Handling Losses

UPDATE 10:25am EDT: As I’m writing this the bulls have pushed this thing pretty much ‘all the way’ – the title of one of yesterday’s postings:

The ‘do not cross line’ for the blue scenario was 861.73 – and as we just breached this line a few minutes ago I swapped positions over to the long side. For me this is a very simple line in the sand – and I did not drop any of my index puts until this line was crossed.

The bears remain MIA which is a stark reminder that the main trend in equities remains to the upside. Consolidations are not forced but are ‘condoned’ by the bulls as a chance to reload and ride the tape higher. Fear is diminishing and the bears are in control – which is why I play it very small against the main trend, something that has saved my butt yesterday and today.

What’s also apparent is another ‘trend’ if you will – this is now the 2nd time that we have a shorter than expected Minor retracement. We should remember this and suggest that we play accordingly going forward – meaning we only sell against the main trend in very oversold conditions and take profits earlier than usual, then just wait.

Gold has also tested my resolve to the max and I am now looking at a painful loss after having been in the plus very nicely just about a week ago. However, my line has not been breached yet and similarly, I’m holding my position until that line is crossed. No second guessing and no additional ‘analysis’ necessary – I will stick with my game plan.

Discipline is the ultimate virtue when trading the market and if you have your emotions do your trading you will wind up getting wiped out in a short order. Let’s not forget that sorry statistic which suggests that over 90% of all fledgling traders lose most of their capital in the first year – yes, that’s right nine out of ten traders get wiped out. I have seen it happen over and over – and only the ones who can control their emotions have a chance to stay in the game for the long run.

However, there is a fine line between discipline and stubbornness and that line is clearly breached if you hold your positions beyond the line you drew going into the trade. Be very cautious to not fall into the trap of letting your losers run and cutting your winners short – it should be the exact opposite. With that said – Gold is close but has stopped advancing a few ticks below 920.

The Dollar is making me a bit nervous – well, not really – but this drop is a lot deeper than anticipated. Although the wave count has been soft at best since Bernanke’s splurge on treasuries, my expectation until now was that we should have continued on a path higher. So, this is a bit unexpected and puts me on high alert – obviously this has an impact on my Gold positions.

Sorry this update comes a bit late this morning but I actually started right at 9:30am and then our ‘line in the sand’ was breached and I had basically redo all my charts and rewrite most of this. Sometimes events have a habit of catching up with you… 😉

UPDATE 11:16am EDT: Feast your beady little rat eyes on this jewel:

New NYSE PT report is out and guess what – Goldman Sucks trading principal to agency + customer facilitation ratio is now 6.4 x (I have it reverse on the chart but am too lazy to change it now). Which means their primary mission is not providing liquidity but to hedge their own OTC portfolio. Which is why this market won’t quit and we don’t get meaningful retracements. For more detail on this particular saga point your browser over to zerohedge.

At some point this game is going to catch up with the market. Note that I’m not saying that it’ll catch up with Goldman as those guys are running this racket and are probably the first one’s to cash our once they feel the heat coming around the corner.

UPDATE 12:00pm EDT: I’m grabbing a well deserved breakfast – hold the fort in my absence rats!

UPDATE 12:40am EDT: In the context of my previous update also see this.