An Interesting Question
Last night around 9 PM I
sat down in front of my computer, checked some quotes and wondered
what the heck I was going to write about. The afternoon session had been
somewhat quiet ahead of this morning’s employment number, and with the exception
on a solid set-up I will share later in the column, the day was somewhat
uneventful. The S&P pit was, as Mr. Lichtenstein likes to say, “thin, choppy
and local”, the three words that always put me on the sidelines to preserve
capital. It is a phrase I hear more and more often.
Then I remembered that there were a couple of new
columnists on TM and I figured I would check
in to see what they had to say. I took a look at what Rick Burgess had to say.
His column focused on something that all traders know, but perhaps as he said,
“need to be reminded of”:
“The turn for me came when a wise old trader took me aside and gave me a
bit of advice. He told me not to let anything get in the way of practicing
extreme discipline. This was news to me. I thought of myself as a gladiator
going into daily battles with other traders, letting my raw emotions lead the
way. Well, I’m here to say that after an expensive learning curve, and a few
humbling experiences, I took the trader’s advice and slowly turned it around.”
Don’t kid yourself into thinking that on slow
days there are others out there uncovering immensely profitable trades. Sure,
there will always be a particular style or focus that may edge out out another
day to day, but the fact remains, the current market environment does not bestow
riches upon those that have itchy fingers.
I’ll be the first to admit, there are times when
it is downright boring, it is almost exhausting to sit and watch the tape. The
key is to keep one eye on the tape, yet feel comfortable enough to know that it
is OK to put your feet up. Guys like Rick Burgess who trade in a pit have the
unique situation where they can visually and audibly know whether or not
anything is going on. Are the ‘houses’ active or are their phones down?
As a screen-based trader that luxury is not
there, making self-control that much more difficult. Add to that the ability
for one to visit chat rooms, bulletin boards etc and suddenly you are digging
yourself a hole. I listen to an audio feed from the S&P pit to gain an
important edge in my timing, but it is also just as important as a reinforcement
to step away.
So, with capital preservation and extreme
selectiveness in mind, I trade much less frequently in the current market
environment, but I still maintain a sharpshooter mentality. No edge, no trade.
I had a gentleman in my
Trading Room ask me if I adjust my position size on a per trade
basis based on my conviction on the trade. Interesting question. My answer:
The trade is either a great set-up that warrants my usual share size or nothing
at all. The whole idea of telling yourself, “Well it is not the best set-up I
have ever seen, so I will only do a couple hundred shares.” is absurd, it either
meets the criteria or it does not. Period.
Here is a trade from yesterday morning that met
my criteria:
The real heads up on the entry was a sudden spike
in JP Morgan (JPM), while not a money center
bank like Citigroup (C), it did seem to put
a bid under most of the major trading stocks I was watching. Stocks like
Home Depot (HD) also had an impressive move
during this same exact time frame. The heads up on the exit was attributed to
tape reading, the rest based purely on the chart. However, when the S&P’s were
grinding higher and C could not take out the
highs and big offers being refreshed, you know a seller showed up at the post.
Accept it and move on.
When all was said and done, the exit prices were
47.33 and 47.27. Not a tremendous killing but a solid set-up with zero drawdown.
Sharp-shooting at its very best.
The Forex
market was also quiet yesterday. Many traders are still wary on more BoJ
(Bank of Japan) intervention. The FX market too is also awaiting the employment
number for this morning. For now (9:30 PM PST on 10/2) I maintain a long in the
AUD and NZD with a variety of smaller
positions open for short-term opportunities.
Enjoy the weekend, and keep the FX questions
coming. I received some great emails yesterday and am happy to share my
thoughts and insights.
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