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Thursday, April 27, 2017

WHEN TRADING GETS PERSONAL


“Doing what needs to be done to solve a problem.”

What’s the definition of a long term “investment”? ANSWER:”A short term trade gone bad”.



I remember vividly, a very long time ago back when I was a “young skull full of mush” gophering for Bert [my mentor] in the brokerage house up in Madison, Wisconsin. Bert was by far the largest commodity trader at the time the brokerage house had ever seen, and some bright MBA in New York got the bright idea that what this stuffy, East coast, WASP-ish, 3 piece suit at all times brokerage house needed was more “commodity business”. And to that end, they wanted Bert to set up satellite branch offices all over Wisconsin to “bring in” farmers & the other rubes who lived out there and trade [mostly hedge crops & livestock] commodities, all the while gaining their trust so that eventually that money that sat in a savings account would find it’s way into stocks & bonds. Bert told them politely, “Stuff it, it ain’t happening”.


Ok, so they went ahead anyway, and in 6 months opened about 12-15 little commodity offices in places like Baraboo, Beloit, etc. Since Wisconsin is a big hog producing state, what they did was offer “hedging” services to farmers; especially those unfamiliar with the futures market and how they, “the big city brokerage house with all the savvy and expertise” could help these poor rubes farmers get ahead and make more money.

And Bert said to me, “Kid, this is going to be a big F-ing disaster; if anybody from New York ever calls you, you don’t know nothing, you ain’t seen nothing, and you’re not even sure what your name is. Got it”? And I’m like, “sure … whatever … it’s got nothing to do with us”. And Bert says, “What? … Are you that F-ing stupid … did I pick as my understudy the dumbest carrot from the bag? … of course it’s got shit to do with us, and if it goes “south”, somebody somewhere its gonna try and pin it on us … that’s why I’m tellin’ you don’t say an F-ing word to anybody … good or bad keep the Yap shut … and especially don’t say anything to Joe [branch manager], who is nothing more than a Class A apple polisher when it comes to the assclowns in New York”.

And what happened was, after some of these guys the brokerage house hired got some farmers to start hedging their hogs, the farmers discovered day trading; they’d sell 2 hog contracts, and 15 minutes later they’d be up $400, and they’d turn around while drinking coffee and eating some donuts in the office and say to the broker, “screw that hedge BS, buy ‘em back and I’ll pocket the moola”. And the broker would do it cuz he wanted the commission and the business. Well, what everybody discovered, and of course what Bert knew way back in the planning stages, was that all of these guys … New York, new brokers in Wisconsin, and the rubes farmers … they were about to discover “investing” just got personal; cuz when that 2 lot sell went up, Joe Bob didn’t want to take the loss, and when the loss got bigger & bigger & bigger and forced Joe Bob to get a loan from the bank to cover the losses, Joe Bob said to the brokerage house, “F you, F the bank, F the brokerage house, and F everybody else in this, cuz it wasn’t my idea anyway”.

And what had Joe Bob really upset, was as futures for hogs kept going up, cash hog prices didn’t do squat; the bank looked at this and said, “Who’s idea was this anyway”? Bottom line was that a whole lot of Joe Bob’s all over Wisconsin got introduced to what happens when SHTF. Bert knew it, saw it coming, and when it blew up and cost the brokerage house millions, both of us were as far away as Tahiti.

And while everybody and there brother will tell you “it’s not personal” when you lose on a trade, unless there is no blood in your veins, part of it is personal. Which in a sense is OK … don’t get me wrong here … nobody is going to start a trading career and never have a losing trade … that isn’t the issue … the issue is how you plan for it, how you deal with it, how you learn from it, and how you move on from it. To that end, it’s important to be able to look into the mirror and ask yourself if it was your fault, your algorithm’s fault, or the market’s fault.

I’ve said before, everything you learned in life that is valuable you learned from Kindergarten to 3rd grade; since then it’s been nothing but a validation of those things that got brought home to you in spades. Get side tracked by crap you think you learned in college, and sometimes you need to be reminded what a doofus you can be when events take a turn for the worse and you knew it all along, but did nothing about it to change it … and it got personal … and shutup already!

And what makes trading so damned hard … cuz really it’s simple … what makes it so hard is that everything else in your life works on a different dynamic, and switching back & forth between the two is difficult until you can see the problem.

Nothing brings this home better than stock indices, and it always brings a chuckle to me when I see guys … otherwise intelligent guys … over on ZH post articles with chart porn on how it’s impossible for the Dow30 or the SP500 to be where they are at cuz of these 20 charts and these 25 reasons, and that in a “sane” world everything would be 40% lower in value based on fun-der-men-tals. “Ok, whose fundamentals exactly”?

And you can almost feel during the day, that somewhere sits a guy that when the Dow30 upticks an index point, his big girl panties get tighter and tighter and, “how can it keep going up like this … OMG”! And yet it does. Which begs the question I asked yesterday in the comments section to one of these guys, “The inference of your premise is that I’m an idiot for buying stocks or stock indices; what am I supposed to do when my objective is to make money trading? Am I supposed to lose money by being wrong, but that’s OK cuz it makes you feel better? I fail to see why it matters to you what anything I do matters; I’m trading to make money, not make friends. If I want a friend, I’ll go get a puppy, OK”?

Like there is “virtue” in losing money but it’s OK, cuz it was for the “right” reason; “wait … what? Sure, let me run that by the Mrs. when she comes for the ATM card to go to the spa with her gal pals and I tell her there’s nothing there, but don’t worry, I lost it for the right reason”. And if you happen to be in the room on this hypothetical “not gonna happen” day, I suggest you slowly exit stage left ASAP so the shrapnel doesn’t hit you. And so it goes, market participants losing their collective minds and going full retard. I have always taken the attitude, learned from Bert many years ago, that losses are what you pay for valuable information; the key is to make the information worth more than you paid for it. If you examine properly, this will always be the case. 

Turning to today’s market … ECB full retard “Super Mario” presser before the open … big whoop … as he bores the entire world to death with “Yellen speak” cuz nobody has a clue what it means but sounds good. Meanwhile, plenty of short folks getting squeezed harder than a group of oranges at breakfast time; and the dirty little secret is, if the SP500 starts moving above 2401 – 2405, all hell is going to break loose from the hedge funds short option gamma in the May & June cycle; where said funds have massive 1X3 and 1X4 long short option spreads on with uncovered calls from 2425 – 2500 that the only way can be effectively neutralized is by buying futures … and then more futures as it goes ever skyward. At the same time volatility makes the uncovered shorts ever more valuable, thus making the pain when you’re wrong in this strategy more severe.

Outside of political and/or geo-political risk, I don’t see how the “hard and/or soft” economic data can get much worse, that’s going to make everybody all of a sudden turn bearish and want to dump the SP500 or the Dow30 stocks; the far greater risk is if the data starts to turn here, and along with the “oranges” from above, we could see a blow off melt up by the end of June. Not predictin’, just sayin’.

Ok, opening mess @ 13:30 out of the way … a little up, a little down … and crickets … first trade of the day not real excited about cuz it’s not low enough in price, but we did get a bullish engulfing pattern off the low … still, below the opening aqua line so treating it as a scalp up and until we get to lower levels below 20950 [if we can get there … the way the this stuff has been “bid”, I’m not so sure today, but we’ll see]; directly below the trade.
 





At some point in here, we have to start hitting the “tired longs” … we’ve made more than a few attempts to stay above 21000, and it can’t hold … looking for some political scare talk from President Trump on a possible gov’t shutdown tomorrow along with the usual Pie Holes in Congress to add their “2 cents”, and we could get some downdrafts later. The second bullish engulfing pattern @ 14:09, I skipped for 2 reasons; 1) if the high for the day is going to remain at 21015 [Turnkey], then the low below still awaits us at the 20900 – 20925 area most likely, so why get long now, and 2) market is below open aqua line and scalp is my best scenario outside of a reversal day which I don’t think likely. I’ve already had one scalp, and this second leg down should be a precursor for more down; I want something more inviting at lower levels.



The Dow30 is slightly weaker than the SP500 today; something to keep in mind going forward in the day. Although, we are slowly slipping in price, if I was short I wouldn’t be real happy with the pace the market is going, and if I’m long I don’t see the buy interest from the first 3 days of the week when France “saved the world” (snark). Market feels like there is more downside coming; question is will it be a fast “long execution” or more like a slow hanging? I’m wanting the former, especially if sell stops can shove the Dow30 into the lower SDEV line, which should make for a decent long trade.


Second leg down @14:56 got the market below 20950, but the reversal off the bottom wasn’t a signal; close but no cigar so to speak. It simply wasn’t a bullish engulfing pattern; bounce would have been an Ok scalp, but it’s a flip of a coin. Market still needs to go lower on another leg down; haven’t yet reached the “normal” range for the day in the Dow30 of at least around 100 points or so; unless the market suddenly reverses, that means further downside.

Here at Noon New York, here’s the question I have; “so, everybody gets to buy the bottom within 15 index points of the low over the last 90 minutes? Wait … what”? Exactly, lows aren’t lows if everybody can get in to them, especially if you have 90 minutes. However, having said that, the market is being jerked around by … jerks! … “yes, our old buddies in Congress who couldn’t find their collective asses with both hands if they had a Rand – NcNally road map to guide them”. Meaning any and all signals may just be “smoke”, as the rhetoric & BS come steaming and piling high over health care and the budget [gov’t shutdown] from Pie Holes looking for some TV time on cable to show the folks back home just how concerned they are about all of this don’tchaknow? “Excuse me while I puke”.

The market right now is locked into a tight range exactly because nobody … nobody … wants to do anything and then have some asshat like Chuck U. Schumer [Weasel, N.Y.] come along and say something that pulls the proverbial rug right out from underneath your feet. And you know, before we close today something “else” will happen. In my mind, if we don’t get a break to a new low this afternoon, I’d be looking for a lower opening tomorrow morning to buy into the weekend. We’ll see what happens, but I’m leery here of getting blindsided by some Pol; and still the day’s range is awfully tight.

But as is usually the case in quiet markets, especially the stock indices, the shorts are the first ones to always panic; and after sitting the last couple of hours in mind numbing chop that goes nowhere, somebody … short no doubt … absolutely couldn’t take another minute of this stuff not going down and hit the buy buttons, sending the Dow30 up 25 points or so in 9 minutes for his/her efforts. “Thanks, come again”!

Make no mistake folks … and believe me, I know … we have not seen, nor are we in what I consider anywhere near a “normal” Dow30 and/or SP500 market. And while the stock indices present discipline & patience issues, other markets on the MT4 aren’t faring any better while some are far worse. “And look, apparently we can all buy the low over a 90 minute period”!!

SP500 just hit a new high for today; this type of reversal happens less than 5% of the time of all trading days; as I said before Dow30 is weaker today, so it hasn’t hit a new high yet; it remains to be seen if this is just panic short covering on Pol “blah blah yada yada” that goes nowhere and invites the “Flying Wedge of Death” to the party, or if this means further new highs and a blast above 2400 later today and catches more shorts hurting from losses.

So what do we do now? Longs gotta be asking themselves this question, now that whoever puked their shorts in classic fashion has finished and we simply … sit here … doing nothing … ho hum … “another round of beers over here for the red eyes please”! … cuz outside of the person who stepped up to the plate and moved the market, nobody else wants to join them … and that has me skeptical of the move continuing higher yet again. Meanwhile, the apparatchiks at the Fed love this kind of action; anything that kills or maims retail spec accounts is “good” in their book. Once again today, we get nothing off the lows of the day in terms of a buy signal; zip! Granted, the range is tight [thank you Pols], but you’d think we could see something from one of the bottoms after the open that goes somewhere; not today.

And please note; the biggest rally of the day starts and exactly coincides with the HR1 [white line] momentum change from negative to positive. Chart directly below.
 




So, while we sit here waiting for something to happen, in other indices news the Russell 2000 hits a new all time cash high at the same time there are record shorts in the futures market; 72,212 short contracts to be specific … “clearly, this will end well”. Add to this the option hedge funds short call gamma in the SP500, and there simply is no shortage of gun powder to blow the lid off of everything in sight WHEN [not if] the shorts panic here between now and the end of June.



And if you’re in this mess, long or short at this point doesn’t matter, I sincerely hope you got a “Plan B”, cuz if you like flippin’ coins this market right now is for you; and if you’re wrong you got no chance of seeing any kind of movement that gets that loss back. “Double or triple up you say cuz it’s a tight range? Don’t even go there Skippy … don’t even go there”.


It’s a half hour until the close, and once again time to call it a day, with a single trade for the effort and a few pennies to the plus side; once again a pretty pathetic day action wise, with both longs and shorts not real happy with today’s outcome. It is what it is, and we simply move on to tomorrow and pick the action up again.

PAMM/MAM spreadsheet directly below.
 




Day’s officially over and “Fang” here thinks he’s gettin’ some of that smoked roast beef before we go to the beach … not so fast there Skippy.



“Whoa … whoa there Chief, I distinctly said roast beef … WTF is this”?

Now the dog’s really screamin’ at me! … Ok, here’s the roast beef… we’re outta here … until tomorrow.



Have a great day everybody!

-vegas
OUR ‘TURNKEY FOREX’  PAMM/MAM  IS NOW OPEN AND OPERATIONAL; SEE “PAMM/MAM MANAGED MONEY PROGRAM” IN “DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN FOR DETAILS [VIEW ONLINE AND/OR DOWNLOAD] AND START YOUR JOURNEY FROM WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!
 
  


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