IF IT'S TRUE FOR ROME IT'S TRUE FOR TRADING
There is a saying when in Rome do as the Romans do. I think the equivalent in trading is when you are wrong get out. Although I have been longer term bullish as I have probably nauseated people with in here over the last month, I have also been short term bearish, thinking we had one more dip before the lift off. I felt there were just sell setups galore and stated as much over the weekend. Well there is a funny thing about trading, it is not a home for BS. Price speaks very loudly, and when you are wrong, you are just wrong. You can't blame Congress, you can't blame W and you can't blame a fart on your dogs. You take the hit directly in the nose.
I listened to my own advice about being aware of the world being one trade. As I wrote down all of the possible short opps for Monday, I was very uncomfortable with how they all looked almost exactly like the SP 500. As a result, I not only pared the list way down, I took very small size on top of that. This was just my gut telling me something was really wrong. I don't ever remember a day when so many things seemed so perfect, yet they also all looked identical. We know the minute we start waving to the crowd to celebrate our great calls, we are headed for trouble.
I entered the Euro initially reasoning that it had been weaker than the indexes. What bothered me about the trade in all honesty was that it took an overnight dip in the ES to move the Euro down low enough to hit my sell orders. The minute of course the ES bounced, so did the EURO. I did not initially take a trade in the ES. It bounced so far my gut told me it was a trap at the low. However, when we drifted back down to where the entry was, I decided to take the trade with 1/3 of the normal size I trade. Something inside was just telling me this was a bad trade, but I wanted to have at least something on in case it rolled over. While all of this was happening I was watching RB fly higher, which seemed odd because it had been by far the weakest market of all the correlated ones coming into Monday. Also, I had been trying to short the Canucker as well, and that market which had been very weak had not triggered it's sell entry. At that point we now had RB and the Canadian dollar, the two weakest markets, except Natural Gas, holding up very well. This was a sign of trouble to me.
Once I saw all of this, I decided to keep the ES and EURO trades on a very short leash. Any sign of strength and POOF I was going to be gone. Sure enough that strength developed and I was gone. Net net, I kept my overall loss to just slightly over 1%. It has not kept down the embarrassment of being this wrong, but as I have said, that is what goes with the territory if you are honest. Sometimes you are just wrong, I admit it, get out, and live to fight another day.
The one thing you must always do is preserve capital in this business. What I have noticed with my own trades and I am sure it rings true for many of you. The good ones just go immediately in my favor and do not look back. I have shown several such trades in here recently. I do not mind missing a trade occasionally by using the caddyshack logic above, if it winds up ultimately going in my original direction. At times this happens. What I never will allow to happen, is a huge draw down by being too stubborn about a stance on something. Keep in mind that I have been of the view that GOLD is a huge bubble, and I have been dead wrong about that up to this point. Yet, I have made money trading Gold on the long side. Do not get too stuck in your views on things. This is a business for thinking, so think on your feet.
Readers may also say, "well what a hypocrite, he says to honor stops and not to watch markets intraday, then goes into this long story about how he did exactly the opposite." This would be a valid point. My response is the following rule of trading.
FOLLOW THE RULES WITHOUT QUESTION BUT KNOW WHEN TO BREAK THE RULES
Obviously knowing when the break the rules is the $64,000 question isn't it? This is really not so hard in my view. There are times when I have an incredible comfort in the trades I am looking at and the ones I am in. There are other times like yesterday, when I am completely uncomfortable with them. The trick here is understanding what is causing the lack of comfort. If it is just raw fear of losing money, that would not be a reason to break the rules. If it is just a lack of confidence due to some current or prior period of bad results, that is also not a reason to break them. The reason has to be a market driven reason. In the above logic I discussed, all of that was completely based on price action which was defying what should have been happening for me to have been right. There was not lack of confidence, or fear. I have been in a huge positive equity run, so there was no baggage there either. Those actions were strictly driven out of observing what was happening and deciding it was not consistent with what should have been happening.
I have to admit much of this comes with experience and perhaps I should not put things like this in here. However, the purpose of this blog is to have essentially an interactive inner monologue. I discuss what I do and why I do it for better or worse. I also want people to understand that trading is not a linear business. There is not just a perfectly straight line you can follow to be guaranteed of riches. It is a thinking man's ( woman's ) endeavor. If you choose a black box approach these types of decisions should not be part of the equation, you should just take the trades as they get spit out over and over. I have chosen the discretionary route, so I take the good with the bad.
I do have one last market that I have orders in for a short today, the Canadian Dollar. This market is lagging again, and if by some chance we were to have some type of equity retracement, this market is one of those that should lead to the down side. I doubt the trade will fill today but you just never know.
That is it for today, time for me to get eat my crow. We are on the verge here of no mas short sales. If we move up and out of here for a few more days, the long side is the only game in town for awhile.