Connors’ Weekly Battle Plan
My Grandmother Told Me
To “GUN HER DOWN!!!”
Well, another season of my daughter’s softball is behind us and we finished the
season in second place. This is the first time I haven’t finished in first place
as a coach or assistant coach, so that doesn’t make me happy. But I am happy the
girls played well, and more importantly, I didn’t kill any parents. As I’ve
mentioned before, many of the parents in the league place winning ahead of God,
Country and staying out of jail, and over the past 2 1/2 months I’ve gotten a
chance to personally witness this phenomenon.
Highlights for the season? Many. But a few come to mind. For example, one of the
parents who met me for the first time early in the season spent 45 minutes
telling me everything about his daughter’s softball career (and more). This
included him becoming misty eyed as he discussed the fact that his daughter was
now mentally tough enough to play at full strength when it was “that time of the
month” (trust me, I’m not remotely talented enough to make this stuff up).
Another parent went a bit ballistic after a game because I moved his daughter
HIGHER in the batting order (he felt she couldn’t handle that much
pressure…I’m still trying to figure that one out). And of course, how could I
forget the grandmother story? That’s right, I had a grandmother calling plays
for me. How so? It was the fourth game of the season and we were winning 8-5 in
the bottom of the last inning. The other team had runners on 1st and 3rd. As
expected, the runner on first attempted to steal second base. The rule in this
situation is that there
should not be a throw made by the catcher. You let the runner have the base and
focus on getting the last out. Instead, my catcher throws a bullet to second
which proceeds to sail into center field, scoring a run and putting the other
runner on third. I call time out and march out to the mound staring down my
catcher as she approaches the pitcher’s circle. I look at her and say “what are
you thinking?” Her response: “My Grandmother told me to ‘GUN HER DOWN’“!
There are very few times in my life when I’m speechless, but this was one of
those times. Plus, as I looked at the grandmother, she’s staring me down
as if I’m to blame! Thankfully, we won the game (and afterward the grandfather
apologized for his wife’s behavior, promising me her play-calling career was
permanently over) but when you coach in this league, you can expect anything and
everything, and that’s certainly what this season brought…anything and
everything.
Now we get two weeks off to attend clinics and then registration for Spring ball
begins (Fall Ball is kiddy-land compared to Spring Ball!). Because when you live
in Southern California, there is no time off, otherwise your kids will get
steamrolled. And even the coaches get steamrolled too… especially by 70-year
old grandmothers, screaming at their granddaughters to “GUN HER DOWN!”
The Market
About a month ago I mentioned the fact that it was very tough to make money in
markets that have no trend and whose volatility is low. Well that’s what we have
again today, a trendless market with little volatility. How do we measure this?
Two ways. The first is with ADX. Currently, the 10-period ADX is again under
25.
As I’ve mentioned before, this only happens a few times a year. And when it
happens, it means there is no trend. And if there is no trend, any
momentum-based methodology, breakout methodology or trend-following methodology
you use, will likely show minimal results. You may catch a few good moves
(Wednesday November 12 is a good example) but they will be followed by days like
Thursday and Friday…little to no follow through. And, you can measure the lack
of volatility by simply looking at the VIX. Over the past five years the average
weekly reading for the VIX has been in the 25% range. It’s in the teens now.
Both combined tells us two things: 1) The trends are next to non-existent and 2)
The volatility on a daily and weekly basis is too low to really take advantage
of any moves, as most moves are within a small range.
Solutions
There are a few solutions. You need to be taking profits quicker. Until the
stock market’s 10-period ADX rises again above 25 (30 is even better) you can
expect moves to come in 1-2 day clusters instead of multiple day/week clusters.
The second thing you can do is increase position size. Be very careful here and
understand what you are doing. But, positions at 17% volatility lead to moves
that are far smaller than when volatility is at 30%. Last summer I wrote about
the importance of paring down your position size as volatility (as measured by
the VIX) was rising above 35% (and on its way to 50%). If you use pivot points
or swing points as your stops then you will have large exposure when volatility
is high. You need to lessen your position size to adjust for this. On the
opposite end of the spectrum, when volatility decreases, as it has over the past
few months, your stops will likely be much tighter and your potential for large
gains is likely smaller. And that’s when some professional traders start taking
position sizes a bit bigger in order to offset the lower volatility.
Again, just make sure you understand what you’re doing here. And also understand
that you will need to adjust your size back to normal, when volatility adjusts
itself to normal. And for the past 5 years, normal has been about 25%.
The Mental Side
A few weeks ago I got a chance to spend some one-on-one time with a gentleman
who played Major League Baseball for 12 seasons (you would know his name if I
mentioned it). This man was certainly not blessed with the genetics to do what
he did. He’s fairly small and if you saw him on the street you would never
believe he was a three time All-Star player. The reason he made it to the major
leagues and succeeded there is the same reason people succeed in anything in
life (including trading). In his words, he “willed it.”
This gentleman told me he was obsessed to become a
major leaguer. How obsessed? So obsessed that in high school he decided not have
any friends or girlfriends. Why? They would interfere with his goal. Now you
could say that this attitude is extreme (it is) but remember that it is the
people who take this attitude who make up the few elite who play professional
sports. And the other tens of thousands who try but don’t make it are usually
beaten by the few people who have the mental fortitude to be this extreme. At
the end of the day, talent is important, but the mental drive is more important.
I’ve seen it with guys (like Richard Machowicz) who have become Navy Seals, I’ve
seen it in professional athletes and I’ve seen it in traders. The people who are
willing to pay the price in order to succeed are the ones who make up the few
elite who get there. As Vince Lombardi said, “It all comes down to one thing:
winning…everything else is just an excuse.” The major leaguer I met could have
had a million excuses why he would never play professional ball and certainly a
million excuses why he would never be an All Star or be wearing a World Series
ring. But he ignored the excuses and reached the target he set for himself.
Thousands of others set the same goals as he did and they failed. In most cases
it wasn’t physical. It was mental. As in sports, as in trading, as in life.
Have a great week trading (and look out for those 70-year old grandmothers
screaming “GUN HER DOWN” from the stands)!
Larry Connors