Thursday, December 31, 2015

Trading is Not As Hard as You THINK

I love getting up in the middle of the night to find that the market is at an extreme for the week and it's been pausing for an hour or two; then continues on its way.  A low risk entry and potentially unlimited upside. 

In the last 2 weeks of December I cease my trading. Since markets are a "human behavior" phenomena, just about all the stupidity for the year has already been expended by mid-December, and everyone [rational] who trades has either booked their year's profits or accepted that they aren't going to recoup their losses until 2016.

The few irrational confirmed losers that feel the need to trade past the 15th are welcome to whatever profits I might miss from their passing my way. Trading statistics have proven it too, so feel free to avoid the anemic volatility and waste of time playing a lowered-edge environment.

And have an extra single malt or two over the two weeks. Preferably an 18 year old Macallan, recommended it to me by Barry Eisler- known for his John Rain series. Thanks Barry.

Trading is Not Hard

How you think about yourself, the markets and its other participants really helps you maintain an overwhelming edge.

In an interview Paul Tudor Jones was asked about his overall trading philosophy.

His reply:
I have very strong views of the long-run direction of all markets. I also have a very short-term horizon for pain. As a result, frequently, I may try repeated trades from the long side over a period of weeks in a market which continues to move lower.

When it was suggested that it sounded like he was performing a series of "probing trades" before he hit gold... 

He replied:
I consider myself a premier market opportunist. That means I develop an idea on the market and pursue it from a very-low-risk standpoint until I have repeatedly been proven wrong, or until I change my viewpoint.

The reason I mention this is due to his comment about pursuing the market from a very-low-risk-standpoint. Whether you do this from a trending standpoint (my preference) or a counter-trend point of view; the fact that you are doing it completely cognizant of the risk and make that part of your series of actions - is why your odds of success rise significantly over competitors who H-O-P-E that the market will go their way every time they put on a trade.

There are a lot of them - thankfully. Even governments get wrong minded. As large and as wrong as they can get; they represent Trillions in total profits-to-the-prepared when they're wrong.That's why trading is still a great feeding ground for prepared speculators who have their monkey under control.

Knowing without a doubt that you will act correctly when something big happens makes you the odds-on favorite in the race.

Over the next week, see if you can round up a copy of Zen in the Markets, by Edward Toppel. A perfect read this time of year, even if you've read it before. It'll get your mind right for the beginning of 2016.

ZITM is great not because it tells you the secret of making profits from the market. But because it lets you realize that you already know how and then facilitates you to do it.

Ed came up with some great TradeStation software that emulated what he wrote in the book for the E-mini S&P. I know that a few tried using it, but I doubt anyone does any longer. 

You have to have absolute faith in the concept that the market knows better than you where it is going.You turn it on and it buys the market if it goes up and turns around and shorts the market if it goes down, and then long..., and then short.... Until you either lose your account or make a ton of money.

If you do a tick-by-tick simulation over many years..., always-in-the-market; it is slightly profitable after commissions. But where it was REALLY profitable was when you are in a well-defined trend, the market is just paused-- and then it takes off again. What an idea to trade only at those times!!!!

If you haven't read Zen in the Markets; make a point of it.  Let me know if you can't get a copy.

We are at a serious juncture in the Forex markets. 

Oil prices are as low in real dollars as they've been for decades. Same with most commodities, and gold and silver. Countries (and currencies) that depend on commodity sales for their financial health are affected negatively. When commodities bottom and turn up, so do their respective currencies. We'll be watching the Aussie and Canadian Dollars closely this year.

Speaking of silver, the 1330 ounces of silver carried over from last year currently have a liquidation value of $18,526.90 (based on the 12/31/15 spot price of $13.93).

In the last few weeks I took some low risk breakouts in the AudUsd and the GbpJpy that I am holding over to the new year. And ONS has been treating us well this year.

I wish that I had been even more attentive to the Challenge account, as I'm sure I could have doubled the profits very easily. The forex side of the Challenge account from 2014 was $1,156.60, and we added an additional $619.78 this year.

Quick summary:

Silver value:        $18,526.90
Forex account:     $1,776.38
Total:                  $20,303.28

Still significantly above the $500 (40 times initial capital) we started with, but very significantly below the peak of over $50K a few years ago. Since big money is made in the fullness of a major trend I have no doubt the financial mistakes of numerous countries will provide some great opportunities and launch us into new equity highs.

I encourage you to take note of a quote by ― Sun Tzu, from The Art of War:

If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

Knowing that there are things that can't be known-- is valuable too.

If I KNEW that silver would be at $13.93 today back in early 2010, I wouldn't have as much silver in the Challenge account. But I do know from history that when the rush into metal starts, it can be fast and furious and very difficult to accrue. And having actual physical silver, while currently a less-preferred investment globally, is part of a larger risk/reward scenario – for me.

Fortunately, even with imperfect knowledge of the future, knowing how and having the WILL to trade your specific assets precisely is more than enough for any success you could desire.

Best wishes to you in 2016.


PS: Check back in a week or so. I'll post some data that I think you'll find useful. JR