Anchoring In Sell-Offs

Comments made yesterday were about traders trying to figure out what the
day "was like." Was it more like 1987? Or 1997?

The media was focus on 9/11 aftermath.

Unfortunately, the market is not anchored in the same way.

Recently, sharp sell-offs have not had much follow-through on the next
day, i.e., no string of crashes. I think the algoritmic trading and risk
management have eliminated this lagged effect. In other words, instead of
committees convening after crashes to decide whether to sell, the machines
have already done so.

For example, on 7/19/02, there was a massive sell-off, S&P down 3.8%. In
the next two days, the market went down another 8% until it bottomed.

I think the markets are acting more like 1/25/07. We had a massive
reversal day that caught everyone, and yet the market only manage to sell
off 4 more points in the next two days.

The way sentiment works is that the latest patterns always supercede the
older ones. The ARBITRAGE is that traders are always anchored to the OLDER
patterns!

SELF ANALYSIS

PROBLEM: I SUCK AT FAST MARKETS
I am an INTJ. I am a thinker and planner. I base my decisions on my internal models, not on sensory input, or from the opinions or feelings of others. As such, I have historically performed poorly in FAST MARKETS. My temptation is to day-trade and wing it.

SOLUTION: KEEP YOUR MONEY DON'T TRY TO MAKE MONEY
Trying to make money in that kind of market is like trying to surf during a hurricane. Let others do it, you just need to get warm and dry.

USE HTML TOOLS. Don't look at all the blinking lights. They cause more stress.

SHUT OFF SYSTEMS. Take a time out. Relax. Meditate. Draw on a piece of paper. Have stops in place. Have game plans ready. The stress won't give you better results.

TRADE ONLY WHEN YOU HAVE AN EDGE. Don't feel pressured to be right all the time.

LEARN TO WALK AWAY. Sometimes the best strategy for making money is not losing money.

THE MELTDOWN

The "Slow Motion Crash" suddenly picked up speed.

Yeah, yeah, yeah. I'm right. I've been calling for it. I'm brilliant.
So why did I lose money?

Because I tried to make money!

Overnight, I saw it imploding. But (Mistake 1)I pulled my 1440 stop. That simple.

So when I saw it at 1435 at the open, I thought, well this is support. Let's just hang out. It popped to 1438, and I thought, well it'll get back to 1446 eventually.

Then it broke 1433, and I thought better of it and shorted 1 at 1434.

So far so good.

Then it popped down to 1428. (Mistake 2)I decided it was time to bounce. So instead of having a stop at 1430, and being done with the matter. I sold one more 1430 put!!!

This was to cost me dearly, as the market began to crumble to the NEXT logical support level of 1422. Now, here is the most deadly looking market this year, and I'm supposed to be bearish, but I getting LONGER! Wha?

Its ugly alright.

By then it drops to 1418, and I think let's just kick some butt, and Mistake 3 I not only cover my short from 1434, but go long one at 1418. PURE TILT!

Things then get real ugly, real fast.

I see the error of my ways. I manage somehow to sell out my one long at 1412.

Now that I am in full survival mode, the whole market is as well. That's when ICE AGE2: THE MELTDOWN happens in the Dow goes down 200 points in 2 minutes. By that time I'm totally fried, but I manage to unwind one of my puts at the horrific level of 46! I sold at 16 earlier in the day!

As the market bounced, I sold out the rest of my 2 at 1412 and 1403. The market closed at 1395.25. Some consolation.

Slow Motion Crash

Who ever said that the market was supposed to obey your wishes?
I shorted calls three days ago, and the market continued to frustrate me by licking at new highs. I was even tempted to hedge, completely spilling away a nice chunk of profit. And finally, on Friday it gives up the ghost.

The lows of 1452 were broken. However, the pattern has been for this to be support. The longer it hangs out here, the worse it is for the market.

We are in a string of S2s, and that is undeniably BEARISH.

I will hold my position for several days until we get another two S2s, or we get to 1447. If the market pops up by the close. I will keep my stops above the market highs of 1464.

If I had day-traded all this business perfectly, I may have made more money. Catching every S2 dip. But I am trading options, and this requires more patience, and a different mindset. I need to think about this more carefully.

Take the Pain!

There is a great scene in Platoon where the Tom Berenger character tells a screaming soldier who's been hit to shut up and "take the pain."

This market is a big pain. We hit a new high this morning, and it did not lead to any follow through. Instead, it re-tested the lows. On no volume, no real news. The market feels funny to me.

The fear is that we'll get another big sell-off. The lows of 1453 need to be watched today. If it cracks we could be down to 1447 in a heartbeat.

I will try to dump my hedge around 1457.

My problem has been a lack of vigilance. I have been sick. I have not really concentrated on the market.

I also keep out-thinking myself. My original trade was a good one, but I have been unable to "take the pain."

New Highs, Blue Skies

We broke the highs overnight of 1462.75.
We keep going higher. We still have 1 hour to go.
The recent pattern is saying that we're not likely to close at the lows, but at the highs. And who knows how high that will be.

So I bought 1 em to hedge at 1463. Blehhck ;-(

Tues, Feb 20, 2007

S2 was the call.
It sold off sharply right at the open. Too bad you can't trade options overnight.
I need to get more confident in trading the futures again.
Instead, I waited for the bounce intra-day and sold my calls.
The 1470 Feb calls.

We recently have had several days of S2, so that is why I want some downside protection.

The activity has been falling oil prices. I will have stops above 1470 for protection, or if the sentiment suggests it.



I think the goal is to unwind the calls on the next downleg. That has been the pattern of late.

Ben the Dove

Ben released his statement. Easy on inflation. Market is on a tear, and I am toast.

Mistake. Trading above highs is not a feature of S4 sell-offs. Should've had stops at 1454.

OK. Got out. I had a hard stop at 1458, but got out at 1457. IDIOT! A tighter stop would've saved you a lot of money. You also thought that Ben would be BULLISH for the market.

I hate hedging!

PNL: -7 hedge, +2 puts

Feb. 14, 2007 Happy Valentine's Day!

The market is showing annoying strength. Not a surprise. Guy's just trying to jam the 1450 strike ahead of expiration.

Call is S4. Recently this had lead to sell-offs. S1 regime is not good for S4 break-outs. So I am hedging my 1430 puts.

Quote from Stevie Cohen?

In his Hedge Fund Masters book, Dr. Ari Kiev has a number of supposed
real dialogues from real traders. Of course, he uses pseudonyms. But this
quote sounds like its from Steve Cohen himself way back in the early days
when he went from $20mm in 1992 to his current $12bn.

"The absolute number is high (his profit goal). At the end of the day, if
I have accumulated thirty to fifty million dollars, by the time I am
forty, I can be running a billion-dollar fund. If I have a 40% year, I
will become wealthy beyond my wildest dreams. It pays not to get too
obsessive about the specific amounts each year...

Next year will be a better year...If I can keep looking forward, I can
keep pushing through. It is high performance. It is not a straight line.
You have the joys of winning. You also have the emotional downside. This
is what it takes to compete at this level."

Feb. 13, 2007

Alcoa takeover bid caused the market to look unusually strong this morning. I had a target to short at least 5 pts above lows, i.e. 1440. But thank G-D, I didn't!

Instead, I shorted 1442, figuring in this market a retracement was likely. Also, we had a signal 2, so a some sort of re-test was the call. The market quickly ran up to 1445. I knew I was toast. The news was a take-out bid for Alcoa. Big stuff.

So when it re-tested 1442, I pulled up my bid from 1440, and covered it at 1442.25 for a 1 tick loss. My 1430 puts were showing a nice profit, and my bad trade was simply a distraction.

The market then went to print a high of 1447!

My expectation is that we'll return to the S1 regime sure enough, and that I'll be able to bleed the puts a bit more. My target is 1450.

We'll see!