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Sunk Cost Effect
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Sunk Cost Effect

by The MoleAugust 20, 2014

The tendency to treat money that has already been committed or spent as more valuable than money that may be spent or acquired.

Also known as ‘irrational escalation’, this precious gem happens to be hard wired into our human psyche and it will haunt us to the end of our brief existence on this mortal coil. So what does it do and where does it come from? Well, imagine yourself investing a few thousand into your best friend’s company and he runs off and blows through all the funds without making any major progress. Sure enough, a few months later he’s back desperately asking for a reload. Your brain kicks in and whatever is left of your cerebrum (again, your mileage may vary) mutters that he’ll probably blow the next round on fancy office chairs and strippers as well. However almost immediately there’s this nagging thought in the back of your mind: Unless you give the guy more cash to get the job done and launch the product/service/prototype etc. the money already invested prior has been for naught. What to do?

Well, I leave that particular decision in your capable hands. I personally would invite him for a swim in my custom designed shark tank (yes, they have freaking laser beams) and make sure he finds a way to pay me back. But the topic at hand is that cognitive dissonance developing in your cerebral cortex: Damn it, I should have never gotten myself into this! Which is exactly what you’re thinking as you find yourself writing him another check. Why? Because the sunk cost effect is closely related to another cognitive bias we’ll cover in the future called ‘loss aversion’. Basically it’s the tendency for people to have a strong preference for avoiding losses over acquiring gains.

Yes, that one is a mind bender in its own right but it’s basic human psychology. Most people would rather take action to protect themselves from losing a Dollar than to spend the same energy earning that Dollar. And given the situation our plucky investor friend here finds that he’s more worried about losing his existing investment than to lose even more. I know that sounds strange – but if you mix in a potent cocktail of hope, self delusion, and guilt for doubting the vision of his good friend then odds are that he’ll convince himself that this new round of funds somehow will render his existing loss non-existent. And right here is the rub. It’s all about avoiding the feelings generally associated with loss, disappointment, failure, wasting time, etc. It’s all such a downer, so let’s just avoid it altogether and pretend it didn’t happen. And so you somehow wind up throwing good money after bad money.

And this doesn’t just apply to the financial arena. Back in the days, when I was working for the man as a software consultant (i.e. coding monkey for hire), I saw my share of failed projects. And most of them wind up as a furry mess of code exactly because of the sunk cost effect. Perhaps they hired some crew in India to wire up a solution for them (i.e. website, API, CC processing system, etc.) and it was full of bugs, security holes, and performance problems. The guys who inherited that mess spent months if not years fixing it with scotch tape and a mix of blood and tears. Of course they kind of got it working but as soon as some product manager brought up the topic of adding new features all kinds of alarms started to go off in the dev department. And so they wound up patching it up a bit more – adding more bad code to existing bad code.

Of course we all know what the right decision would have been. Scrap the entire thing and write it from scratch again – this time with a crew of people who knew what they hell they are doing. But that rarely happens – it’s simply against human nature and I dare you to propose to anyone to let go of a pet project they have nursed along for who knows since when without anything to show for. If you would have asked them today if they would take on an endeavor of such a magnitude without reward they’d tell you to stick that idea where the sun don’t shine. But human beings are strange creatures and we just love to watch those frogs boil.

In the trading arena I see this all the time. Someone drops by the blog and asked about a shitty campaign they are obviously trapped in. They should have never gotten to that point to begin with and the only thing left to to do is to close it out and take the loss. Knowing what we know that is the only logical solution and perhaps it’ll serve as a learning experience for the future. But people get trapped in bad decisions all the time and spend a lot of energy pretending to themselves that it didn’t happen. So they stay in bad trades (while cutting winners short – a.k.a. the disposition effect – topic for another day) and mentally contort themselves into impossible positions hoping to find a way out.

Ve careful criticizing those people because I guarantee you that it takes only one bad decision to find yourself in the very same spot. None of us are immune and that includes yours truly. The only remedy is to know ahead of time when your campaign needs to be closed out. Even better – expect to lose every time you take a new entry. This should be your default mind set when trading – expecting to be wrong and most importantly – actively preparing for that eventuality. Because statistically you will be proven right (about being wrong) the majority of the time. Unless you can embrace a bushido mind set during trading you will most likely be driven by fear and therefore are doomed to fail. Expect to lose each battle – fortunately, if you do it right (and that’s what we do) then it’s only a paper-cut and not a flesh wound.

Lesson learned: Treat trading just like dating on POF.com. There is always always another campaign out there, so don’t get married to any of them. If one turns out to be a loser, don’t sweat it and simply cut your losses. And if nothing else (while we’re on the topic) – photoshop your picture, deduct 10 pounds, add one inch, skip five years, and always wear a condom 😉

 

 


About The Author
The 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.
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Spoos intraday double top, this is it rats!
    😉

    1982.25 Squeeeze

    [now back to our regular scheduled broadcast]

  • http://evilspeculator.com molecool

    I am pumped!

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    easy on the back, injuries can take time to fully heal.

  • http://evilspeculator.com molecool

    I’m using one of the blood leeches McCoy sent me.

  • BobbyLow

    Great write up.

    “Unless you can embrace a bushido mind set during trading you will most
    likely be driven by fear and therefore are doomed to fail. Expect to
    lose each battle – fortunately, if you do it right (and that’s what we
    do) then it’s only a paper-cut and not a flesh wound.”

    To which I’ll add another precursor to failure and that is trading with an unearned form of bravado. This would be a case of beginning a trading career when trading is very easy like I did during the tech bubble. I was a world beater and couldn’t get over how easy trading was. My risk levels were through the roof with no RBT whatsoever. Whether or not I lost thousands on any given trade didn’t matter because I knew I could make it up on the next trade. It took too many years to mention for the final realization that throughout all this time, I really didn’t know my ass from my elbow.

    I wonder how many index bulls began trading in 2009 or 2010 and have experienced such easy times over the past 4 or 5 years? I also wonder what will happen when it stops being so easy?

    IMO, being driven by fear and or unearned bravado can both lead to financial disaster.

  • BobbyLow

    Out USD/JPY +1.85 R

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    oh man.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    The Cake is a Lie
    or I need less drama in my trading strategy.

    http://s8.postimg.org/vxa2geg85/no_drama.png

  • Billabong

    Great post Mole!

  • Billabong

    It’s been straight up … if this ever cracks it will be interesting to see if the “systems” recognize a bear market if the downward process has changed or the USG starts interfering in market activities like 2008.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Wheeeeee.

    (no dog in this fight)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    PS, GBP/JPY rising ( 5m)

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    Thanks, Mole. That was priceless for me today.

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    my lesson from yesterday – cutting a winning trade too short — because I got nervous

  • BobbyLow

    Yep. A friend and fellow trader of mine had a massive short position in the banks and he was up about $200K. Then the government put in regs about short positions in the banking sector. His “borrowed” shares were from a smaller broker who had in turn borrowed them from one of the institutions that was either going under or close to it. They called the shares in all while price had rocketed up while rumors of this taking place was going on. By the time his shares got called he not only lost all of his gains but another $30 K as well.

    But wait there’s more. He eventually became so frustrated with the system that he put everything he had left into gold at around $1700 per oz. After gold tanked, I never heard from him again.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    a judgment based on hindsight. next time that nervous exit could save you.
    try to not to adjust based on one trade. keep a record.

    if 7 out of 10 trades cut short, then you have a numerical judgement.
    (see I can be like Ivan)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    +100

  • http://evilspeculator.com molecool

    ” I really didn’t know my ass from my elbow.”

    That’s easy – unlike your elbow your ass will get you arrested when exhibited naked across a shopping mall. Don’t ask me how I know that.

  • mugabe

    So the main message here seems to be use a condom. What the **** has that got to do with trading?

    On a serious note, v nicely done. sir.

  • BobbyLow

    LOL

  • BobbyLow

    So far about 28 Pips that I didn’t get but I learned a long time ago not
    to worry about the deal that I didn’t make. Besides, I booked coin
    today.

    Short Gold position is working nicely at this moment. :)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    ..picking up a small gold short position.
    for surprises to the downside.

    http://stockcharts.com/h-sc/ui?s=GLD&p=D&yr=0&mn=6&dy=0&id=p35419716404

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Now 1984.00
    that was some DRAMA. dam boy. not for the weak hearted.

  • BobbyLow

    I’m already with you on this one. Downside could be limited but who knows? We’ll see what happens.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    probably nothing.
    it’s volatile, not going to make me rich.

  • Billabong

    If your system says sell then sell and don’t look back … Because a sell is better than a late sell.

  • BobbyLow

    Perhaps the real question is why were you nervous? If it was because you were burned more times than not whenever your gains reached this level, you probably made the correct decision regardless of how much further price ran. If you were just nervous because you had a win and wanted to book it in a hurry then it was probably a wrong decision.

    One thing to consider is to develop a set of your rules for exits that can be taken without second guessing yourself. It’s a tall order if not an impossibility for anyone to get all of available profit or (MFE) Maximum Favorable Excursion) out of any given trade.

  • Billabong

    Are you guys sure? I’ll defer to your experience … but, but 200 SMA is support @ 1285 (assuming you’re using GC).

  • BobbyLow

    It’s been in a fairly tight range for about a month. 1285 is $7 away. If it get’s there (and that’s a big if), the 200 SMA support is only good as long as it is support. These support levels are not chunks of granite and have a funny way of being broken and then becoming resistance. I can only base my judgement on what I see today. And once price re-establishes itself as a long, I’ll flip it in a heartbeat.

  • Billabong

    PMs are tricky to say the least…

  • http://evilspeculator.com molecool

    Just put on a condom during trading hours and you’ll see.

  • http://evilspeculator.com molecool

    Sep 19 2008 – I was there…

  • BobbyLow

    Well yes and no. And I’m going to say this more for myself than for you because I have a built in forgettor.

    Once again I’ve got to paraphrase Scott about markets being easy to trade at times and hard to trade at times. Take a look at /GC on your daily chart. What I see there is a long from 1/10/14 (that I didn’t take) at 1248 until 3/19 at 1330. Now depending on your trading vehicle and size this could represent a lot of $. There are a few other periods like this over the past year. Now in order to get into these runs there are a lot of shitty false alarms along the way that represent a lot of small losses. But the few big runs outweigh the many small losses in a big way.

    Now take a look at /CL on your daily chart. It is very similar. What I see is the last short trade going in at 101.67 (that I didn’t take) on 7/18 and I should still be short today as it ran all the way down to 93.44.

    Now on both /GC and /CL, I have back tested these many times over the past 3 or 4 years and always found similar results. My problem is that I would always begin trading with real money after a big run. Then I would run into a bunch of small losses and say fuck this.

    But not this time.

  • BobbyLow

    Yep, that was really something. The funny thing was that I actually did well that year. Of course that was when it was cool to be a bear. :)

  • Billabong

    “My problem is that I would always begin trading with real money after a big run. Then I would run into a bunch of small losses…” This is a great observation. Now how does someone capitalize on it. How do we overcome the false starts? Or do we wait for the big waves that come in every few months??????

    ADD: I don’t have my system up right now but will take a look later this evening.

  • BobbyLow

    ” How do we overcome the false starts? Or do we wait for the big waves that come in every few months??????”

    I wish I knew the answer to this but I do not. And I don’t have the ability to judge which signal is going to be false. But what I do know is that IMO, by taking the bad with the good, the good results can tremendously outweigh the losses even with a slightly better than a 50% win rate. So I have to understand and fully accept that almost one half of my trades are going to be losses. This has been by far one of the most difficult things for me to accept and by not accepting this fact it was also one of my biggest weaknesses.

  • newbfxtrader

    Seems to be at minor support. probably not the best entry.

  • ridingwaves

    I was positioned in SKF….that’s the problem with trading the fed market, its manipulated much more than ever before…so stops are not only tighter, they are objects of desire for the hedge, mm’s.. This market is made to chew retail to bits…..its a fed mandate and it’s easily done by their front runners in the big houses…. Look at the PIIGS bond rates, that was the biggest killing of bias traders eva…

  • newbfxtrader

    As long as the sell was based on your exit strategy its fine.

  • ridingwaves

    In reply to your reply previous page, all I was saying was Janet won’t change a thing….So let it be written so let it be said…doesn’t matter what trade you were taking, Janet would be steadfast in keeping rates low for a long time…

  • BobbyLow

    Yep. She’s a big Dove and that’s why she was chosen to replace “Helicopter Ben”. However, the only thing that their low interest policy has accomplished is to fuck savers and force the majority of people to accept risk. And guess whose going to pay the tab when it’s all over?

  • BobbyLow

    I have only one regret this week and that was getting out of my short NZD/USD yesterday. It’s down over 50 Pips from where I covered. But it was the correct decision at the time.

  • Scott Phillips

    It is like that survey where 80% of people think they are a better than average driver. Most traders think they know what they are doing, and VERY VERY FEW of them are good enough to avoid disaster.

    Even among the participants here, there are only a handful who will make it long term

  • newbfxtrader

    No worries. Good trade btw. Waiting on Jackson hole to see where to place trades.

  • Scott Phillips

    It was the correct decision. The setup I missed while my plane was landing was a 2.6 R winner, which is annoying. I had dudeplunger handling the rollover for me but he didn’t spot it.

    Exited my Copper trade overnight, at the trailing spike high stop for 1.8R. I think this is an outstanding campaign with a perfect entry and perfect exit

  • Scott Phillips

    I noticed overnight that gold, which was stronger than silver and copper, is now the weakest of the metals complex. Looks like a good trade to me, and I’m currently short in related market silver from the setup I posted here a week ago. Nicely played though possible a day late with the entry

  • Scott Phillips

    Ivan’s students often wait for a drawdown to start a system for real money. I like to increase size after recovery from a drawdown

  • Scott Phillips

    The drama, stated another way is INCREASING VOLATILITY. At the start of a move this is very healthy. Deep into a move, however, what this indicates is that on big spikes up two sided price action is prevalent, meaning that bulls are booking profits and getting nervous and bears are getting bolder. Everytime a bull banks his profit, a new weak hand latecomer bull is his substitute.

    What does this mean? Volatility late in a strong move is a canary in the coalmine that the move is on its last legs. Not immediately, but in the near future.

  • Malcolm O’Mara

    The name of the game is risk management. Personally, I
    employ stops. Where I place a stop has to do with my observations of 30, 15 and
    3min candles. Have I left money on the table? Sure I have. Sometimes you are out at the top of a trade, most times not. As long as you can limit your losses, you are a winner. You should try hard to limit your recriminations. Whenever I find myself in your place, I go back to my trade record and look to the exits, if not made, would have been disastrous.

    I think the limiting of expectation is an important lesson to learn. A home-run would be great. Remember that a base hit works.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Yes, the Silver leading down was a factor. Copper running high could be another factor (pop high and eventually rollover). let’s see how it goes.

  • Scott Phillips

    I think copper looked extremely bearish yesterday it was one of those “suprise moves lead to big moves” things

  • Scott Phillips

    Exits are the most difficult part of trading. Entries are kindergarten stuff by comparison.

    It follows logically that you can make the greatest improvements by focusing on what almost nobody does, ie exits to the exclusion of entries.

    Almost everyone can improve their emotional state by instituting a set exit strategy which you use all the time. The desire to try and top tick an exit is a reflection of subconscious fear and a desire to control the outcome.

  • Billabong

    So you would take every set-up and just accept the false starts as a cost of doing business?

  • http://www.ProfitFromPatterns.com/ Ivan K

    There are many valid concepts that can decrease the effect of ‘the false starts’ … from understanding the Natural Sequence of setups (in an ideal world) … to position sizing … to even a couple of ways to use the Equity Curve to help one sidestep some of the inevitable false starts.

    That said, losses are a natural part of any business !

  • Scott Phillips

    Why is 200sma support? Why isn’t 100SMA support, or 200ema, or weekly 20EMA, or 13EMA or 50EMA?

    It is an interesting question that prompts some existential thinking about markets and the abstractions we use to trade them (and I’m a user and believer in moving averages for system building)

  • Scott Phillips

    There is a huge scope for system improvement by thinking about this problem. My intraday systems work well at the beginning and end of trends, while my daily system works great at the start and in the middle of trends, but posts many losers at the end of a long running trend.

  • Scott Phillips

    It depends how complicated you want to get. Van Tharps idea is to keep your actual system design as simple as possible, but go CRAZY with complexity on the money management and campaign management.

    One way to do it for a system which trades over many pairs is as follows. Do a paper trade for 20 trades or so on each instrument. Work out your median drawdown and wait for that to start trading on any given pair. Alternatively you can wait for a drawdown and crossover an equity curve moving average to start trading.

    Alternatively you could wait for 3 or 4 losing trades in a row to start trading (this is an Ivan idea)

    Alternatively you could plot bollinger bands around your equity curve (in excel this is easy) and lower position size when you are outside the upper band and raise it when you are at the lower band.

    Other concepts you could use are to take the position size for R value purposes as the last equity peak. This pulls you out of drawdown quicker but makes the drawdown deeper (Ivan idea again)

    One idea I like is to have 2 baskets. 1 is a “conserve capital” basket. Another is a “shoot for the moon” basket. Conserve capital you use only 1% R values, and stick the profit above a reasonable return (say 25%) in the “shoot for the moon” basket, where you undergo substantial risk of blowing up by taking 5% R values, and put the winnings from these trades back in the “shoot for the moon” basket.

    You use position sizing and equity curve strateges to meet your objectives, and you need to know what those objectives are first. What are your objectives?

  • phylum

    “When beetles fight these battles in a bottle with their paddles
    and the bottle’s on a poodle and the poodle’s eating noodles…
    …they call this a muddle puddle tweetle poodle beetle noodle
    bottle paddle battle.”
    ? Dr. Seuss, Fox in Socks

    EDIT: 2B4 annnnnnd “I’m going to Jackson….”

  • http://www.ProfitFromPatterns.com/ Ivan K

    A serious point to work with in the field of risk-taking … aka trading!

    The same as flying … every take-off is optional … whilst every landing is mandatory !

  • http://www.ProfitFromPatterns.com/ Ivan K

    Suggestion is to always think in terms of your R value.

    EDIT: Perspective is mega powerful in all endeavours.

  • http://www.ProfitFromPatterns.com/ Ivan K

    According to your chosen RBT.

  • http://evilspeculator.com molecool
  • http://www.ProfitFromPatterns.com/ Ivan K

    Not all losses are created equal … if there are a ‘high’ percentage of 1R losses, then the entry definitely needs to be put under the microscope … this is where my suggestion of creating an Equity Graph of Period 1 exit oco ISL really comes into its own.

    On the other hand, if a ‘high’ percentage of the entry setup / s that do pass this test … evolve into a partial loss, then the Campaign Management side needs attention

    Small bite-size pieces … can make the awesome task much simpler.

  • http://evilspeculator.com molecool

    I have to teach those guys how to properly use the rudders.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Parachutes are handy as well !

  • http://evilspeculator.com molecool

    Your chances erode exponentially below 1000 feet – below 500 it’s maybe a 30% chance it’ll open and slow you down enough.

  • http://evilspeculator.com molecool
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • http://evilspeculator.com molecool

    This stuff is lighting up my brain like an acid sprinkled donut.

    http://youtu.be/qFWoIyqSjlA?list=RD0N60dAJ7l1Y

  • http://evilspeculator.com molecool

    NIce :-)

  • BobbyLow

    Absolutely agree that not all losses are created equal Ivan. My system has a filter that tells me to exit after relatively small losses. The only exceptions are market shocks that nobody can do anything about.

    Without getting in the complexities of an equity graph, as long as the majority of my losses are relatively small and my gains are very good, that’s all that matters. For example if in a 100 trades if there are 50 wins for 60R and 50 Losses for 20R the net is 40R or .4R for every trade. In this case, the 50 losses are a cost of doing business that I’m willing to pay.

    Where I have had problems before is that these losses can come 5 or 6 in a row. At that point, I would get frustrated and start changing things. I’m not going to do this anymore. The only thing that I would do now is as you and Scott have suggested is to reduce position size during a draw down. I also have a maximum draw down limit when I would stop trading all together and find out if there is something really wrong with my system.

  • Billabong

    Anyone notice how weak TF is? Also, the Summation indexes are not show the strength indicated by the move in the NASDAQ and NYSE. Lastly, out of 12 sectors, the Bullish Percent Indices only have 5 reading 80 or above and none 90 or above … There is something wrong here. I’ll leave breadth to someone else….

  • http://evilspeculator.com molecool

    Don’t over analyze the tape this week – it’s not going to make much sense until the JH conference has completed.

  • Billabong

    @ GG and BobbyLow … I’m humbled … excellent call on shorting GC yesterday.

  • Billabong

    :-) … ok boss.

  • http://evilspeculator.com molecool

    There ARE no calls – please don’t use that terminology. They were smart enough to saw an entry opportunity and pull the trigger. Nobody has a crystal ball – and that includes me (but I’m working on one – hehehehehe)

  • http://evilspeculator.com molecool

    Remember – information vacuum?

  • Billabong

    My concern here is not so much tape reading … but after two weeks of this move, there is no clear leadership and there is a major divergence with the general markets … reminds me of the Nifty Fifty move in the late 60s.

  • Billabong

    Thinking in R changed my perspective and took a lot of pressure off of thinking about the $$$$

  • BobbyLow

    Thanks Billabong :) It could have gone the other way as well. But I am pleased that it worked.

    BTW, I just replied to Ivan down below on the topic we were discussing yesterday and I think it explains a little bit about wins Vs. losses in simple terms.

  • Billabong

    Come on Scott … first things first … when looking at a position, I should able to tell your where support and resistance is and if the position is trending or ranging.

  • Billabong

    In this particular case, the 200 lends itself to support and resistance for the last three months. It could have easily been the 50 or 25 because they’re pretty well bunched in there …. the real bottom line is that gold has been in an approx $200 trading range since May 2013.

  • Billabong

    High percentage of 1R losses either indicates a problem with the RBT or the market has changed and the RBT is not suited to the change. I’m working on your next part about passing the entry set-up. Patience is the area I’m trying to work on and not take every set-up. I can see selectively choosing a set-up can be the difference between less than 1R loss or even a positive R outcome.

  • BobbyLow

    Lens, lens, lens. This is why I no longer take a trade off somebody else’s lens. If my lens doesn’t agree, I don’t go. I’ll bet that GG had a completely different lens than I did yet we both agreed on the same trade.

    As far as the old standbys of 50, 200 day moving averages go, I’ll never say that they don’t work. But what I will say is that there have been way too many times in the past that I counted on these averages to act as support or resistance and they failed. Personally, I do not use them at all. I prefer to use Shorter Term EMA’s that can get me in a trade earlier and can get me out sooner as well.

  • Skynard

    Time for popcorn and wheaties, still short this market and have opened some puts now.

  • Billabong

    At what point in the drawdown do you reduce your size? After three in a row? Or 6?

  • Billabong

    I don’t enter or exit off of them, but I do use them as a reference point because there are a lot of other folks hanging out there… OTH, my oscillators are EMA based.

  • Billabong

    Which market?

  • BobbyLow

    Of course it could vary, but between 3 and 6 are as good as any. Time frame is also very important. I use 4 Hour Charts for Forex so the action is a lot quicker than the Dailies used for Gold and Oil.

    But I think you can tell from either chart that when the underlying is hanging around in a more or less flat line slice and dice period. Once again, I have no way of knowing when it will leave the slice and dice zone. I prefer to trade through through these rough waters and will in most cases reduce my position size during these times.

    Now I’ve gone over these charts so many times that I could throw up. But this is the only way that I know of to get any kind of handle on what your average win could be and your average loss could be, when to get in, when to get out. What you want is as few surprises as possible. (Exceptions are Market Shocks)

    Most importantly, your system has to only make sense to one person. You.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    thank, but it was and always it a crap shoot.
    when the Market gives you a gift, be PARANOID, it’s usually a trap.

    http://stockcharts.com/h-sc/ui?s=GLD&p=D&yr=0&mn=6&dy=0&id=p48538244487

  • BobbyLow
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Inverted hammer on the Cash.

    http://www.onlinetradingconcepts.com/images/candlesticks/InvertedHammerPic.gif

    T-time on the Daily.

    -GG

  • Ronebadger

    (SPX) There’s your double top and re-test….let’s go now… do something!

  • SS_JJ

    LOL. Was about to say the same.

  • ridingwaves

    I bet sideways thru middle of sept..

  • captainboom

    That graphic should read Little to No “Lower” Shadow.

  • Ronebadger

    WAY to hedge you bet, ehh?

  • SS_JJ

    Blow-off move before Yellen opens her mouth?

  • Skynard

    Current positions:
    S – /ES, /NQ, /CC
    L – /ZW, /ZC, Sept SPY 185’s

  • Billabong

    Thanks … Have you seen /TF? … it’s rolling over.

    EDIT: It looks like it’s rolling over … general market has been weaker.

  • http://www.ProfitFromPatterns.com/ Ivan K

    It is an idea to establish the profile of each setup (and various CM concepts for each one) … as opposed to lumping them all together in my experience … in this fashion you can learn which suits what market phase.

  • Billabong

    When is she giving her Jackson Hole speech? There’s your tax payer $$$ at work … The most expensive location in Wyoming … hope she makes the most of it and visits the Grand Tetons and YS.

  • http://www.ProfitFromPatterns.com/ Ivan K

    I do see the alleged ‘logic’ of reducing position size during a draw … BUT reducing position size has the effect of making it harder to get out of the draw … additionally, believing and having established to one’s satisfaction that a RBT is solid (and will make new Equity Highs) … reducing position size simply lengthens the drawdown phase.

    The final choice has to be person and RBT specific.

  • Skynard

    Do not play small caps but good opp here ATM:)

  • ridingwaves

    She wouldn’t make it 100 yards down the trail…

  • Billabong

    Also, CL is trying to “hammer” out the bottom.

  • Billabong

    :-)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    I’m a thief, not an editor.

  • http://www.ProfitFromPatterns.com/ Ivan K

    A simple chart showing the series of the sizes of wins and losses easily highlights the bunching or clustering of both wins and losses … Dependency is a very valuable concept … as such it can be used in formulating position sizes … both during a draw … as well as at new Equity Highs.

  • SS_JJ

    whatever happens cash is the best position until she’s done blabbering

  • http://www.ProfitFromPatterns.com/ Ivan K

    CLV4 is a great example of a double whip today … first it took out yesterday’s high … then yesterday’s low … and finally yesterday’s and today’s earlier highs … the hourly lens is a gem.

  • Billabong

    Ok – the double whip … I’ll check out the intraday … thanks.

  • Billabong

    Cash will be me by EOW. I’m leaving on family business and R&R (recharge the batteries) for a couple of weeks … lets see if I can hold out two weeks … not!

  • SS_JJ

    Anybody has a good volume by price profile for bucky? I am curious to see where is the next volume hole. Thanks

  • ridingwaves

    slippery huh? they are about to road show the biggest IPO eva….IPO happens on the 9/16..thus, the market seems to have a resting place for now…I have the VIX retesting the 10.40 lows…seems most of the price gains are in, my thinking is another brutal chop month..

  • BobbyLow

    10 AM Friday for Yellen and then Draghi at 2:30 PM

    http://www.forexfactory.com/calendar.php?week=aug17.2014

    I’m also rethinking my getting completely out of Forex before Major Reports/Speeches etc. I keep thinking about all the back testing of hundreds of trades and not one of my back tests allowed for closing out positions prior to these events. What I’ll probably do is to compromise and take 1/2 of my position off the table prior to a major event and work my way up to just ignoring them completely.

    Exceptions would be entering a position on the same day just prior to a major event or any major event with the Cad scheduled for the next day. It seems like all major events with Cad have a violent reaction (both ways).

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    if you like the 39 or 40 ema, then time to check your greed light.
    trailing stops, whatever.

    [SPX envelope based on the April extremes.]
    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=9&dy=0&id=p25321316626

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • BobbyLow

    FBOW,

    Long AUD/USD .9297 Initial Stop .9263
    Long NZD/USD .8401 Initial Stop .8369

  • Skynard

    Everybody looking for 2K SPX, right? Spitting distance:)

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    right. but don’t forget the drama.
    First comes the intra-day above 2K.
    Then the first day close above 2K.
    Then the weekly close above the 2K.
    the 2K hats, and the bull interviews, upon bull yada yada.
    and just to cut Mole off for the 3rd time. it’s just a number. Mental M.
    we rats trade upon much more sophisticated indicators.
    :-)

  • http://evilspeculator.com molecool

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    ¸„ø¤º°¨ M E A T“°º¤ø„¸

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  • Skynard

    Sucker rally, remember them so well. How can you forget it:)

  • Skynard

    Don’t know, see how it plays out this time. Don’t want to be long right now. Ekkkkks!