YOUR OWN PRIVATE IDAHO

I may be  misquoting this, but I think Steve Jobs was the one who said " we are born alone, we live alone, and we die alone." If he was not the person who coined that phrase my apologies, but someone prominent recently was quoted as saying that. When I first heard it my initial reaction was that it was a terribly negative view of life. However, after I thought about it for awhile, there is actually quite a bit of truth to it. One of the negatives to being a trader is the isolated life you wind up living at times. Most of your friends if not all of them, have no idea what you do, and really don't understand it even when you explain it to them. Further, you need to isolate yourself to some degree to not get caught up in all the noise that is out there that can distract you from making good decisions. For those old enough to know the song by the B52's, I am living in my own private Idaho.

I have a little private Idaho I constructed just off my front porch for little Vinny, so he can go outside but not get loose. We have coyotes all over the place where I live and although he has the worlds best bodyguards with my crew, I can't be sure they will always accompany him any time he has to go take a pee. He will be big enough pretty quickly where the coyotes won't pick on him, but he is not at the moment, so I guard him with my life. One day he will guard mine with his.

I don't know if it is instinct or environment, or both, but my Saint Bernards have always lived to chase those pesky little coyotes. God help the Coyotes if they ever catch them, they will tear them into 1000 pieces. The coyotes know this innately, so they really motor when my dogs catch scent of them. They like to set traps, but there can't be enough of them to trap the big guys I have when they are traveling as a pack. It is interesting how nature seems to have it's balance. Animals prey on what they know is easy pickins, and flee from what is not. Since I live in the hills, I can observe this every day. My horses run from Coyotes, who would think that, they could kill them with one flick of the wrist. However, they don't know that and horses are prey animals not preying animals. They know what is good for them and their instinct is to flee. I have seen many times my horses charging up toward my barn, while my dogs run at full speed in the direction the horses are running from. When I see this I quickly grab my 12 gauge and go after them just in case it is a mountain lion. Nature in balance, although I guess I am tipping the balance with my shotgun, but as I always write, I like the odds in my favor. We need to do the same thing as traders. We need to flee from trouble ASAP like my horses do. We also need to accept that there are cycles of life and that applies to our results.

Forget about the challenge of trying to figure out the markets complex puzzles, even the easy ones are difficult. If you are looking for a challenge, there is plenty here to challenge you just trying to ferret out good trades. Do not get carried away trying to grind over one you are not sure about. Whatever  the setups you use are, be they moving average cross overs or complex quantitative analysis, stick with the high probability setups. If I find myself hesitating over something like I am with the stock indexes right here, I just move on to something else. When I force trades I get bad results. When I said the stock indexes could be traded either way the other day using a stop and reverse type of strategy, those are situations I usually stay clear of. I miss some that I would have been right on by doing that, but I also dodge a lot of dumb trades that might effect my psyche.

As Clint Eastwood said, "a man has to know his limitations." I do know mine or at least some of them. I think the best way that you gain confidence is through success. There is no better feeling than a perfectly executed trade, literally. You feel like you have mastered the world. At the same time there is nothing worse than a bad trade, it has the opposite feeling. What we have to do is eliminate those highs and lows to the best degree we can. One of the reasons I don't watch overnight trades that I hold for days to a couple of weeks, is that it takes out a lot of the highs and lows. I don't like that "wow I am up 23k awesome, oops hang on, no now I am down 5k" etc.. It does not make me more money babysitting trades that I know I am trying to hold for longer periods than a few hours. I know I will make a bad decision to exit if I do this, so I don't. There of course is the moment of truth when I pull the charts up after the close to see what happened. However, interestingly enough, even when they turn out poorly, the reaction I have ends quickly. The opposite of just living watching something just go against you all day long until you get stopped out, it just too painful for my taste. Ignorance is bliss. When I looked today and saw I got stopped out of Coffee it had almost no emotional impact at all. This is ideally the way it needs to be.

Cattle at this point is an example of a market I was not sure enough about to make a trade Tuesday. I know I want to be looking for sells there, no doubt about that. However, some of my short term indicators were not quite giving me the correct "look" coming into Tuesday, so I found myself trying to justify selling a break if one occurred. I then realized I was forcing that trade, so I bailed on that market for Tuesday. I did appear at the time of analysis that something could be set up for Wednesday if the market does not break Tuesday, so that is what I put in my notes and I moved on. Ironically, Cattle dealt us a tricky outside bar that then went back down and closed low, what is called a Search and Destroy day by the market profile people. Had I traded that market today I would have been stopped out most certainly for a loss.

A bit of housekeeping here, Coffee and Bonds/Notes. First the Coffee trade that wound up crappy after a dynamite start.

I had the general area of the target I was going for, and I did have orders in that neighborhood today as well as a stop below yesterday's low. Unfortunately, this market got crushed today, so the stop was executed, taking me out with less than half of the max closing equity that the trade had at it's peak.

Get over it! When trying to catch larger moves, this happens, it is the nature of the beast. I had an inkling and put it in my notes that I thought the stock market was going to decline Tuesday and it would likely drag some of the commodities with it. However, that was just a gut feeling, and I don't trade off those types of feelings. Even though you may guess correctly at times, over time that type of trading will get you wiped out. It is still better than a kick in the ass since it made some money, so time to move on.

I mentioned that I thought the Bond market was setting up a buy, and I got into that trade today. I tried to get some of the contracts on via pullback and we never pulled back, so I don't have the full size on. Time will tell if I will be grateful or pissed about that one.

You can see where I went long here. I felt Notes were a bit stronger than Bonds, but it is basically the same trade. You just wind up with more contracts here than in Bonds since the stops are always smaller. This trade clearly rests on the stock market. If we just quickly reverse back up in stocks, this trade will likely fail, just as stocks drive virtually every other market as well. I mentioned recently I felt this market was ready for a rally, now we will see. I also mentioned Gold was setup for a rally, and that has moved up nicely.

I think the Naz of all things is actually setting up a sell signal depending on how tomorrow closes. I also think Cattle is setup now for Wednesday as a sell if it breaks down some. Today was the wildest intraday swings in crude I have ever seen. I still think the energies are sells here, but today was radical. At one point Crude Oil was up over $3 and Unleaded Gas was down 300 points. There obviously was some intraday big time spread trading in the energies today. By the close when Crude sold off Unleaded rallied. The whole day made no sense at all. Nat Gas and the Grains are also tempting on the long side.

Good Trading