Thursday, September 10, 2009

Fool School (a trader's guide to exhaustion)

First off, I don't know anything. Knowing in this game has ill-served me in the past and served my head up on a place-mat on occasion. Leave me alone on that one - I know nuthing.

Being a maniac and a trader means that I've made trading mistakes; means I'll make further trading mistakes in the future; and means I'm no doubt making a mistake right now.

Why am I talking to you again?

Anyway I have a discipline, I have rules, and I have memory when it comes to pain.

If you are trying to self-destruct, then you've picked a fine medium. The psychology and volatility of this activity is perfect for finding a way to cut your own head off. Don't let me get in the way of that. Everybody has their own path and yours is no worse.

Knock yourself out.

But I will say that I've tried very hard to learn from mistakes and I try very hard to make these more positive going forward. If I blow myself up, what can I do but try to improve off that in the future?

You live, you learn, you die. Life is kind of like that.

Hence I'm willing to walk over dead bodies of my trading past. Just because you and I are on opposite sides is nothing personal. At least you are young and you'll recover - while I'll have to finally give it up and talk shit for a living.

Oh yeah - exhaustion. Yep, if you try real hard (if you read the blogs and boards) you can recognize exhaustion and the throwing up of hands (speaking of the bears here, who are pretty much shouting vehemently at the market now right now).

I'm not chiding (ha!), because I've been there. But if I can take advantage of your mistakes, then why not get sick about it; smoke a cigarette as I take-on your trade; flick ashes on your grave, etc.

Nothing personal.

Bears will tell you the market rally is out of control, the emperor has no clothes and the pitchfork that will ride bull's asses will be swift and disgusting.

Perhaps. But being early remains over-rated. Being on the sidelines and waiting is not so bad, but fighting great whites day-in, day-out when the shark keeps winning creates exhaustion (not to mention losses); and when one is bloody AND exhausted he is hardly at best to take advantage of the brilliant thesis which only days earlier was still pumping grandeur. By the time someone is proven right, they are taking quick profits and limiting rewards, instead of reaping big profits. Why? Because they are so fucking tired, that's why. Their psyche badly needs to book a gain - any gain - they just want to capture any little thing and crawl into bed for much needed healing and rest.

I've mentioned that in 2000, I fought the beast and went in and out short from January to March. This preceded the greatest crash of my lifetime (that's like 80 years!) and I was plenty bitter. Sure, I was loaded short when the belly sliced, but I was only too happy to book profits after the first plunge; relieved relieved relieved. Too tired to fight weakened bullsharks on their way down down down.

Grizzly ain't it?

Today, if you had been waiting, or long even ;) with the market rising, you might be ambitious right now instead of exhausted. Then, once there is a change in trend, you'd perhaps have proper psyche to fire more and more short. Even if it is not warranted, I presume; because you know better than the market just what a stuffed, lipstuck pig this bellybeast remains; that SPX666 was nothing but an appetizer from Satan himself to whet things in the proper direction before he goes really medieval on bulltards out there.

If you are trading $100B, then being right is pretty important. If you are trading less than $5M, then being right is basically a mistake; a joke. It is a mistake because with small size one can react and respond much easier than one can predict the future. It can't get much simpler than that - but you'll like to try anyway, I know.

I'm starting to hedge now. I can see the exhaustion in the bears (some of the comments on the boards have gotten too extreme not to notice). This doesn't mean the market rally is over, but it means that reasonable people have covered shorts by now (those left, predominantly, are never covering, or they are too large to cover (here and now at least), or else they are in the business of keeping short).

If the market can hold these levels, or keep on higher, then I'll let hedges go (again!) and become an even larger dope in the dizzying bear minds. If we do turn over here, I'll make new decisions depending on the look of everything. What do I know anyway?

I reduced further today and now I'm attacking some on the Financials; as the XLF is showing clear negative divergence vs. the major indices. The AAPL short I explained last night (and I won't stay in tomorrow if it is not rolling lower again). The Dollar long (UUP-only now as I blew out the BR Pound play) is an obvious hedge, as the declining $ has provided fuel for this equity rally, but remains basically firm after the additional gap-lower yesterday.

Anyway, that's the tired-ass lesson for today. Put an ash out on my face if you can. It's tough to keep in line when you're touting lessons. I want to punch myself for discussing any of it. More to learn means more to earn, I guess; I hope.

Keep your head - you might need that thing.

Total Position: Aprox. 2.5-to-1 net-long; 73% invested (pure-longs amnt to 66%)

Currently Long (according to size): RJI (6.4%), CYOU (reduced, now 5.5%), CTSH (reduced, now 5.5%), NEU (5.4%), RKT (5.3%), CLW (5%), MRVL (4.8%), JDAS (reduced, now 4.1%), SWM (reduced, now 4.1%), ININ (reduced, now 3.8%), FNSR (2.8%; reports thurs. aftermkt)

Currently Short (according to size):
SKF-long (US Financials Dbl-short; (7.1% position)
(Note: inverse-ETF SKF represents being dbl-short the respective index).
-Also Long-UUP here (6.1%), which until correlation changes with equity mkts is essentially a short-hedge.

Futures Accounts: no position

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