Timing Is Everything

One of my less favorable privileges as a financial blogger is that I keep seeing people wash out of trading all the time. They show up all bright eyed and bushy tailed with grand ideas, small accounts, and little hands-on experience. In the end few stick around to learn it the right way – most wind up learning the hard way that the market is a cruel mistress which only condones but the most humble and disciplined of participants. Note that I did not say ‘smartest participants’ – many folks I here are probably smarter than yours truly but unfortunately intelligence also feeds one’s ego and that’s what most trip over. For we have met the enemy and it is us.

But one of the biggest mistakes I see all the time is bad timing – which in some ways is related to top guessing. In other words they don’t show up for work when it counts and the getting is good after they exhausted considerable efforts (and funds) guessing the market’s future direction. It always ends up being an ego thing – you my remember my previous posts on platykurtotis vs. leptokurtosis. Retail expect regression toward the mean whilst completely ignoring that the tape may have other plans and is happy to squeeze weak hands into the opposite direction.

Excellent example was yesterday when I posted one of the best setups in equities I have seen for weeks – perhaps months. The spoos traded a few ticks away from an important NLBL and I suggested a short right there until a breach of the NLBL after which we would be long. Excellent context across the board and very little risk despite it being a low probability trade.

Now we’ve dropped since and although I still give this setup very little odds of succeeding there was one thing I knew for sure yesterday. Which was that very few of you would be taking it. Not to be snide but I’ve seen many of you guys trying to pick a top over and over again while it was obvious that we were stuck in a sideways correction. And after a few weeks of that it’s a bit like a Pavlovian response – if you keep losing every time you take a (bad) trade in the context of bad or lacking evidence then you probably won’t be very eager to strike when things suddenly come into sync.

Now let me be crystal clear about this – despite the fact that my trade is in the plus right now I still expect it to lose based on the probabilities and the sheer strength of the secular trend. So why did I take it? Because it was there and the risk was minimal – and the potential pay off huge. And that is one of those times when you strike – no questions asked. Which of course doesn’t mean I only take those types of trades but this is not the focus of this particular lesson. What’s important is to simply follow the tape without personal attachment – you have to be Zen about it. If you let your ideas or opinions pollute the process then you will biased and thus unable to recognize opportunities when they present themselves. You need to know when to sit and wait and when to strike. Timing is everything.

Anyway, it’s been a little while since I took this snapshot and we just breached the 100-hour I highlighted on the left panel. Unless it is being reconquered today odds now support continuation lower as I don’t see any significant support levels. But again – I’m still a bit suspect as I gave this trade pretty low odds to start with.

Since we’re taking equities I also wanted share my long term Dow futures chart which is painting a rather nice rising flag on the weekly. As of right now we already touched the upper border and this opens the door for a drop back lower. Does it have to happen? Of course not – but it’s an inflection point and when breached it will mean that resistance has been broken and that the odds support continuation higher. I really hope this basic concept eventually sinks in as it will make your trading life a lot easier. If you look for a crystal ball then get in line – you won’t be the first and you certainly won’t be the last.

Quick update also on our bond futures (ZB) trade which is also proceeding nicely. On the weekly panel you see that the 25-week SMA continues to be observed and that means it’s leading us lower. My current target is near a diagonal support line which we will probably meet near 128’12.

That’s it for today – hope to see you guys tomorrow.

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Cheers,