A couple of mornings ago, I was speaking with a colleague who started trading a few months ago. After a little ‘getting used to it’ period, he actually had a relatively sustainable period of success. To his absolute credit, he didn’t go nutso with his trading in not letting anything get to his head. However, as is inevitable with all traders, he suffered a bad day a few weeks ago. This created an issue. Many people would simply double or quadruple their trade size in an effort to get everything back. He did not. Other people would fail to adapt to changing circumstances in trying to stubbornly trade the same exact way with the same size. He did not. However, he has fallen into what I call the “prevent defense” trap (which his actually the easiest of the three to break). In football, for those who know the sport (much less those who don’t), everyone knows of the term ‘touchdown’ and the myriad of ways to get one. What people don’t discuss is how to stop a team from scoring a touchdown. The good defenses are aggressive no matter what. However, particularly when teams are ahead late in games, they go into ‘prevent defense’ mode, i.e. the thought that by not giving up a big pass, it lessens the likelihood of allowing the other team to score. While there are selected instances whereby a team uses up a lot of time to score, many times, the same result happens- a team scores anyway in the same amount of time simply because a series of short gains are made. Thus, my moniker for it at least 1 of every 3 times is ‘prevent the win’ defense because in an effort to be conservatives, many times a team can lose the game because of it. I give the very long analogy to demonstrate as clear a relevant tenet to trading as I can because the same principle applies. While it is not good to be overly aggressive if things are not working out, it is also not good to play scared for an extended period of time if things aren’t working out- because things will keep not working out. If your trading relies on split-second timing and you hesitate, you’ll miss out on trades. If you are doing trading which requires you to stay in perpetual motion, you can’t just totally stop or pull back dramatically. What I do after a hit is to simply cut down on my trade size until I get a rhythm going. Once I do a few successful trades, the greed component kicks in over the ear as the confidence creeps back. But I don’t just stop pushing buttons nor totally refrain from what is I am trying to accomplish. So, if you take a sudden shock hit, realize after taking a little time to suck it in that many more trades lie ahead and the focus should be on the future. Trading is an odds game…sometimes things won’t go right. But from a purely scientific approach, if what you are doing works most of the time, you’ll be fine as long as you do what you’re supposed to do. Thus, fully understand that- and let that thought pervade your psychology rather than excess nervousness of taking another massive loss otherwise what will happen is that you’ll find yourself taking a series of small losses rather than the one big one- you’ll wind up in the same place only over a longer spate of time.
Markets overnight were down sharply throughout the world. The Nikkei closed at a 2010 low just below 9000, down about 1.3% with Hong Kong off 1.1%. The losses accelerated in Europe with Paris down 2%, London 1.6%, and Frankfurt 1.7%. The dollar is getting pummeled against they yen with it giving up the 85 and 84 handles to the upper 83s. The 10-year yield is now approaching March ’09 lows with the yield around 2.50% as bonds are showing extraordinary strength. Oil is below 72 dollars to the barrel. Gold is down over 1%. Just extraordinary moves. There is no new major news other than a growing fear that the economy may well show a double dip. Thus, the massive asset shift out of equities and into bonds…continues. It didn’t help that GOP House Minority Leader Boehner called for a resignation of the entire Obama team as it signals deep divisions in Washington as to what to do next…the notion isn’t shocking…the fact however, that the derision is that deep is rather notable. Existing Home Sales (5.14 million) is expected at 10AM. For the day, it could (although likely will not be) a wild one. The bonds and dollar/yen relationship must hold (which I think they will); if so, the markets likely will bounce a bit. If not, it could get very ugly. Focus on the merger stocks, the fertilizers, the earnings plays, and any relative strength play in any early uptick.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
FMCN- decent earnings
ISLN- closed near a high
CVLT- closed near a high
PAR- closed on a high after receiving a $24/share takeover offer from HPQ
MOS- closed near a high
MHS, CRM- featured on “Mad Money” last night
TSL- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
AAPL- closed near a low
GS- closed near a low
X- closed near a low
BIDU- closed near a low
WYNN- closed near a low
FSLR- closed near a low in an intra-day reversal despite being upgraded
NFLX- closed near a low
BUCY- closed near a low
UTA- closed near a low
MDT- poor earnings
Earnings:
TUES AUG 24 BEFORE
BIG BKS MDT
TSL
TUES AUG 24 AFTER
PAY
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
No comments:
Post a Comment