Doug's log

It appears some of us are interested in the business of trading, hopefully for both fun and profit.
Here's a place to talk about that. I suggest two main categories. How to trade (timeless), and what are you trading now, and why, and how it turned out. Those tend to be missing from the pro boards, so pundits can have selective memory....but that's not all that is important. Being wrong is part of the game, and how to handle it and make money anyway is crucial, for just one example.
Forum rules
The usual. Be nice, be informative, tell it like it is.

Re: Doug's log

Postby Doug Coulter » Wed Jun 15, 2011 12:29 pm

Wow, what times we live in. I closed my huge BAC short today at 10.45, having taken it at about 11.40 so not bad for under 10 trading days, not bad at all, I wish all my trades made a percent a day. Looks like I closed the BTE short too soon, or should have re-opened it on yesterdays bounce, in woulda-coulda-shoulda land...Closed some but not all of FAZ on a pop, also very profitable, and as a result, other than some pretty tiny holdings for "watch this real close" purposes I'm out again. I don't know how much more this downturn has to go - how long its legs are, but I'm content to miss a little of it if that means reducing risk of another reflex or dead cat bounce that gets legs of its own. Better to hurry up and wait some more as I see things develop. For me, that's the hardest part of this game, actually. But the better I get at waiting, the better I do. If I see another reflex bounce that doesn't look realistic -- I'll use it as a chance to put on more shorts. If it does, I'll wait till it lasts more than one day to go long again on *anything*. It really looks kind of dire to me right now, but not enough so to make another big bet on that yet.

I really don't see any huge reason why things should get better at the main street level anytime soon. Oil's off the peaks for now, and might take a real dip if the Middle East sorts itself out for awhile (which is all it ever does it seems -- OK for awhile, then back to bad). But the long term picture there hasn't really changed, for either the ME or oil. I think, to my sorrow, that to the extent the Arab revolutions succeed, it's going to be a case of "here comes the new boss, worse than the old boss" in a short time, and where they fail the dictators will have learned how to make them fail better...so I don't see as much hope as (I'm glad) the participants seem to. I do think that the diffusion of western values via the net is going to help long term, but that's real long term. The very thing Al Queada hates -- our "corruption" of them, might make their lives better than now, even though I do view some of it as just plain corruption.

Greece is still a biggie, and it turns out that our "we can't stand regulation, Ben, and if we get more we won't lend, even though we're already not lending" banks have sold plenty of underpriced credit default swaps and are going to be on the hook for that soon enough. AIG all over again. And as goes Greece, so go a few others. And we'll maybe bail them out again.

And then there's our own debt, and even Ben's running scared about that one, I find it amazing the bond vigilantes haven't struck yet. We really are "special", however. It's just that we are less and less special as a "safe haven" these days, and the tipping point has to come if we don't change our ways -- and there's no sign of that one.

I find it amazing how people don't realize that even a democracy turns into a dictatorship via crony capitalism. Exactly how much choice did we have whether to bail out our new dictators, the banks? I missed the vote we had on that one but it will affect us and many future generations more than a mere world war...this one we LOST, and so far, in perpetuity, I see no obvious way out short of pitchforks, tar and feathers -- but here it would look more like Syria -- shots fired on the public if it went there. And unlike the Arabs, who run hot in a world of all black and white, our sheeple would just go back to their homes and couches when threatened if someone promised "change". Oh wait, it's already happened.


Now, the market doesn't bother with fundamentals unless forced - it's all a game of emotions, see yesterdays pop because not all the data was as bad as expected -- not good, just not as bad.
And we go up 3 digits on the dow, for a day. For no other reason than the bulls just couldn't wait any more, and nothing more horrible than the already terrible expectations happened -- ADD to the tits. Psychology! Learn it and get rich!
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Doug Coulter » Wed Jul 13, 2011 12:57 pm

I have to apologize for not keeping up with this - it may be futile to try, and now I'm trying to figure out how to do it honestly without misleading anyone. Let me explain.

I'm a cowboy when it comes to this game. Yet, at a deeper level, I'm as conservative as it gets - this trading stake I'm working with is my main shot at putting food on my table regularly, funding the fusion efforts -- it's not something I will put at risk in a "swing for the fences" at all. Yet, in very uncertain times, it makes sense to make some fairly wacky bets. It's not required that they all make money - it's all learning, and no one ever wins 100%. You don't need to if you do risk management similar to what the Turtles do, or I do. If you ruthlessly cut losers short, but let winners run (up to a point, beyond a point that's risky too), even a coin flip or a dartboard with random timing makes you *some* money. But you obviously do better if you have a better plan than "random", and some sense of timing. I like to do fairly short term swing trades, with some time outs. One reason is that when I'm out, no worries, no way I can lose money, and I can take a break.
But if you don't play, you can't win, either.

Some would have you just buy something like SPY, and hold it forever. If you're lucky on timing, you can do fairly well doing that. If not, and of course "forever is relative", not so well. And to do well, you really have to "swing for the fences" and be "all in" as the low returns of the "safer" investments require this to even keep you past inflation, and even then, you won't always do that. I'll remind anyone who doesn't already know this that it's possible to lose your shirt if you buy near a top, and need money near a bottom, and that there have been several ten year intervals in the last 15 years where you at best broke even (depending on when you start and end the 10 years) or lost pretty badly. Buy and hold ain't "safe".

So what I do is try a lot of things, but with much smaller amounts of the total stake than most would -- basically, enough so that a win is worth having, a loss can't be so great no matter what, and keep most of the stake either on the sidelines as "dry powder" or just "security blanket". Though it doesn't happen often, let me tell you it can be real sweet to have the price of say, a luxury car or two available when that "pearl of great price" juicy trade setup comes along, and no worries about how to "pull the trigger" on a big trade instantly. Very nice to have that little weapon in the bag of tricks, maybe once or twice a year, an no delay to deal with margin when it's time to Carpe Diem.

The upshot is, I do some fairly dumb trades, and as often as not, rescue them by doing things it's hard to recommend to others in good conscience. If a trade goes against me, but my reasons for getting in still look good - just a little off timing wise, or if it looks like I just called it not too well, I might double or triple down -- always advised against, but sometimes it will get you out either a little green or a lot less red from what would otherwise be a bad loss. Timing this is hard, which is why I sit here all day every day watching - and even then I miss some things just by looking away for a few minutes in this manic robot driven market, and take a loss when a win was possible because I just missed it happening. The time to take a dump can be enough time for a trade to do the same.

This web communication can be fast but -- not fast enough to really track what I'm doing to be as successful as I am (not bad, even if it's me saying it -- I beat Madoff claims, but in real actual profits, regularly).

So, I'm not sure what to report here and what to leave out -- and should I be forward looking and discuss opening trades, or just report on trades gone by, and how I pulled each off? Should I mention the crazy things I try that often lose, if for no other reason than to warn you off from doing this kind of thing? Can I trust you'll take it right as a look into how some nut-case trades successfully despite the odd stupid move, not not follow that path and blame me for it if it doesn't work for you?

Any input from readers would be good, so I do this right if I continue to do it.


For some recent trades, here's what I've been up to.
I shorted the crap out of BAC, if not the satan of finance, one of his close associates. They are exposed to all sorts of bad stuff, and while some claim they are trading lower than their book value, those people are forgetting that FASB is letting big banks "mark to fantasy, and unicorns shitting skittles as they fly over", and BAC is right up there doing it. Their actual value sans government handouts is negative. I made pretty good money doing that, but got out on a small pop. Below some value, stocks just aren't that good a short target it seems, false beliefs like this above just prevent them from finding their true value (zero), or the government will put a, well, put under them if "systemically significant" which is the case here. But from 13-something to 10-something -- on a few thousand shares, well...that one was nice and didn't take too long.

Another short I just closed this AM was FXI (Chinese market index). That's done a fat percent for me as well, but current irrational exhuberance means I got out and will keep it on the radar to do again when it matters. What I really want is a good way to short Chinese commercial real estate, or local banks, but haven't found that yet. TAO looks kind of like what I want if I squint enough, but it's such a small time, illiquid ETF it may not be ideal.

The other trades that have done or are doing well are PM's. I've been picking them up on daily dips when and if, in fairly large amounts for gold and not as much for silver, since that fits my risk profile. Gold in particular rarely moves that fast. These trades are open now, and looking very nice, still single digit profits, but on large amounts of money not bad at all.
Let me show you a gold chart here and see a nice little secret I use for trading it: The dumb moving average, just set up right to reflect how gold tends to move. Note that I do have a core holding of physical that doesn't trade, but that's no way to eat or get rich - long term, gold is a store of value, not a good investment - it's flat in purchasing power over most of history.
So what I'm trading is the fact that it's not a smooth curve, and jumps up when people are fearful, back down when they relax. It just happens that this is fairly easy to catch. Of course, the news can tell you when to be looking, up to a point. But my little system here is worth a look and it's been keeping me in coin nicely for a goodly while.
GLD1Yr50sma.png
Gold chart

Shown is a 1 year daily plot of gold with bollinger bands and a simple 50 day moving average. Note that what the moving average said to me on say, June 14 wasn't quite the same as what it's showing for June 14 now -- the way these are computed some assumptions have to be made about data not yet available, so this is slightly tricky, but with a slow one like 50 days, not so horribly noisy anyway.

Here's your trading system for this, one I can recommend and still sleep ok -- it's understood you do this at your own risk and add your own brains, right? Dirt simple:
Buy when GLD crosses above this moving average, and put a tight (say, 3% or so) stop on it. If you trip out, go use the money for other trades for awhile unless you're sure it was a blip (and that's really on you). Next time it goes below that purple line, and is going up, start picking it up again on the daily dips until you have whatever your risk management system says is "enough". In my case, that might go as high as 25% of my stake as this is fairly low-risk most of the time. But I'll dribble in over a few days as the trend is confirmed. If it's come from a long way below the MA line, you've probably already got some pretty decent confirmation. Generally, if GLD has been riding and pushing the top bollinger band up, and then departs down from there, that's when I'll sell -- but you MUST remember that on that day, the bollinger band isn't quite where this pretty plot shows it as having been due to the assumptions in the moving average math. You just have to know that and back-figure a little. A good exercise for that is to save a few plots like this, and look at the right sides then as compared to data from the same date on a plot taken weeks later -- you'll see what I'm talking about and get a feel for it.

This system would have captured (And has! YAY!) most of the quick up moves that are fear premium driven, and gotten you out near all the peaks. Meanwhile, you were out a lot of the time, which has two good effects -- being out means less risk, obviously, unless you think the bank's going to lose your cash. It also insulates you from any risk that, as some suspect, the GLD etf might not be totally on the up and up about actually having that gold free of lien in their hot little hands. If that's discovered to be true, bam, it's toast, and the reason why the sample people who fear that recommend having physical. This could of course be the common thing "talking your book". And while some physical is surely nice, that really ties up your dough which might not be nice if you want it to trade in something going up lots faster at the time.

Today was especially nice, as I'd been getting long GLD and IAU via this system for the past week or so, and just yesterday and the day before, long some SLV and some CEF. Those have generated some rather nice green numbers and at this point we switch to watching close to time the exit...I rarely use pre placed stops, one rogue trade can trip them at what turns out to the the worst time, so I do this manually so I can add my judgment (sometimes faulty) to the picture. I'm right now showing a little under 4% and a little over 5% on gold and silver respectively. CEF is a Canadian gold/silver physical vault, guaranteed by their government and one replacement for having it in your hands that seems pretty safe. It's about half of each in value so is more volatile due to the silver in it. It trades a little different as those who really want something close to having it buried in their yard have a different emotional makeup. In times of really great fear, it goes up quicker than the rest, else it goes up slower, and down quicker when the big fear comes off.

Anyone but an idiot would now put trailing stops under these at what is now breakeven at least -- a 4-5% downturn in any of this means you probably should have gotten out sooner anyway. And at that big a spacing, due to the low volatility of gold anyway, I'd have manually gotten out before hitting this -- a few days of down at normal speeds would normally be what it took to hit that stop and that's plenty of time to sell. But you have to be careful about this, as a momentary spike (even just one robot rogue trade) can set the peak value the trailing stop is figured from too high and make it trip out on what would be a rather small dip if that rogue trade was ignored -- which is why I don't use them too much.

I've been posting lately on Seeking Alpha and ZeroHedge as DCFusor, if you want more of this from me (and other people some of whom are truly smart, some of whom are just nuts but entertaining). I like a few people on Seeking Alpha, among them "the inflation trader", Mat on commodities, and Philip Davis, who I don't agree with politically, but he's a real money maker anyway. ZeroHedge is for gold bugs, gloom and doomers, and cynics, very snarky -- you have to read through that to get to the otherwise super excellent content they provide. I stole this picture from there, showing what's really going on just now - drunk algo robots.
shirtfight_partymachines_robots_t-shirt_large.jpg


Who of course are celebrating because they just did this to the shorts, and it mostly worked (I'm more nimble and got out in time!)
MoneyTrap.jpeg


I wish there were more "easy ones" I could share today, but truth is, my best longer term winners are things I'm largely out of, for cause, and when to get back in is ??? at this point. They seem overpriced and are kinda drooling down to where I'd buy them again, to not-quite-get-there and bounce a little once again. Those would be oil, played via BTE, and copper/gold played through FCX. Both are "conviction buy" under $50 if and when they get there, or some slightly higher price if they don't, but not at today's prices, not hardly. Both had fantastic runups almost since the bottom, and would have been great to just buy March 9, 2009 and sell in April 2011 more or less. I didn't but did make a ton of money on both. They've not corrected in tune with the markets as a whole yet, and when they do, that'll be time to get back in I think. Volatility in high yield bonds is just too high for me right now, and I normally love beta, but bonds are just different animals due to the other owners of them. Safety freaks with long time horizons defines that crowd. Not much gets them going but once they get scared, they panic harder than anyone else does and these things really can tank quicker than you can get rid of them. Low yield bonds are at this point a way to lock in a sure loss in my opinion, so I stay out of those completely. Don't keep up with inflation and have no where to go but down. But that doesn't mean they're going down soon or well enough to go short them either, so I just stay out. I do watch, every day, as if we really do this silly default thing, there will be a lifetime opportunity in shorting these. Won't last long I think, I might not catch it, but it's one of those things to keep on the radar.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Joe Jarski » Wed Jul 13, 2011 6:44 pm

Doug Coulter wrote:So, I'm not sure what to report here and what to leave out -- and should I be forward looking and discuss opening trades, or just report on trades gone by, and how I pulled each off? Should I mention the crazy things I try that often lose, if for no other reason than to warn you off from doing this kind of thing? Can I trust you'll take it right as a look into how some nut-case trades successfully despite the odd stupid move, not not follow that path and blame me for it if it doesn't work for you?

Any input from readers would be good, so I do this right if I continue to do it.


Great post Doug! Here's my 1/50 of buck's worth...

Since I don't know much about trading, I like seeing WHY you're doing things - it helps me learn. Posting everything that you do probably isn't going to have much value because it's not real time, and if it goes wrong it'll be your fault ;) (not to mention the time you spent posting it). Specific examples of why you made (or are making) certain moves are good though. A hindsight analysis of things that didn't work out is good too, even the crazy things. The philosophy behind what you do is good to hear, whether I agree with it all or not. Besides, I have to work on a much smaller scale anyway so I couldn't even trade some of the things that you do, at least without a lot of risk.

You've got a good track record and finally put some things into a perspective that make sense to me. Anyone that's going to get in and do this should understand that you've always got to play with the cards that you're dealt and that's there's no "sure thing". The trick is to know when it's time to raise or time to fold based on the tells.
User avatar
Joe Jarski
 
Posts: 231
Joined: Thu Sep 16, 2010 8:37 pm
Location: SouthEast Michigan

Re: Doug's log

Postby Doug Coulter » Thu Jul 14, 2011 12:05 am

Thanks Joe, I'll take that to heart. I should do more on risk management I think -- but for me it's hard, not because I'm not good at it, but because for me it's intuition, not formula, and it'd be like trying to explain how I play chess and pick the next move. I'm not sure I know myself! But I can say a few things that might make some sense (other than go read the link on another thread here that describes how the Turtles did it -- their way is a formula, and a lot of work).

Firstly, don't swing for the fences much, if ever. Don't risk losing it all, no matter what. You have to finish to win. It's possible for a stop to trip you out WAY below the trip point in a flash crash...One reason I rarely use them. We retail investors don't get the good tools, this is one of the ways the game is "rigged". And a reason I have a goal of writing my own trading software.

Divide your trading stake into chunks. The minimum chunk size that works for me is $3-4k, and I usually use 10-20k because that still gives me a lot of chunks to work with. The reasoning here is that you won't get too deep into something too quick if it's bad, and that even 1% on a minimal chunk at least gives you lunch money after commissions, and 1% is an easy win most of the time with fairly basic skill at this -- and more often than not, in a day or a few. And sometimes you'll get to a couple digit percent in a fairly short time and have much better than lunch money. A lot of small wins add up pretty nicely and a percent a day is huge if you can get it. I do a lot, but lose some and come out usually from 10-30% a year ahead -- but that's a deceptive measure, because for the last couple years, I've rarely had more than 30% of my money in play at all, so I've more or less doubled my money "in play" every year but one I've been doing this (that year I lost 25%, sigh, but we learn).

In general, don't put more than one chunk a day into any one thing, or even any one sector. I break this rule some -- sometimes it's obvious that the time is now, and a quick score always feels good -- if it works out. And don't put more than 4 chunks into any one thing -- spread it around some. Luck favors the prepared, and that includes positioning.

I'm neither a day trader or a buy and holder -- the middle range works best for me most of the time, but I'll do a day trade if the setup looks good enough, and sometimes I just plain call one dead wrong, and there's no point waiting to get back out of a losing trade. If you're long and it's going down fast, get out, wait till it hits whatever bottoms and turns, then get back in if it still seems smart to be in. This idea that you'll miss it is a myth pushed by those who like to manage your money for their profit, and who are afraid that if you get out -- you won't get back in *with them*, and who are too lazy to pay as much attention as I do (or you should). I will be opening or closing a few trades a day most days, but that doesn't mean the same trade is opened and closed the same day. I usually have 10 or 12 on at a time. Some days, there's just nothing to do but watch too -- you're already in and it's zooming, so not very smart to buy higher, or it's down some but maybe not enough to sell just yet and another day is worth risking.

Never buy something still going down, or the instant it turns back up (reverse this for shorts, of course). That's called ""trying to catch a falling knife" and it has similar results. Let it hit the floor, then pick it up if you still want to. Most of these pithy sayings are good guides once you get the context, actually.

Don't obsess over 100 lots of shares. There's no longer a penalty for trading in odd lots, other than seeing strange numbers of shares on your holdings lists. Just do the nearest number to one of your chunks. This game is about percentages, not round lots.

You always want to be whats doing the best now, period. Many don't get this, and once they've got nice green numbers on a trade are inclined to let it ride too long. That's risky. A two percent dip is two percent whether the number stays green or not for it on something long-held that has maybe 4x that in the green -- it's the same 2% that would turn a new trade red, and it's money you've probably lost for good so cut and run. I say that if it's not a typical dip for that thing, in this season, get out, and wait again -- worst case you make less money, but you never lose much money that way. And if something is just "flat" -- your money is safer back in the bank, and better yet in something not flat and going your way. The object is to be a perfect diode/ratchet for bucks, and to catch the fast risetimes as much as possible. So cut losses ruthlessly, as they can and often will get lots worse as you agonize over it, or tell yourself it'll come back. Sure, it might -- but why did you let the money sit in a loser all that time when it could have been doing you some good elsewhere? I just can't get the logic of ever doing that.

Judge the type of market you've got. Is it trending? If so, "the trend is your friend till it bends in the end". If not and you have a "trading range", then buy at the bottoms (after a turn up) and sell near the tops of the range you've identified (some of this should go in another chapter of that book thread). Right now, we're in a particularly dangerous spot for this -- a big uptrend has faltered, and could become a down trend, and this "trading range" could simply be a sign of that just before a large move -- but I for one can't be sure which way that big move is going to be (in the mid term, long term it looks like "down" to me), it depends on too many things that aren't transparent enough right now, information wise. So I'm treating this as though it were a dangerous animal and watching any money at risk very closely.

At any rate, failing to do that simple judgment of trend vs range is the downfall of many experienced investor/traders still. People who learned during a several year bull market lose their butt in a range bound market all the time, their rules didn't work -- you switch rule sets, depending, if you're smart. They thought they were smart because the market made it so. Nope, that was luck. Don't fall for that one, false pride is just false. And dangerous.

I'd love to be long both BTE and FCX just now, or pretty soon, but they're both historically overpriced compared to their underlying fundamentals. So, I wait for a dip to the price I think they can go up from, and sure enough, they look like heading that way. Fine, but what if the major market trend is suddenly hard down and I go long big just when that is about to happen?
I'm pretty unsure whether we'll have another good few month uptrend, things *might* be heading for the crapper for real fairly soon -- or unicorns may fly over dropping skittles out their butts and all this fear about insolvent whole countries might just evaporate (for a few more months). And this is a game of emotions - controlling yours and taking advantage of others. So if I do go long these (at the time I think is right) I'll not go way long, and I'll be watching real close, accepting the fact that I might lose a few percent before I can get out,,,,and if that happens, planning on going real short some other stuff - I never, ever go short what I think is a good firm, it's just too dangerous to do most of the time, and there's no lack of firms that are overpriced losers out there anyway.

Pick a few stocks or ETFs and get expert at how they react to their sectors, the news, market moods and so on. This is the same as getting to know the other guys at the poker table, and this is a reason I don't play some stocks that are "market darlings" because there are too many others at the table -- constantly changing, makes things more difficult to see their tells or even see the composition changing. I mostly don't use the ETFs, as I find it better to play the "best in breed" in a sector, rather than smear out a whole sector, most often. But for some things, it's the only way you can easily do this. GLD may have problems, but most people can't play the futures contracts (takes real money for collateral and the requirements can change daily) for example. (BTW, IAU is essentially the same as GLD, but at 1/10 the price per share) I'm not an options maven, so I can't give much advice on that, but in general would look at them as things to buy for insurance, not a pure play in themselves, and it'd be rare for me to write them (sell them) as that's selling insurance with leverage of 100::1 - you can lose more than you bet, scares the crap outa me in that zero sum game. I do, however, watch them as some smart people play them and they can be a leading indicator for the things I do trade. Always nice to know how the really big money is playing oil, copper, gold, palladium and so on. Those guys can, and do, force the markets to move in their favor, so it's always real smart to know which way that would be in a given market, and how much money is bet by who on what at any given time. Remind me to tell about JP Morgan and who paid high for the strategic oil release oil, so it wouldn't get to market and reduce oil prices, then requested and got an exception to the laws on hoarding and shipping between US ports, so they could hold it off market till they get their price for it...These guys don't go to jail for breaking the laws because they just buy new laws. Be aware of that.

I personally like to play stocks that are related to resources, as the business model is easier to understand -- dig it up, sell it, manage capex and infrastructure. And the players are easier to "read" most of the time, for me anyway. So I play a few miners, a few energy guys, and for exception in exceptional times, the finance guys - sometimes even the leveraged ETFs which I'll have more to say about later on. Sometimes as mentioned above I'll use ETF's as a standin for a whole country or industry, since you can do that "real fast". But I only do that on a news driven panic when the results are clear and predictable, or mostly. I usually don't play tech as I "know too much" and it's very dumb (but all too easy) to fall in love with some good plan they have assuming the market will have to go with them as it's a good plan and you know it. Doesn't work like that. The ticker is the truth, not the underlying reality.

Another pithy saying -- bulls do well, bears do well, pigs get slaughtered. If you're showing "too good to be true" on a trade, get the fsck out of it -- maybe just set a stop so tight it'll happen real soon if nothing else and it's going vertical up for the moment. Because it is too good to be true and will revert every time. While this can conflict a bit with "let winners run", gheesh -- if you've made double digit percent on a trade in a real short time, take it to the bank and pop the champagne corks, for crying out loud. There'll be another time and another chance, and booking profits never got anybody broke -- you have to finish to win.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Doug Coulter » Thu Jul 14, 2011 9:36 am

Another day, another zoom for gold and silver. Nice! While I doubt silver is going back up to the peaks on this leg, it might have room to move higher, and gold is setting a new record on every uptick.

So, the question is -- do we add more exposure to them here, after an already outstanding short term runup, or not? That's what I'm mulling as I write this, haven't decided yet. I have plenty of "dry powder" on the sidelines here for just such things as this, but I am also wondering if this leg has, well, legs, or it's a pop that will drop as soon as some uncertainty (say the debt ceiling) goes away. If I think the latter, I should just put a stop under what I've got, or sell manually at the first significant dip (and hope for no large gaps down after hours), and be happy. I'm not sure what to think at the moment.

With my silver holdings up over 8% in just 3 days -- we are getting into "too good to be true" turf here. If I doubled my exposure, the number would be 4% -- still not a bad cushion, but that much closer to losing territory in something we know is volatile as heck (after all it just changed 8% in 3 days...). In fact, in the time it took to write this paragraph, some selling came in and wiped out much of today's gain (after the gap up, which is intact). Chance to buy cheap, or a warning?

I've not decided whether to go cowboy, or Harvey Milquetoast here. Such is the nature of this game, and this is the sort of decision that makes big differences in results, short and longer term.
And here I sit, frozen in place, perhaps rationalizing I should be doing the "hurry up and wait" till I get a better feel. Guess that's what I'll do this hour anyway, unless this dip keeps dipping, in which case I'm out, and have a nice day, nice little set of very profitable for time-in trades goes bye bye instead of buy-buy. More later, time to be paying attention.

Edit:
Well, right or wrong here's what I did do. I sold all the SLV and IAU in my cash (cowboy) account, and most of the SLV in my IRA. I kept the GLD and CEF in the IRA, which I trade with a slightly different style than the cash account. There I tend to hold longer, for various reasons. It's nice to have two accounts, so I can compare and contrast some slightly different styles, and in general learn more every day.

What I saw here that triggered this was a couple of huge volume red bars in SLV. Whether that's the tinfoil hat theory of JPMC shorting silver and trying to suppress the price (there are a bunch of these floating around) or it's just following the market, I'm not sure I care that much. I'll get some charts up here and show what I saw that meant "run!". I did NOT see the usual manipulation patterns of single huge orders that are normally a dead giveaway -- just a ton of little ones all selling, which could be either, depends on how slick the market movers are today. I sold the gold in my cash account because of a suspicious shape in the on-balance volume - more sedate, but it looks like a lot of people are taking profits and just plain getting out, no so much following the market as a whole (most things tend to do that at least some). I'm now down to "core" positions in PM's once again, but the speculative pop on what I had in has made this month's pay, not bad, and there's still some July left to go.

Of course, now I see them bouncing a little (but not yet up to where I sold on the way down). You never know, this might be a day I pick up one of those day trading flags. On the other hand, there are some tricks you can do to avoid those. For example, there's more than one way to play any of these that are basically the same, but different tickers. So you can use a different one to hop in or out and skip triggering the day trader flag.

In markets this flakey, it's tempting to do what amounts to a "strangle" in stocks -- go long in one account, short in another (or both in the same if you've got two tickers that are more or less the same thing) -- and just wait and close each as the wild swings turn each green. You do this when you know the waves are big, but don't know which way the next one is going to be, and I've pulled this "cowboy stunt" a few times and managed to close both green, just not at the same time as one another...

Edit2:
Here's an interesting screen shot that gives me a chance to educate a little.
Screenshot-14.png
11:30 or so today


On the GLD big plot, notice the OBV indicator and that rounded over top? That's what made me get out of GLD in my speculative account. Prices will almost always reflect this, with whatever lag. Could have just been profit taking, and now people are buying back in (or robots) as you can see on the little trend chart on the left. Still not back up to my sell price though. SLV seems to be acting about the same. What tipped me was those two trend charts having to auto-scale to keep the plot on screen -- the action till about 10:30 was volatile enough -- but then wham, a real off screen drop, and now, some head-fake bumps as either people are now saying "gee, it's on sale, buy" or the usual little manipulations. There are entities with large short positions and also those who don't want us to rush away from their paper money into "real money" and they have agendas. One thing they can do is create a little bounce, sucker in some more buyers, then resume the selling (short or otherwise) -- now they have more shares available to short, which is why they suckered in more buyers so they don' t have to "naked short" - which is against the rules, not that they are enforced on the big boys -- just us. You could also call what you see on the left a "dead cat bounce" and it might have much the same shape, just different reason behind it. Or all this could just be following the market as a whole -- there's always some correlation there, but this looks more like it's leading than following.
Here's the market from Google Finance as I write.
Screenshot-15.png
Google finance market indexes for the last 3 days


Going back to the big GLD plot, notice there's a big spike in green volume just before 7/12? That's what got me into this trade this time, it was a harbinger of things to come, and look at the sudden increase over normal volume in the middle of the day of 7/12 -- confirmation. Moves in "no volume" you can't trust, but you can usually trust ones in above average volume -- when people put their money where their mouth is, it's a sign they mean it. Then today, still above average volume, but mostly red -- people are selling, again, putting their money on it, so they mean it. To learn how to use this indicator, and it's a powerful one (when computed correctly or if you understand how they flubbed it), it's useful to perhaps print out a chart, and using another piece of paper, hide the right part of it so you only see what you'd actually see when deciding to enter a trade -- no fair cheating and looking at the future...if we could somehow make a movie, showing each new time interval data as it appears, it might be real instructive to do.

So, the speculative parts of this trade are done, and at a nice couple K profit in each account. I'm still holding a core position in the IRA for now, as I think the turmoil in the news will continue some more gains on the "fear metals". But I didn't keep all my holdings, as I also feel that there's going to be some wild swings, some down, and there will be better prices to enter the next trade at if I'm on the ball. Cutting my position in the IRA is kind of insurance -- not so big that a wild swing to the downside will freak me out -- I'll just buy more when that turns around. And a nice feeling of safety in the speculative account -- As Steve Miller says "Go on, take the money and run". Sometimes one approach does better than the other, and since I have the luxury of doing both at once, but no knowledge of how that's going to play out this time - I am doing both at once. Learning exercise if nothing else.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Doug Coulter » Thu Jul 14, 2011 10:50 am

One more bit of education here.
Screenshot-16.png
Longer daily gld chart


Notice where the vertical blue cursor is in this -- right at the last top we had a day where the range was big, but the close was the same as the open. Look back a little farther, and it happened at the last top too, though that one happened to have a little more colored body, note which color that was. Now look at today, even though it's only a partial day of data -- time to go, eh? Note that on the longer interval chart the OBV indicator is not looking rounded over -- this is due to an error in calculating it (more on that later) but it does pay to look at all this in a couple different time scales to get perspective.

The chartist types have names for all these candlestick formations, I don't bother with that all that much, I just use the old mark one 'scope trained eyeballs to look for repeating patterns as an edge in trading, it works for me. My feeling is that the tech analysis the chartists do tends to be self fulfilling -- if they see something they think means sell, they sell, which drives the price down, making it, well, time to sell yourself! Has not much to do with underlying reality in some pure sense, but there it is - creating reality from emotions.

Edit:
Ah, as often happens, we get the news a little late. In this case even Faux news got it right (I don't look at them, this just came up in a google business news search).
http://www.foxbusiness.com/markets/2011 ... wait-data/

This is a lesson in emotions. There have been a lot of "true believers" in quantitative easing, and the fed saying the other day that it's not entirely off the table was enough to allow them to stay in denial, so they drove the markets up in anticipation of their confirmation bias. Today, the Bernanke says, well, yeah, we discuss everything, but we have no plans to DO that just now, and back down we go. No tinfoil hat conspiracy theory needed to explain that -- just denial by some fairly hard headed traders and confirmation bias driving some large trades...I'll take this part of Ben's rap at face value, its not the kind of thing he lies or spins about. What he does lie about, or spin if you prefer the politer (but more cynical) wording is why he does QE at all, and it's not for the stated reasons, at all -- it's an ongoing bank bailout, as things are (far) worse than they are spun, and by a fat factor, which is why I've been shorting some banks when it looks good to do it.

That has led to a plethora of commentary about how QE doesn't work, or didn't work. Yeah, the stated goals weren't affected much - but they were never the real goals, on which I can give some deep background later (and already have, just forgot where I did here to link it now). The real short version is the banks borrow money at the discount window at under .25%, then buy treasuries at a few percent yield, which helps both parties -- the banks make money risk free, and the US gets a nice low interest rate on the debt due to the demand driving bond prices up (and interest down). This is a straight ahead case of follow the money -- they're not hiding it too terribly well, so one can do that. As one central banker said recently, "yeah, when times are tough the best thing we can do is lie". Surprised they put it out there (even though it's well known), but there it is.

So those in-denial traders who have been making posts like "QEn to the moon, Alice, he's gotta do it and we're smarter than him" on all the finance boards just got faked out again -- by themselves. And we made money off that by keeping a cool head and doing our best not to let emotions mess us up. This might be the most important lesson I can impart. Curtis Faith writes a good bit about the various cognitive biases people fall prey to in his books, and he's pretty right on about it. Smart guy.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Doug Coulter » Thu Jul 14, 2011 6:55 pm

End of day wrapup. Well, GLD and SLV bounced a little after I got out (mostly) but then closed lower than I sold what I sold for, so I guess I was right. But I'm not sure longer term, which of course is why I didn't sell it all -- just much of it. I fully expect GLD at least to "go to the moon" at some point, but I also expect there will be a big dip in it at some point when something happens to take off the "fear" premium -- which could be either a debt ceiling raise that makes the markets zoom, or something going right over in the eurozone. That will be time to back up the truck, perhaps, but not now, or so I think at the moment.

So, I've made money almost every day for the last bunch of days -- even with the markets going up, down, up, down -- that's the goal, one that's not often fully reached, but this week, yeah...

So many things are waiting out there that could make the market go 3 digits large either way, it's tempting to open a pairs trade of some kind -- both long and short, to be there because lately this has happened between one day's close and the next day's open, or most of the move anyway. Then you'd close one if it was wrong, but hold the other till you got the gain out of it. I'm just pondering that one at the moment. This is one thing options are ideal for, when the trade isn't crowded (which makes buying them expensive). I suspect I'm not the first to think of that, so they are probably overpriced just now. I'll just try to be nimble enough to do it "the old fashioned way" for this one. Might be tough, as the markets are like this:
flail.gif
flail.gif (3.88 KiB) Viewed 6739 times


Though I don't usually play tech at all, one trade has come to mind. NOK and RIMM are both in suck mode, but AAPL and some Android phone makers are not. Might be cool to go long the good guys and short the bad -- comes out even in the case of something slamming the entire business (or boosting it) but wins if the bad get worse OR the good get better. I'll do some due dilligence on that one and see what I come up with.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Doug Coulter » Sun Jul 24, 2011 4:14 pm

Update. Rear view mirror says I should have held those shorts a bit longer...oh well. And maybe not taken profits so soon on the PM's. Well, I got back into the PM's fairly heavy the other day, on the dips, and they are looking either good, or neutral now. With no budget deal, we're about to see some wild swings - no predictions on which way, but I'm sitting on a ton of dry powder and will be there for sure -- this is going to be exciting. I haven't yet been able to get Asian quotes yet, but Monday might find me real happy if they zoom, or shoveling gold into the truck if they drop. This is a fairly high risk trade, of course -- even though gold is usually pretty stable, just now it could be a "high beta bet" with a lot of whipsaw. For those already real long might be best to just not watch for awhile -- longer term, they look great, but short term, I expect at least one real nice buying opportunity (which means if you're long, you might lose money if you panic and sell).

The doom and gloomers at zerohedge are in full swing, of course. One of them linked this, which I found "interesting". It really could go down just like that, too. If you check that link, look at the huge gap down the dollar just got overseas due to no deal in congress to turn on the money printers again.
Yeah, things don't always make perfect sense - you'd think less of them would make bucks more valuable, and in the long term it would. But fear isn't rational, it's just what it is. As is denial.
http://www.youtube.com/watch?v=2N8gJSMoOJc

And it might not even take as long as this guy predicts -- ir it might not go down at all (hard to see how it won't, but the future is the future and I don't have a xtal ball), we'll just have to see. I've not written all I know about how things are out there financially, because some of it I'm having to get from sources I don't fully trust for accuracy, but the derivatives market IS actually at many times world GDP (various sources put it at 10 or 20x, but due to fear of regulation harming the banks, the market is completely "dark" and we only have insiders to tell us what's really going on -- the government doesn't know themselves)....and as a zero sum game, there is frankly NO way the 50% of the holders who are going to lose can pay, ever. As all this paper has expiration dates (which are hard to find out) well....the timing of this train wreck is uncertain to say the least. Of course, all the other train wrecks are still out there getting ready to happen too.

We do know the US has about 550 billion in bonds coming due in August. Those who say we get enough to pay our interest miss that point -- this is principle that needs paid, and with no deal, we can't issue more debt even if buyers are willing to roll them over and buy more -- we are utterly hosed unless we get some magic here. The fed isn't offering to eat their balance sheet. It's not a government organization anyway - it's private....work out the implications of how that happened and what it means to have them in control of the money supply, they're not pretty, unless this private organization finds a way to enrich it's own masters without killing the rest of us. Sure, they'll make at least a half hearted attempt as they need us as servants but...when push comes to shove, you know who they will be looking out for.

So, it's time to trade scared. Small positions that you might want to scale rapidly into and out of, only be in stuff going your way, and jump out like a rabbit at the first sign of slowing, much less waiting for a reversal. Beware of falling knives -- most give a nice head-fake bump before returning to downtrend in half an hour, so don't be suckered into those until you see a real move justified better than usual in the financial press. Those turkeys are famous for noting something going up or down, searching the rest of the news, and saying it was because of that -- they count on short memory of the readers. After awhile, you realize that the next time X happens and the market doesn't move as a result...they were just BSing. They don't know. When they say "investors think" -- well, the fact I've never been asked should say something.

Oh, I did take a small position in microchip (MCHP) after they guided lower and fell like a rock, and scaled in further as it became green. Looks better than a dead cat bounce, and by golly, I use their products myself (so does the world). In fact, there are more microchip CPUs out there than all other brands *combined* in everything from light dimmers on up. I'm not sure who has the most mips out there, that's probably Intel. Pays a not ridiculous dividend as well, and isn't so dependent on US for their income, so maybe I'll be able to keep that one for awhile.


//////////////edit:
Well, sure having fun watching this while waiting for the markets here to open. Go Asia! Gold at 1622.50 as I type this at 6:45 pm Sunday -- straight up. Silver up similar percent, and I bought a ton of each (well, too much to lift easy anyway) last week. Getting prepared to "sell the rip" so as to "buy the dip" I expect soon when some kind of plan for the US is announced. Almost no matter how crappy it really is, so many people have so many reasons to squint enough to make it look good, it will make markets act as though it were good -- for a little while. As I write, dow futures are down ~125 points for monday's open. I am also expecting some weirdness around Tuesday's PM futures expiration dates....going to be one wild week. Didn't bet the farm, sigh -- but you just don't do that if you have brains -- no one can call them all. You have to finish to win.
Last edited by Doug Coulter on Sun Jul 24, 2011 5:50 pm, edited 1 time in total.
Reason: new info
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Doug Coulter » Mon Jul 25, 2011 9:00 am

AM -- well that worked out nice. Back to my "core" PM positions again, with a nice wad of fresh green in the bank. Now we wait a little and "buy the dip" maybe in a day or two, wash, rinse, repeat. Various people think that gold and slv will revert due to futures expiration and the new metals exchange overseas, and I agree they will -- until the next emergency. Stocks down mostly, lots of red on the screens, but I only owned a little MCHP, and not only did that not turn red (quite), it's going up fast. Now we wait a little more in this Kabuki play, and while waiting, look for stocks that will zoom when the debt deal goes down, and maybe buy some - buy low, sell high, sometimes it's hard, sometimes not. This looks more like "taking candy from babies" just now, for a change. Business isn't always like this:
http://www.youtube.com/watch?v=ct2AWh-nKSk&NR=1


More later, probably.
Ah, here's an interview with one of the few people I pay any attention at all to. Jim Rogers is one of the very few who both know, and talk -- and doesn't just talk his book.
http://www.marketwatch.com/video#!16355 ... 92CC3E5B90
http://www.marketwatch.com/video#!0C0AC ... FF74505470

As usual, the financial rags are all now telling you to put on the trades I just took off -- and this is just about how much ahead of them you want to be -- being right too soon is the same as "wrong", and too late -- worse. Gold is making a little bounce, but isn't back up to where it was when I sold it yet, and may not get there today, as usual -- just have to watch. As stated above though, there's a lot of moneyed motivation out there to get a low close on Tuesday, so I might wait a bit (still have that core position anyway).

Sometimes I have to laugh. This very same set of media are the ones who say Joe 6 pack always buys high after most of the runup, then sells low in panic in the inevitable reversion -- but here the "pros" are telling you to do just that! I guess via projection they feel no one could "get it" better than they. Pride will usually get you in the end.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

Re: Doug's log

Postby Doug Coulter » Mon Jul 25, 2011 12:03 pm

Looks like a good day for videos.
http://www.youtube.com/watch?v=cJqM2tFO ... r_embedded


Fed inspector general admitting they have no idea where trillions went....There's another good one with Ron Paul really tearing Bernake a new one -- so well done he can't find a response. I'll see if I can find it again, funny (to some people anyway). With these deliberately (appearing) clueless morons running the show -- and getting away with it, look out below. So I guess they're not going to be able to tell us much about the huge "dark pool" market in CDSs that's really going to crush us either. Todd Harrison used to trade that, and he drops a clue now and then about it.
I expect we'll see further historic measures, including CDS naked short sale bans. That should spike markets before the specter of counter-party contagion arises; in an interwoven highly leveraged world where pockets, holes, twists, corners, and tails of untamed risk lurk, with upwards of a quadrillion dollars of notional derivatives tying them together, the enormity of the economic condition is mind-boggling.


http://www.minyanville.com/businessmark ... 1/id/35929

Did he just say north of a quadrillion? We're fairly good with numbers here on this board....Half of that is going to be lost in the zero sum game these define, but hasn't yet. That kinda makes the rest look tiny, eh?

Sorry to be spending so much time on this compared to the science, but the reality is, if I don't make money there is no science possible, and now is the time for that. When things calm down it's another story. Something about "having a life".
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.
User avatar
Doug Coulter
 
Posts: 3515
Joined: Wed Jul 14, 2010 7:05 pm
Location: Floyd county, VA, USA

PreviousNext

Return to Trading Markets

Who is online

Users browsing this forum: No registered users and 7 guests

cron