on that some. For the time being though we’re going to have to a little chat instead. Let’s get warmed-up!

We’re all gamblers (certainly this crowd). And, like you, I was born a gambler. My game was easy then – pretty much rigged in fact; everything handed my way. Sure bet after sure bet – tit-to-mouth – I got used to success. BFD, right?

Right. Not sure myself what I’m talking about either. But safe to say that we can’t get through life, or even a day, without some amount of risk.

GAM.BLE: To stake or risk money, or anything of value, on the outcome of something involving chance.

Involving chance. Now chance may be a matter of personal opinion, but I’m going to argue a loose interpretation in order to make a point. It’s impossible to get out of check-mate in chess (no chance at all, since it’s not really check-mate if you can survive another move), but pretty much everything else involves at least some amount of chance. You might hold a winning lottery ticket (fat chance!), but there is still a chance you’ll screw that up before you turn it in and the money hits your account (and then there’s a much higher degree of probability you’ll screw up your life once it does).

What this means, you understand, is that traders are not the only gamblers in town. All those careers your mother wished you’d pursued instead – those were gambles as well!  The stock market is for gamblers, sure; as is the bond market; as is setting up a stand at the farmer’s market; as is enrolling at Harvard Law school; the Vidal Sassoon School of Dentistry, etc. Each have different degrees of risk and different potential rewards, but all involve speculation, risk and of course, chance.

And after you graduate from that school of dentistry, as your patient I’m gambling as well. Drive-thru root canals have certainly come a long way, but I’m risking more than my time when I pull up to your window, if you know what I mean.

Fine. Everything’s a gamble. Good to get that out of the way. But what this means, is that your kind is at a bit of an advantage, since you know your career smacks speculation and you behave accordingly; while others with a more conservative vocation might live under the pretense that they are somehow safe; removed from the hysterics of our field.

I have to laugh.

I laugh because during the course of my career, the outside world has become more and more linked to the global markets; the very field the likes of which you and I subsist. More and more (and more), the population, their financial worth, their sense of well being and security, is directly tied to the speculative ebbs and flows juicing from the global markets – whether they like it or not.

It’s a bit like training your entire life to be a soldier and then the whole world is eventually at war – you are going to be better prepared for battle than the insurance salesman living next door, right?

As traders, we’re better prepared for a game of Global Monopoly – especially when the game blows out of control and rule books fly out of windows. Turns out – selling-short ideals and leveraging cynicism is a routine worth knowing after all.

Your mothers would be proud.

And don’t get me wrong, I’m not judging any of this as good. But even your neighbor senses by now that world markets have taken all of us to the casino. At least you and I have a bit of training; foolish gamblers we may be.

Let’s go ahead and take a page then from the casino model.

I mentioned in Part 1 that you want to flip a coin with 3-2 odds all day long, but it’s better to avoid collecting sea shells ahead of a Tsunami (don’t be a tsucker!). If I have a slight, mathematical edge, where I’m risking 1X in order to generate X+Y (or similarly, if I’m Risking 2X to make 1Y, but 1Y is worth 3X), then I want as many folks in seats as possible trying to beat me. And clearly, some will certainly beat me. My customers are a fickle bunch. They might sit for 2 or 10 rounds and folly-off into the night, never to be played again. I’ll never see that money again, in many cases. But while I’m prone to generating losses over short stretches of time, there’s no reason to cry. There is nothing improbable about me losing 3 times in a row, but let’s run this wager 30, 300 and 3000 times. If I have a mathematical edge it’s going to take the devil to stop me from taking these people’s money.

As a matter of fact, even though I stand to face horrible streaks of luck on occasion, we can model relatively accurately how much I am going to make per hour/per seat and the longer we run this, the more exact the results will reflect our estimate. The more we can determine we’re printing a profit of Z.

What if the bet size is not static? Good question. It’s going to change the math, but as long as we can run enough bets, my casino (I’ll name it Purgatory) is still going to come out ahead.

Embrace your inner loser – Try your luck…at Purgatory

Be careful not to get greedy though. We’re printing in small denominations in this example and trying to turn it into real money by means of higher volume.

But let’s say that through the smoky velvet entrance, with half a dozen beauties possessed by his side, there suddenly appears the biggest high-rolling whale known to the planet. Our gentleman walks in and announces he is going to place but one bet and one bet only. The wager he proposes is $100M.

Certainly exciting, yes. I mean these girls are wicked-cute. But I hope you’ve learned by now, that even though we have an edge on this guy (specifically, that we stand to make slightly more than we risk to lose, while our prospects of winning are a matter of a coin-flip), we don’t like this set-up.

Sure, if we can run his bet 100 times (1000 or even 10,000 preferably), we know from the math that we have a positive expectation value (+EV) and we’re going to take him apart (prying those beauties from his under-sized slacks). But this guy’s not quite that stupid. His inner loser is not interested in our free lunch. He’s made of billions and he wants us to risk it all, our entire venture of printing endless amounts of pocket change, just so he can get a hard-on and run these women upstairs to his suite.

We don’t want his money.

What what what? What kind of player are we? We’ve got an edge on this guy, the odds are on our side – and just look at that action!

You worry me. Here we are printing money and you you’re willing to risk the entire enterprise in order to slightly-likely take a giant leap forward? Absolutely not. Offer this guy our finest champagne and 7 glasses – on the house. Then go grab a cold shower or something, I’ll see you tomorrow. His money is no good here.

It’s easy to get caught up in the action, isn’t it? Especially if you’ve been grinding at something for some time. But you’ve got to keep your head. You’re a gambler after all (don’t forget your roots, young man). If you start acting reckless you will be destroyed, that’s no joke. I can make it funny, sure, since at the end of the day somebody else is holding your stake, flicking ashes on your grave while you cozy-down and situate yourself with the notion of NO action whatsoever. It’s game-over for the tough guy. You lived, you learned, you died.

A few of you think I’m exaggerating, but guess what? the majority here know it’s the truth. And the reason we know is not a matter of theory. We’ve been there, we’ve done that – we’ve blown the fuck up.

I don’t like blowing up.

And here is the sad truth. Nearly all traders will blow themselves up at some point in their career – even the greats. And while the strong traders will learn and get stronger, the mediocre (or worse) trader is going to blow himself up, quickly or slowly, forever over the course of their career (or for as long as they have a stake). Sure, the mediocre, conservative trader is not blowing-up so much, but deteriorating gradually instead. He’s too smart to blow-up in one bad month…he’s going to extend his demise over the course of several years.

Sick sick sick.

Most of you should just leave the industry right now; as that’s where you’re eventually heading anyway. Appreciate the lessons learned and leave with something still between your legs. You may not feel it so much at the moment, if you’ve been steadily and surely flaying yourself in the markets, but life is good and you’re still alive. Look on the bright side dumass.

It’s good to be alive. Don’t risk that in a stupid attempt on Gettting Even.  When you’re dizzy – then get off the carousel and take a break. Don’t come back unless you have a better discipline than what you hold now. You’re up against super-computers which can theta-burn a wart off your right nut and because you are somehow determined, you’re willing to risk everything? Is that for self respect? I seriously doubt it. Self respecting types don’t punish themselves like you do. They’re not that sophisticated.

If I published a daily investor’s newspaper, I would do one thing for sure. I’d include a Metro section, and every day we’d chronicle someone (or some institution) who blew themselves up. Traders get very quiet when they blow-up, and yet everyone stands to learn a great deal (blow-ups included) by looking into and analyzing that disaster. The Metro section would help with this; keep us in touch with the many ways we self-destruct.

It’s a bit of a Catch-22 then, huh? The whole world’s a gamble now, so there’s nothing left career-wise which doesn’t hold a high degree of risk, and yet the majority of us are lousy gamblers. What’s a reasonable self-preserving person to do?

I wish I could help. I really don’t know what a reasonable person should do. I don’t believe you’re making bad decisions though, since every decision is an opportunity (whether to learn or to gain; as long as you’ve got a pulse). The key is to make the most of ones decisions – make them a positive. You may as well be confident. You may as well excel.

The rest of us though (gambling sots), we have no choice. We’re going to build a better discipline and we’re going to identify an edge with which to prosper – without allowing a random sequence of ill-effects to ruin us. We’re going to learn from mistakes (even if those entailed blowing-up – we’re going to recover and make these a positive when we’re ready to move on). We take one step forward and maybe one-step back. We take another step forward and perhaps that holds. Half a step back and then onward again in the forward direction. We’re walking, a little staggered, but we’re not falling down. If we stumble badly, we stop; regroup. Then, this is important, when the pace increases we need to be sure our direction is forward, or else we get out of the way. It’s okay not to profit from every opportunity. The biggest wave of the day may not be the smartest catch. Even if you enter it just right, the force may pummel you into the coral after the sexy elevator-drop, so make sure you are in-touch with that force or simply wait for another set.

Lock your doors at night. Don’t end up in the Metro section.

Everyone must develop their own discipline and I’m not the guy qualified to present an array of every successful approach. I can detail how I go about it personally, but keep in mind that we all need to build a strategy which works with our own unique personality, style, experience and approach; even if there are universal truths we might all share.

I personally want to build a position, slowly at first, and always with a mind of how and when to bail out (or attempt to neutralize at least), if the position begins to decline. As the position is successful, I’m willing then to build it larger (let out a larger line). When trading is a little rough, I want to reduce exposure. Add these together and I am going to have more at stake when trading is going well and less at stake when the environment sucks.

There are casualties, certainly, since inevitably I’ll wake up to a stock which is going to gap far above or below my stop-loss benchmark. If that never happened I’d only be printing money. Instead, I am printing money as best I can, doing my best not to risk the entire printing press and dealing with the individual set-backs as they present themselves.

On those days when something does blow-up, I prefer to take my lumps – I’m better in the end to blow it out. Even if I am good with damage control and patiently, artfully wait for the best graceful exit, the nasty little bastard is consuming me and I cannot properly focus on everything else – on making money! And then there are the times when attempting that graceful exit only mires one deeper and deeper as the disaster digs only deeper (it happens – some of these debacles take a rather direct course all the way to zero). So for all the combined reasons, I just want to unload problems and focus on what’s working (regrouping first if necessary).

Blow-out losses before they have a sufficient chance to debilitate you. Cut the cancers and move on with life.

The casino model is a good model. It holds a definable edge and no one bet, or succession of bad bets, can take the house down. If I’m running trades which I can determine as profitable running them out a 1000 times, whereby my potential reward outweighs my defined risk, then I only need to be on the right side of the overall market trend and I’m printing money. A really wise investor will just wait for these moments and run all-out in an environment like that; while running idle to the sidelines otherwise.

If I’m in rockier times, running a line of 5, 10 or 15 positions may still be doable, but I’ve got to have some protection; or at a minimum I’ve got to know how to hedge-off and neutralize my stable of lovelies once I’m caught against the current. From a more neutral position I can begin then to shrink, bailing out of the bigger problems as they become best defined; or else weather the storm and unload the hedge then if everything is surviving instead.

There is an art as far as how much to do what (in every regard). But that is what you hope to have gained by all this studying of all these markets; all your previous experience, good and bad. Assuming you have learned from endless observation (and the corpses from your trading past), then it is only a matter of mastering a discipline which best utilizes what you know.

Easy game, right? That’s enough for Part II.

Homework: Ask yourself some tough questions and determine if you are using a measured, disciplined approach or if you are flying more by the seat of your pants. Are you learning and getting stronger due to failures, or are you on a set-course to eventually blow-up? Either way, do something to better your approach; or walk away now. No decisions on this are necessarily wrong (as success is usually fine and losing is the best great teacher), but it is up to you to make your choices profitable in the long run.

Previously in this series:
A Trader’s Guide to Hedging Strategies – Part 1
A Trader’s Guide to Contractions
A Trader’s Guide to Sipping Kool Aid
Losing Like a Winner: A Trader’s Guide
A Trader’s Guide to Secondary Offerings (Part 2)
A Trader’s Guide to Secondary Offerings (Part 1)
A Trader’s Guide (Introduction)
A Trader’s Guide to Chasing Ambulances
A Trader’s Guide to Exhaustion


About The Author
Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • fast996

    Well here's a chart that measures risk to reward pretty well, atleast I think so.

    Now would you rather be long or short here????

    <A

    fast

    href=”http://www.screencast.com/users/fast996/folders/Default/media/2dee9ffc-0890-4b6a-b8a6-34b6bf20a82c” rel=nofollow>http://www.screencast.com/users/fast996/folders

  • PRSGuitars

    Wonderful post MD!

    EUR 133s IN BOTH DIRECTIONS… sigh… this has become wacky

    http://screencast.com/t/Y2FiNzA0

    We're on 133 of 133 to downside now, but the triple 133 is viable if the crash continues.

    The key point here is that YOU MUST HAVE a good original channel to produce solid 133s. I DO NOT KNOW – EVER! – if I have a good channel until the market responds or doesn't respond to my 133s.

    But as I say in the chart – this seems to be working!

  • http://oahutrading.blogspot.com/ steveo77

    http://screencast.com/t/NTU2ZmYx

    PPT asleep at the wheel! OK its small but its a start….

  • http://oahutrading.blogspot.com/ steveo77

    And how does CentD keep coming up with those pictures….wow. Hot waitresses with cats.

  • http://evilspeculator.com molecool

    That's a lot of pussy in that pool :-)

  • bsummertime

    truly soul searching as always MD, like the cats, too

  • PRSGuitars

    EUR intraday 133:

    http://screencast.com/t/ODkzNTQ5ZW

    Retesting channel now — if it falls, could tag lower 133 again. Bullish to see it pop a little off the lows of Friday (and divergences mounting, waiting for a corrective pop of some sort… 1.48?)

    I could see it hitting pivot near 1.466 before dropping again in sympathy to the US action on Friday. (ah! and just missed that little VWAP reversion bounce for 10 pips, too… bummer)

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    That's My Casino Purgatory hostess staff for high rollers.

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    I'm out . How much is ES down at moment?

  • http://oahutrading.blogspot.com/ steveo77

    it was just 3 points down, but looked awesome on a tick chart.

    Euro is having a little run up, and ES followed it up. 1103.5 now.

  • weasel_whisperer

    Looks like a tiger has the ability to attract women.

  • K.I.M.

    what a reading. best regards. thoughts on spx, here is weeky http://www.flickr.com/photos/42905134@N08/41833… . I firmly believe in 1) correction at that point or 2) a market turn. If 2 doesn't happened then this is not bear market rally. Let's not forget the 3). Well, we are in the bull market. Like it or not.

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Thx 4 the update

  • fast996

    The market needs to set a bottom to move up and it never did. If we didn't top in the cash Friday, There's a good chance we top in the first 30 minutes tomorrow.

    fast

  • http://www.portfoliotilt.com PortfolioTilt

    Great post, love your work! Here's the recap of Friday's session and key levels to follow for the FOMC week http://bit.ly/5sXXXc

  • elliott_surfs

    How far back does this SPX 1120 support/resistance line go? I see it barely held between 9/29/08 – 10/6/08 before the next heavy fall, and it looks to be capping us so far.

  • standard_and_poor

    Stopped out on Fri. for a 3.8% loss on a tiny short position. Currently 3% of account is long from Friday's close. Not planning a big position until we break out of rangebound spx.

  • randomwalker

    Right..no point in banging your head against a brick wall.. smart people jump over walls. Playing this market is garbage right now.

    It looks as though the only sectors facing weakness are energy and financials, which means this is probably a bull market we are presently in. Courtesy of Carl Swenlin,

    http://www.screencast.com/t/NTU2NGM3O

  • http://oahutrading.blogspot.com/ steveo77

    Chart of Charts 121109 — Boneless Chicken on Hot Tarmac
    In some unusual action the normally stable 20 Day Moving Average is

    Flipping Around Like A Boneless Chicken on Hot Tarmac

    There are alot of elements to this chart. I know it is confusing, spend some time to review it.

    On Sunday, I added in the Heat Map (now near the bottom 5 DMA chart), and the little dog started mouthing off too…..

    Questions or suggestions appreciated, I will respond as time allows. Sign up as a follower please….it's just a click.

    http://oahutrading.blogspot.com/2009/12/chart-o

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    excelent post once again

    and yes, the coin flipping analogy IS perfect

    http://www.cbc.ca/health/story/2009/12/07/tech-

  • Nightwind

    Totally agree S&P, I'm just scalping in and out until a trend begins. Not taking any of them to home at night. Probally be a good week to do nothing.

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    I wouldn't be surprised by 1113, I'd fear anything above 1120

    this might be an interesting trade for those more quick and nimble

    short enter 1/3 at 1113, further 2/3 at 1119 (if it rose that far) stop at 1121

    cover 1/3 at 1102, cover another 1/3 at 1091, reload at <1102 if it bounces down from 1102, sell final 1/3 if it crosses upward

    if reloaded ride it to 1091

    next bounce points 1082

  • Gerbil_gold

    be aware of your positions this week rodents.

    never know who's watching..
    http://www.dailymail.co.uk/news/article-1190772

  • Chi-Town Deadhead

    I was playing with some fib fans last night on an S&P 10 yr. chart. Any comments or criticisms are welcome. First time using Jing and posting a chart.

    I might be using fib fans incorrectly but this seems like an interesting area we are in.

    http://www.screencast.com/t/NmM2ZGNj

  • texpresso

    when i was a child someone demonstrated to me that you can take all of someone's money with 50/50 odds as long as you have a bigger bankroll; i think about that in a lot of circumstances, esp stocks. i never try to beat the computers/ insiders, just go with the flow. creepy to see sectors get deliberately beat down then rocket up, knowing that a bunch of schmucks just lost a lot of money when their stops got tripped, and a bunch of a–holes just made a bunch of money on them; no TA can account for that b/c it is different every time. yup, i have been the schmuck before, and i will be the schmuck again, but i have learned… uh, something. thanks MD for some sobering reflection on exactly what i KNOW, which is not much.

  • Chi-Town Deadhead

    Amen Tex.

  • Gerbil_gold

    pretty. the orange fan lines are nearly vertical, not sure what help they are.
    however, the red and blue lines near current position are interesting. too bad they can't tell the future. i'm sure the market will stay close to 'one' of those lines. 😉

  • texpresso

    wow those pics are great, perfect addition to MD's post. i like to think that if the rats get caught stealing from the lions they get swatted– i might get comfortable if i thought the lions would willingly let me nibble on their lunch 😉

  • Schwerepunkt

    D-Day in Dubai for Nakheel. I would be shocked if they pay the maturing bond in full. It doesn't look good.

  • texpresso

    bigger than dubai is Japan laying a post-stimulus turd– dropped oil a buck all by itself

  • Chi-Town Deadhead

    GG,

    Thanks. As i said, I haven't played too much with fans so I maybe doing something that is totally against their very nature. I agree, the orange may be too close for any real reads but it just seemed to come together on the further out lines.

    We'll see.

  • elliott_surfs

    whats going on with ES right now??

  • fast996

    WTF just happened holy shit!!!!!!!

  • gregn

    Looks like a big spike up in /ES. Fantastic 😉

  • http://evilspeculator.com molecool

    I like his posts but I wish they were longer.

  • fast996

    I guess somebody leaked something or it's a super short squeeze.

    U gotta love GS

  • fast996

    and the USD didn't like it either.

  • http://evilspeculator.com molecool

    Wow, eleven handles in 10 minutes. Someone knows something.

  • http://evilspeculator.com molecool

    USD will correct this week.

  • gregn

    More than likely Dubai paid up. This market is getting very tiresome to watch.

  • fast996

    Well if they can keep it ramped up till morning looks we will have 3 succesive gaps up in the daily chart.

    Breakaway,continution and exhaustion. Somebody give helicopter Ben and Turbo timmy a copy of Magee and Edwards, LOL.

  • PRSGuitars

    Natch. Silly opex week. Funny how C repayment of TARP means SPX up (which I can understand) but also means DX down, EUR spike (look at 6e to see the volume move I'm talking about).

    Silly silly silly. Just scalped some NQ positive, I'm alright — just feel salty waiting for godot still but have faith that trading intraday plus having a core short position is the right method at this time. Would've been best to be playing swing trades for two weeks at a time but wasn't catching on that fast — suspect more of my momentum in coming weeks will be geared towards intraday trades (NQ, ES, and 6e)

  • http://www.hervey-bay-holiday.com kea11

    Well that was a earth mover – what ever it was. My Aud/usd short position closed suddenly and violently against the technical indicators, the ASX shot up 50 points to close green, same with the Hang Seng – So which rich bitch just bought a small nation worth of foreign equities?

  • fast996

    Hello, Mole

    For how long, my bet is not much. The USD will break 77 sooner than later IMHO.

    fast

  • Gerbil_gold

    Holy frijoles!

  • tonloc

    anyone have link to the dubai news

  • fast996

    and nobody knows nuttin. Boy, shows were sure low on the food chain.

    “What are ya 12th man on the deal team,last to know” Gordon Gekko

  • Rush23

    DUBAI (Zawya Dow Jones)–Dubai's government Monday said it received $10 billion in financing from Abu Dhabi, which will pay part of the debt held by conglomerate Dubai World and its property unit Nakheel.

    “As a first action for the new fund, the Government of Dubai has authorized $4.1 billion to be used to pay the sukuk obligations that are due today,” the Dubai government said in an emailed statement.

    http://online.wsj.com/article/BT-CO-20091213-70

  • Gerbil_gold

    when I said exciting week [in my previous post], i wasn't thinking SUNDAY NIGHT!
    😀

  • fast996
  • texpresso

    abu dhabi pledged 10B to cover dibai's debt, including 4B for nakheel boonds, inc the 3.52B due today

  • marcopolo101520

    it was expected…last week was sale week, this is make-up week, they need to close those long positions soon so pumps are up in full force.

  • gregn

    I wish I had my Times/Sales gadget open about a half an hour ago to catch the size of those pump orders. Does anyone have access to those sales?

  • http://www.hervey-bay-holiday.com kea11

    Looks like it was Dubai Debt repayment – Like this was unexpected?

  • standard_and_poor
  • http://retracementlevels.zstock7.com/ zstock

    +60 on the futures, short the opening bell–
    GS decides to relocate to Singapore.
    http://www.funnyandjokes.com/dear-employees.html

  • http://iberianviews.blogspot.com/ catracho

    Looks like DAX will have gap up open, question is will it fill? Or is this the final (please???) push higher before this madness comes to an end! A runaway gap for a change? Still hasn't cleared 5840 resistance…will it won't it? Sell? sell short? decisions decisions..

  • Niktus

    It amazes me everytime. Not paying and all those debts bla bla is a non event and no ones gives a fart about Dubai.
    But just fullfilling its obligation and paying the bill, sudddenly Dubai is a major event and futures go sky high?
    Brainless…

  • http://iberianviews.blogspot.com/ catracho

    BTW nice post Michael ! Right on the money..

  • tradejane

    “Abu Dhabi gives Dubai $10 bln in surprise bailout”

    Oh. If that doesn't stop out my bank shorts now, nothing will.

    Good morning, welcome to our regular Monday morning gap up. The DAX opened up well above today's pivot of 5754. We are currently knocking the door at second resistance of 5833.

    According to the chart I posted on Friday we should soon know if this is going to new year highs or not.

    http://www.screencast.com/t/MTg1ODZkZjA

  • elliott_surfs
  • CorporalCarrot

    Ok so when Dubai was collapsing, people said it was immaterial and would have no effect……..but now that this thing which had no effect has got sorted out its a cause for rally? Please……..

  • tradejane

    Thank you Michael for another great post.

    First, I loved your thoughts on GAM.BLE. So many people I know disapprove of what I do, that I rarely talk about it with anyone.

    Personally I think that getting married or having children are much bigger gambles and most of us do it without a second thought. At least I try to consider some things before making a trade and I have stops.

    Buying shorts on weak sectors and longs on strong sectors keeps the whole thing on some sort of a balance and gives me some time to think, since I'm not a HFT machine. Some days I actually see both up at the same time, that's always a cool feeling.

    And your paragraph on “graceful exits” should be on a post-it that's stuck on every trading monitor on the planet.

  • gsavli

    a classic example of sell the rumor, buy the news.

  • geldrausch

    More like sell nothing buy everything!
    As I did not see anybody sell the rumor. It was reversed hours later…
    This stockmarket is plain silly!

  • geldrausch

    And it is not even sorted out.
    Somebody gave them money, but the have nothing to pay that back.

    Same game, just delayed meltdown!

  • ultra

    Trouble still brewing closer to home tho

    http://www.telegraph.co.uk/finance/comment/ambr

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    you missed my NEW AND CONFIRMED extended gap up list (2 months ago)

    breakaway gap, runaway gap, exhaustion gap, GS gap, FED gap and who's counting?gap

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    someone knows that unless they do a new pivot its shit-fan time

    http://www.uploadgeek.com/share-1D86_4B261A3D.html

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    bad analogy… more like this one…

    http://www.dailymail.co.uk/news/article-1235039

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    anyone has a thought on this spaghetti?

    http://www.uploadgeek.com/share-1D86_4B261A3D.html

  • ultra

    Another great post, Mike. I am learning fast and furious this last few months – folks more experienced than I keep saying it's one of the toughest trading environments they have known, so better to learn to ride now than gain oodles of false confidence during the good years only to be promptly unseated when it turned nasty.

    And another superb photo btw – did you take that round at Siegfried and Roy's house? 😉

  • ultra

    Ow my eyes? One question: what are the anchors for the fib retrace?

  • http://oahutrading.blogspot.com/ steveo77

    Uh, that would be top. Seen my recent blog posts?
    Called a top on Nov 21, 2009, and so far that hasn't been disproven…time will tell, a push to 1140 is certainly not impossible.

    Teh Euro has been pounded, it needs a relief rally, and that could drive SPY up.

  • ultra

    Ok, fwiw and news be damned, here's my purely technical take on where we are.

    Repost from Friday, but I can't really put it any better than this. We broke through the last resistance lines, but the flip side of that to my mind is that we have also now run out of support

    http://www.screencast.com/users/ultrabear/folde

    Futes are indicating that we are back above Dow 10.5k. Now history doesn't repeat, it rhymes – yada, yada, yada – but that Dow 10.6k target (another old post) is still on the table and to these green eyes looking more likely than ever:

    http://www.screencast.com/users/ultrabear/folde

  • Schwerepunkt

    See how Dubai and Abu Dhabi kept everybody waiting? I'll bet they were going long with leverage. I wonder what Dubai had to give up for this little check for $10 bn?

    As for the Japanese, do they serve that turd-sushi with dipping sauce and wasabi?

  • bobthehorse

    Have been away for a few days. despite being pretty bearish at the moment, we have recently taken long positions in ING and Lloyds. They are both at the end of a big capital raising and are as cheap as chips. If the market does go up, these will have a beta of 4. Have already under-performed enough to protect the downside if market falls in my view.

  • Schwerepunkt

    I'd like to hear what bob has to say about dubai and the asian situation, along with any new developments on the continent. I hope he's not on holiday already . . .

  • http://www.flickr.com/photos/dabasia/sets/ Croozer

    Perhaps I'm looking at this too simplistically but I'm seeing the following….

    http://i619.photobucket.com/albums/tt275/ddabas

  • gmak

    The Monday morning gap has become as common and as obvious as a Paris Hilton wax job (or Britney Spears – take your pick).

    http://evilspeculator.com/?p=13537#disqus_thread

    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST

  • bobthehorse

    repost this in the new thread and I'll have a go . . .

  • ultra

    No, not at all. Looks like a nice h&s at first glance and until we take out that high then that is the high. But SPX doesn't have to join in with the Dow either. We're all just sticking pins in the donkey, entertaining as it is. Time will tell as always.

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    the anchor is the november bottom (march is IMHO a B overthrow for a flat)

    and then finding a target for C= A beyond A

  • Schwerepunkt

    I see ESH now has more volume than ESZ.

  • Schwerepunkt

    ExxonMobil buying XTO. Probably signals a near-term top in oil/gas related stocks. JMO. Over time, it will be an excellent acquisition.

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Thanks, I should've used the marriage and children analogy.
    oh wait…

  • http://twitter.com/tradejane tradejane

    Thank you Michael for another great post.

    First, I loved your thoughts on GAM.BLE. So many people I know disapprove of what I do, that I rarely talk about it with anyone.

    Personally I think that getting married or having children are much bigger gambles and most of us do it without a second thought. At least I try to consider some things before making a trade and I have stops.

    Buying shorts on weak sectors and longs on strong sectors keeps the whole thing on some sort of a balance and gives me some time to think, since I'm not a HFT machine. Some days I actually see both up at the same time, that's always a cool feeling.

    And your paragraph on “graceful exits” should be on a post-it that's stuck on every trading monitor on the planet.

  • gsavli

    a classic example of sell the rumor, buy the news.

  • http://simpleswingtrading.blogspot.com/ geldrausch

    More like sell nothing buy everything!
    As I did not see anybody sell the rumor. It was reversed hours later…
    This stockmarket is plain silly!

  • http://simpleswingtrading.blogspot.com/ geldrausch

    And it is not even sorted out.
    Somebody gave them money, but the have nothing to pay that back.

    Same game, just delayed meltdown!

  • http://chartsandthat.blogspot.com/ ultra

    Trouble still brewing closer to home tho

    http://www.telegraph.co.uk/finance/comment/ambr

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    you missed my NEW AND CONFIRMED extended gap up list (2 months ago)

    breakaway gap, runaway gap, exhaustion gap, GS gap, FED gap and who's counting?gap

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    someone knows that unless they do a new pivot its shit-fan time

    http://www.uploadgeek.com/share-1D86_4B261A3D.html

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    bad analogy… more like this one…

    http://www.dailymail.co.uk/news/article-1235039

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    anyone has a thought on this spaghetti?

    http://www.uploadgeek.com/share-1D86_4B261A3D.html

  • http://chartsandthat.blogspot.com/ ultra

    Another great post, Mike. I am learning fast and furious this last few months – folks more experienced than I keep saying it's one of the toughest trading environments they have known, so better to learn to ride now than gain oodles of false confidence during the good years only to be promptly unseated when it turned nasty.

    And another superb photo btw – did you take that round at Siegfried and Roy's house? 😉

  • http://chartsandthat.blogspot.com/ ultra

    Ow my eyes? One question: what are the anchors for the fib retrace?

  • http://oahutrading.blogspot.com/ steveo77

    Uh, that would be top. Seen my recent blog posts?
    Called a top on Nov 21, 2009, and so far that hasn't been disproven…time will tell, a push to 1140 is certainly not impossible.

    Teh Euro has been pounded, it needs a relief rally, and that could drive SPY up.

  • http://chartsandthat.blogspot.com/ ultra

    Ok, fwiw and news be damned, here's my purely technical take on where we are.

    Repost from Friday, but I can't really put it any better than this. We broke through the last resistance lines, but the flip side of that to my mind is that we have also now run out of support

    http://www.screencast.com/users/ultrabear/folde

    Futes are indicating that we are back above Dow 10.5k. Now history doesn't repeat, it rhymes – yada, yada, yada – but that Dow 10.6k target (another old post) is still on the table and to these green eyes looking more likely than ever:

    http://www.screencast.com/users/ultrabear/folde

  • Schwerepunkt

    See how Dubai and Abu Dhabi kept everybody waiting? I'll bet they were going long with leverage. I wonder what Dubai had to give up for this little check for $10 bn?

    As for the Japanese, do they serve that turd-sushi with dipping sauce and wasabi?

  • bobthehorse

    Have been away for a few days. despite being pretty bearish at the moment, we have recently taken long positions in ING and Lloyds. They are both at the end of a big capital raising and are as cheap as chips. If the market does go up, these will have a beta of 4. Have already under-performed enough to protect the downside if market falls in my view.

  • Schwerepunkt

    I'd like to hear what bob has to say about dubai and the asian situation, along with any new developments on the continent. I hope he's not on holiday already . . .

  • http://www.flickr.com/photos/dabasia/sets/ Croozer

    Perhaps I'm looking at this too simplistically but I'm seeing the following….

    http://i619.photobucket.com/albums/tt275/ddabas

  • gmak

    The Monday morning gap has become as common and as obvious as a Paris Hilton wax job (or Britney Spears – take your pick).

    http://evilspeculator.com/?p=13537#disqus_thread

    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST
    NEW POST

  • bobthehorse

    repost this in the new thread and I'll have a go . . .

  • http://chartsandthat.blogspot.com/ ultra

    No, not at all. Looks like a nice h&s at first glance and until we take out that high then that is the high. But SPX doesn't have to join in with the Dow either. We're all just sticking pins in the donkey, entertaining as it is. Time will tell as always.

  • http://sshamster.blogspot.com/ Stainless_Steel_Hamster

    the anchor is the november bottom (march is IMHO a B overthrow for a flat)

    and then finding a target for C= A beyond A

  • Schwerepunkt

    I see ESH now has more volume than ESZ.

  • Schwerepunkt

    ExxonMobil buying XTO. Probably signals a near-term top in oil/gas related stocks. JMO. Over time, it will be an excellent acquisition.

  • http://centrifugaldeforest.blogspot.com/ Centrifugal_Deforest

    Thanks, I should've used the marriage and children analogy.
    oh wait…