Monday, May 14, 2012


One of my favorite lines out of the movie Passenger 57

This will be the most humbling post I have ever done, but I hope people can learn something from the single biggest mistake I have ever made. I have been a decent trader for a while but I always am looking to improve, ALWAYS. You can't sit on your hands in anything that you do any more. Complacency breeds bad future results. I have had two mentors in my trading career, and I decided to sign up for a trading service from one of them thinking I might be able to fill a couple of holes I have in my techniques. Little did I know at the time that this would be the most costly mistake I ever made in my life. The lesson to be learned and hence the title of today's post, is bet on yourself not someone else.

I did mention that I had signed up for a trading service, and the results were very poor. What I was hoping to do was to learn through watching some trades for a few months, how one of my mentors was using one indicator that I at times struggle with. The trades started off poorly but I was still willing to stay with the trades for a while, but they just kept getting worse and worse. I mentioned the other day that you always have to have an uncle point in something and I was just not quite sure where mine was going to be. Once the trades started to overpower mine and lose more than I was making on mine, I was really struggling with my gut telling me to run for the hills, and my analytical side telling me to stay calm it will turn around.

I finally decided to bounce this whole thing off my wife the other day who knows nothing at all about trading, zero. Her response was, "you just went to Chicago and won an award for being one of the best traders in the world, why do you need someone else?" This was a question I could not answer. It did make me realize that I needed to get clear from this mess as quickly as I could, and get back to my own game again. The losses were having a very negative effect on my psyche because even though they were not my trades, they were from one of my teachers, and made me question what I was doing since I use the same tools. Even using some of the same tools, I have never had a streak anywhere near as bad as what he has had. I do not know what went wrong, but I bailed out finally and reset my head. Those trades did cost me quite a bit of money, and I am still in disbelief at how bad they were. I am fairly sure for those that stay with it if they have deep enough pockets, ultimately he will claw back. For me, I just can't stand the thought of losing money by anyone else's decisions other than my own.

I know I can trade profitably, I have for quite some time, and I am now relieved that terrible episode is over.

The reason I wanted to confess this is that I don't think if you are reading you should place blind faith in anyone when it comes to trading. Take your time, develop your approach and stick with it. Modify it as you go along if need be. After this terrible experience I have decided not to offer my Bond Trading System no matter how well it does, as a subscription service. If I ever came anywhere near doing the damage to people who trusted me that I just had done to me I could never forgive myself, and I won't allow it to even be a possibility. I will continue to show the trades live and readers can do what they will about it. This also does not mean you should not go to seminars. The challenge for anyone who excels at something is to teach someone else to do it as well. You need to take the material and make it your own.

I still have a lot of respect for this person, he is a better trader than I will ever be, he has just hit a rough period. Unfortunately it was very costly and untimely for subscribers.

As to the markets, lets look at a couple here.

Here is a chart that is now becoming very interesting. There are the largest group of trapped weak hands in this market that there has ever been in history. I have talked about this for quite some time in here, and we are now approaching the game changing price level. If the low marked on the chart to the left gets taken out on a closing basis, we will have the confirmation I have been talking about that the wipeout is on. We see Europe's troubles spilling over to the US markets, but my question is are they really Europe's troubles? There was a story in the paper here in San Diego the other day about the days deficit now up to $16 Billion, the solution? Tax hikes. The threat is that if the tax hikes are not approved by voters more cuts to schools have to happen. I say shut the damn schools. Why the hell is it that every time we are confronted with out of control spending we are threatened by things like this.

There comes a time in life where it becomes the right decision to stop being nice when the bully just won't respond to pleasant gestures. These jerkoffs will bring us all down to protect their entitlements, so we need to bring them down now. They refuse to cut anything, it is just absolutely beyond belief. If I were reading about this in a book I would not believe it could ever happen in the real world, yet it is happening. I remember as a teen ager I was playing golf with a friend of mine and a couple of big guys stepped on the tee right in front of us on the 6th hole and cut in front of us. At first I asked them if they would mind just waiting for us and playing behind us. The one guy made a snide remark. I then tool my driver that was in my hand, grabbed it like a baseball bat and went after him. He thought I was nuts and backed off and they drove off in their cart. Once we got to the 9th hole I went in to the pro shop and told them about what happened, they went and threw these two guys off the course. This was a private country club, not just some Muni course, so I was surprised I did not know them. It turned out the one guy I went after was a fairly well known guy. He was one of the starting linebackers for the Detroit Lions at the time.

The point is, I was nice first, then it was time not to be. Who knows he most likely would have kicked my ass since at that point I was thirteen years old, but my action had the desired effect even though it was not really thought through. I was a hockey player and a wrestler, I was not one to put up with much I did not like, and I was good a doing something about it. We all can do something about this right now, vote these psychos out of office.

The solution to our world financial crisis was to put all your money in Gold. That advice is still out there every time you turn around. The unfortunate aspect of this trade is that you always get weaker hands in as a trend goes on. People wait until something has gone up enough that it is "safe" to wade in. What inevitably happens is that once the price retreat begins, the late comers find themselves upside down by a good bit very quickly. Then comes the uncle point like what I described above with that trading service, where you just have to get out and protect what you have left. When we reach that point in Gold, which I think will be under that low, you could see a meltdown like nothing you have ever seen. This whole trade is a false premise, and once the BS stories get exposed, a vacuum normally follows. At some point someone of prominence will get a spot on a news show and show the charts that prove that Gold is not a reliable safe haven during a crisis, it has been a 50/50 bet in that regard.

In our world of bubbles, this one has been created by the powers that be, and it is about to pop. It is no different from any other bubble other than it has inflated further and longer than most. What is incredible shocking to me is how many people have bought into this BS story without so much as at least checking it out to see if there is an merit to it.

Are Bonds a bubble?

It could certainly be argued that Bonds are also a bubble. I did hear talk the other day of Bond Auctions with negative rates. It is hard to imagine being in a spot where you would tie up your money for years in something that guarantees you would lose money, but you did it to protect against losing more. Unfortunately as things are unraveling again here ( they never stopped unraveling other than the BS from the government ) people are beginning to see that there is no way out of this mess without pain.

The one thing that makes me unsure if this is a bubble is that this market is doing what it should do fundamentally in times of strife. It has been a consistent relationship unlike that of Gold, for Bonds to rally during economic crisis periods. It is fundamentally consistent whereas the Gold move is not. This is how I spot manipulations, are they inconsistent with fundamentals. Governments lower rates during crisis periods to stimulate, right or wrong. I suppose you could argue that this is a manipulation by governments, and perhaps it is. However, be that as it may, the relationship is consistent over time. Crisis periods, low rates. As a result, this is more a fundamentally driven move than a manipulation. Certainly from a pure appreciation stand point it has expanded a tremendous amount in percentage terms. Commodities are different, they tend to move up and down in cycles and look like and EKG. They rise or fall sharply, then revert to the mean sharply. Interest rates are a bit different than that.

I don't think we will see a big selloff in Bonds until the world economy improves legitimately. I am not talking about Barry's peeps manually changing the numbers to create the BS we see reported. I am talking about a real improvement.

For now it is must see TV in Gold to see if it holds down here. Life could still be ok for the Bugs if these levels hold. If they don't they are going to be like Benny Hill at the end of one his episodes running from the crowd.

The Bond trade from Friday was exited on last nights opening for 12/32's profit.

Good Trading


Anonymous said...

Great post Chris. Your wife is one smart lady.
I am not so sure you should cancel the Bond System subscription service if the real time results prove it is viable. It is up to each of us as traders to set our own Stop Losses with dollars lost and number of consecutive losing trades
(mine is 4; then I stop for a bit) and total number of ticks lost.
Feeling bad about a huge drawdown makes you honest and human. But it is we as traders who are ultimately responsible for how we trade. I think you should reconsider.
Don in Virginia

Squire said...

Chris, you did a poor job explaining the $16 billion deficit. I live in the SF Bay Area. First of all, you didn’t say it was the California State deficit. The real story is that only a few months ago they were saying the deficit would be $9 billion. They overestimated the revenue by $5 billion and spent more than they said they would by $2 billion. Pathetic.

In San Mateo County every other year the same proposition by the community college district is put on the ballot for a massive amount of bonds to be floated to cover the three Junior colleges facilities upgrades and buy personal computers. Yes, personal computers financed with 30 year bonds. The district has so much money from the idiot residents always voting yes on this same proposition that the district can’t find enough things to spend the money on. They can’t do any more upgrades so they do things like build a free gym for the faculty so they don’t have to pay for gym dues at commercial gyms in the community private sector. They tear down perfectly safe and suitable buildings and put up new ones with modern style architecture.

Most of new revenue in California goes to the public employees, especially their pensions. And I thank all of Chris’s readers who are out of state for all the Federal money that you contribute that goes to California. Especially the high speed rail project between Bakersfield and Fresno (110 miles) which is serviced already by slow train, very inexpensive bus service, state route 99 which has a 70 mph speed limit, and airplane service. Thank you, Thank you. And I thank you for the Chinese companies who will provide the rails, train cars and locomotives.

P J Whiteley said...

The biggest benefit your blog has been to me is the the trader's angst never ends. I have been trading for 3 years, and though I have learned a lot, a whole lot, I am still not where I want tobe. My family wonders why I never get very discouraged. I guess it is because I am constantly gaining new insights into the technicals, and how to better use my charts.

Chris Johnston said...

You are right I did not go into detail on the deficit, but that was not the point. The point is it keeps growing because of spending and entitlements and other insider deals, the exact particulars are not relevant to me. It is a play out of the government playbook. The whole thing is disgusting to me and I don't want to know all the things that are going on. The same thing goes on with the community college district down here, but they seem to be tighter with the money. Maybe it is because it has all gone to union pensions, that is probably the case.

Don on the service, I doubt I will change my mind on this. After seeing one of the greatest traders of all time just completely implode, I never want to risk having that happen to any potential subs of mine. I am not going to risk spending my money in a court room, life is too short. I doubt very seriously that I will go into anything now via a web site or anything like that.

Alain said...

Your wife is 100% right.

Last month' I was negative. Most of my loosing trades were trades out of my usual specifications: I took them hence I 'thought' price will do x or y. My wife had neither understanding for it - nor myself in retrospect.

This service you referred to is under anything that came across to me ever. Lucky, the ones that were not accepted to participate!

Every beginner 'd have done a better job. The chances are always 50/50 at least. If one lost 95% of trades he 'll be on the lower end of probability.


Chris Johnston said...

we also create our own angst which is what I did to myself. I guess I was being greedy trying to make more than I was making if I get right down to it.