Goldman Sachs COO advice to young college graduates

Passionate commencement address  from Gary Cohn , the Goldman Sachs ($GS) COO, filled with  great advice to the young graduates at American University.    I recommend that anyone either graduating from college or who is  taking online college classes read it.  Dude can hustle and some fantastic quotes.


I’m a 1982 graduate of the Kogod School of Business. I understand what you are going through. I understand what you are feeling.
There’s a striking resemblance between what you are thinking and what you are going through today and what I was thinking and what I was going through then. In fact, in April of 1982, unemployment in the United States was 9.35 percent; on its way to 10.8 percent by the end of the year. Today, April ’09, unemployment in the United States is 8.9 percent. GDP in the United States Q1 – while I was sitting there in 1982; minus 6.4 percent. Today Q1 GDP, minus 6.1 percent. Interesting. Interesting, that we— you and I—sat in those seats in a very, very similar economic environment.
That said, when I graduated 27 years ago in the dark ages, little did we know how much was going to be accomplished in the next 27 years. All of the things you as students that you depend on and rely on and think of in normal course of business did not exist when I sat out there 27 years ago. Think about that. I did not have a personal computer. I did not have a cell phone. I did not have a fax machine. I didn’t even have Federal Express. I don’t even know how we survived. In fact, one of my favorite activities at American University was spending late nights in the Mary Graydon Center on the second floor programming Fortran through, you got it, keypunch cards. I was great at punching cards.
Upon graduation, believe it or not, I had no job. I had no interviews. I had no prospects. I had no worries. What I did have, I had passion. I had enormous passion. I had passion for financial markets. I had fallen in love with financial markets. So, like every one of you, I did the only smart thing to do, I moved back home and started having a great time enjoying my life, until that one, early Monday morning at 6:30 a.m. when my father walked into my room and turned on my lights. I had been in bed for about an hour, I think, and said, ‘what are you going to do with the rest of your life.’ I ironically told him, ‘you’re looking at it.’ That did not go over very well in my house.
So, I went through what I consider to be the formality of trying to go out and seek a career and seek a job. I ended up luckily landing a job with a division of the United States Steel in Cleveland. Not a job that I had any aspirations for, not a job that I really wanted, but I had to appease my father and I had to go out and get a job. The only good news is that I was at that job from July 1st to Thanksgiving my graduation year. By Thanksgiving I had found a way into the financial markets, by pure drive and perseverance. I’ll tell you a little story about how I got my first job in the financial services industry.
As I said, I was working for the United States Steel in their home products division. I was in Long Island for the week working with one of the sales offices. I made sure that I worked very hard Monday through Thursday and got all of my work done and convinced the gentleman that I was working for that I had never been to New York City and I wanted to go see the city and could I leave early on Friday. He agreed to that. I literally took myself to the commodities exchange center which at that point was in Four World Trade Center, went into the commodities exchange center…found my way up to the visitors’ gallery and realized that everyone in the visitor’s gallery was just like me, trying to figure out what was going there. I figured out that if I go down one floor, I’m actually down at the trading floors. I got down to the trading floors and I don’t know what I thought I was going to do. I stood at the security entrance to the trading floors and stood there for about three or four hours, trying to figure out what to say to someone…trying to figure out how to get a job and trying to figure how to introduce myself.
About four o’clock, I literally gave up. I walked to the elevator bank. I dejectedly hit the down button to go down to get a taxi cab to go to the airport to come back. And, I hear a gentleman say, ‘I gotta run, I’m going to the airport.’ I jump in the elevator with him and say, ‘I overhead that you are going to the airport. He said, ‘yes, I am.’ I said, ‘what airport are you going to to?’ LaGuardia. I said, ‘Do you mind if I share a taxi with you? He said, ‘Sure, by all means.’ I didn’t know him, he didn’t know me. I said, here’s my shot. I’ve got 45 minutes, in traffic on a Friday afternoon to convince this guy that I’m hirable and need a job. He literally went through and grilled me on my knowledge of financial markets, grilled me on my knowledge of certain aspects and I think I moderately passed. By the end of the taxi ride, he says, ‘what do you know about options.’ I said, ‘everything.’ He said, ‘great, I want you to come back Monday, I want you to interview. I’m trading options, it’s a brand new market that’s opening and I don’t know how to trade it and I need someone to stand behind me and tell me exactly what to do.’ I said, ‘no problem, I’m your guy.’ I literally got home Friday night and my first stop on the way from the airport was the bookstore. I bought the McMillian Options is a Strategic Investment book and read it four times–as I said, dyslexic guy read it four times over the course of the weekend and came back in and interviewed and was offered a job. That’s how I started in my financial services industry.
So, in my answer to my first question here from the students on career advice let me make it simple. Have a goal. Know where you want to end up. Knowing where you want to end up is a lot easier than figuring out how to start and how to get there. You will figure out how to get there. Do not chart your career. Trust me; you do not want to chart your career. In fact, I worked on the floor of the commodities exchange and everything in my life was perfect. My wife was pregnant with our first child and we could not have been happier. At that point, I got an interview…I wasn’t really looking, but Goldman Sachs at the time was trying to draw me into their organization, something that I had no intentions of doing and I really sweated the decision, do I want to leave what I’m doing now and go to Goldman Sachs or do I want to stay at what I’m doing. In fact, I went home and talked to my wife and my wife said, ‘you got to be crazy. That would the craziest decision that you ever made.’ I said, ‘you know what. It’s one of these opportunities that may come along only once in your life; I know that going back to the floor exchange is always there.’
So, be flexible, have a goal, don’t chart your career and most importantly understand your competitive advantage. Understand what differentiates you from someone else; make sure you have a way to distinguish yourself from everyone out there.
Number two: How to stand out. I thank God that President Kerwin did not read my resume from Goldman Sachs because it reads like I’m a guy that can’t keep a job; every two years it seems like I seem to be doing something else in the world. So, I’ve worked in a variety of jobs, I’ve worked in a variety of locations. Every time you get into a new job, new location, you have an amazing opportunity in front of you. You get to play dumb for as long as people will allow you to play dumb. You get to ask all the dumb questions, you get to ask multiple people the dumb questions, and you get to make mistakes. That’s how you stand out in the crowd. You stand out by asking the questions, whether they are smart, whether they are dumb, but you have to have that desire to learn. Those that have the desire to learn will stand out. Those that work hard will stand out. The old adage that hard work will get you what you want is 100 percent true. Work hard, ask questions, and take risk. If there is one thing out of this on how to stand out, it’s take risks.
Everything I’ve done in my career and everything that most of you have done to this point is to take risks. You may not have quantified it as a risk decision, but believe me it was a risk decision when you choose to come to Kogod, it was a risk decision, you’ve could have gone somewhere else. When you chose to get up and come to work this morning—never mind, you didn’t come to work, when you came to graduation this morning, you made a risk decision. How were you going to go? Was there going to be traffic? Was there not going to be traffic? Understand the decisions that you are making and try to wave them in your respect. Failure is not a problem. In fact, I always saw, that 95 percent of my great decisions started out as bad decisions. It’s one thing that I learned when you trade and you trade your own capital for a living is that you are usually not right, it’s recognizing when you are not right and correcting it is when you take the biggest advantage of the opportunity.
Keep yourself motivated. You’ve got to be motivated, you’ve got to wake up every day and understand what that day is about; you’ve got to have personal goals—short term goals, intermediate goals, and long term goals. Be flexible in getting to those goals, but if you do not have goals, you will not achieve them. You are competing. Every day you are competing and every day you are playing to win. So remember, wake up every morning and figure out how to win.
Next question I was asked quite a bit about is how to balance my career and my life. I will tell you, for those of you that asked this question, and it’s a great question, it’s clearly the single hardest thing that I do. I am the father of three teenage daughters and it is a very demanding group of young ladies that I have in New York. We somehow seem to balance those decisions. Like today, making the right choice…I think its Mother’s Day. Congratulations to all the mothers in the audience. My mother’s in Cleveland, Ohio; I will call her when I land in some other continent in about 14 hours from now. My wife is in New York with our daughters and I’m here. Of course, I make all the right life balances. These are tough choices and you should always make sure that you’re thinking about those choices.
Now, a couple of more points that I want to make here. And, this is probably one of the most interesting questions that someone posed to me in the questions here. If you listen to one section of this speech for those of you in the blue garments like myself, this is the important part. The question goes something like this: What do you know now that you wished you had known when you graduated. How long do you have? Let me start with the basics.
You have the skills. You have the education. You’re education is virtually the same as everyone that you are going to compete with. I know, we hire six to ten thousand kids a year. I must interview, conservatively 1,000 different kids a year; and I will tell you this: You’re education and their education is exactly the same. Most likely you have the same textbooks, you have the same books in your library, you’ve got the same access to the same data on the Internet today that they do and you have the same education as they do. You might not be as confident as them. Trust me; you might not be as confident; some of you may be as confident. Confidence is the easiest single thing to fix, so remember that. I got the same, the same education that I am competing with. I have to make sure that I walk in that room, walk in that interview, and walk in that first day at work with the confidence that everyone else has. Just because you went to an Ivy league school doesn’t mean you are smarter, doesn’t mean that you got a better education; it may mean that you got a little bit more confidence because you think you got a little bit of an edge going in there. That is the easiest thing to overcome.
Let me tell you a little anecdotal story here. This is probably the easiest way to drive this point home. Every summer at Goldman Sachs, we bring in about 1,500 student interns; most of them are juniors going into their senior year. The highlight event in our summer experience in the division that I was running at the time which is the securities business, which is all equities and fixed income trading, is that we have the entire summer class sit down and we do an interview question and answer session with the operating committee of the securities division. So, we get the five or six leaders of the division on a global basis into a room in front of the students and we let the leaders introduce themselves for about three to five minutes and then we open it up for about three hours of questions. I will tell you the most striking part of that day and it’s always my favorite part of the day. We ask each of the operating committee members to introduce themselves, tell the group of students to tell them a little bit about themselves and we ask them to tell where they went to college and what they’ve done. I will tell you that the last time that I chaired this group, of the five individuals sitting in front of the room—and I will admit that the vast majority of our summer intern class comes out of the Ivy League schools—I will tell you that the five individuals that introduced themselves the last time I chaired; me as the division head, American University; one of my other partners, Bucknell University; one of my other partners, Hamilton; one of my others, Rutgers; and then we had this weird guy at the end that went to Yale University. But, that to me was probably the most striking moment of the summer for the kids to come into Goldman Sachs and it really tells you about having the desire, having the drive, having the need and having the want to succeed. It is a level playing field out there. It really is.
As far as being good alumni, I think all of us want to be good alumni. As you sit there today, thinking about your experiences at American University, I’m sure you all think you’ll be great alumni and that American University will have a place in your heart forever. It will have a place in your heart forever, every time you are introduced, every time you are in a crowd, every time you are making a presentation, people refer to your academic background. I will tell you this, as a Board of Trustees member, as involved in some of the Capital Campaigns around here, not all of you will remember that you went to American University when we ask for you to give back to the university; whether in time, effort, money, any of the ways you can give back. Being a great alumni is being proud of your academic university…being willing to tell people where you went to school, wanting to tell people where you went to school, recruiting potential students. This is a competitive business. Running an academic institution is a competitive business. We need your help. You are our biggest advocates; you are our biggest recruiters out there. And, if you want to be a great alum, just partake in any one of the activities that I mentioned here.
On a few a final thoughts, tying back together the 1982 scenario when I was sitting out there with the economic scenario of today which are very similar, this is truly historic times. You are watching history write itself, or rewrite itself. In the financial markets, in the business community, in the political community, in the regulatory community, the world that we have known since literally the 1930s, which was the last time that we really saw the regulatory community in the United States change. We saw the business community in the United States change, we are going through a complete revamp of the world. You have a front row seat. You need to get involved. You can make a difference. You will see things that will surprise you, you will see things that will shock you. But I will tell you this, that said, in times of fear, times of uncertainty, times of confusion and times of turmoil, there are the greatest opportunities to contribute and succeed.
I know most of you feel like, oh my God; I am two to three years too late in graduating and I wish I had been there a few years earlier. It would have a hell of a lot easier….there were an abundant jobs, there were an abundant opportunities. That is the farthest thing from the truth. For those kids that were graduating into the workforce two to three years ago, they had a very short-lived experience; they saw the top of the market and they really didn’t have the time to learn because the environment was so chaotic. You are entering at the optimal time, like I did in 1982 to enter the work world and to really get long lasting real experiences to drive you for the rest of your career. The world needs you to be great citizens and great leaders.

Pretty good right?  I think this is a great read for anyone who's just graduated college, who's looking at the job market today and feeling a bit hopeless.

Full transcript here
h/t Business Insider for link

Pretty Spot Worked

We wrote this afternoon near the bottom:

“This would be a pretty spot to bounce – if bulls want it, this is the place to defend ”

And once again dip buyers won the day.

We find it astounding that no matter how ugly the market support keeps working, for a trade.   If we want anything more than that then bulls will need to give the all important confirmation move tomorrow.  This also applies to all the sweet hammers on the financial stocks today.   Also recall that we tested the support last week in overnight session and we finally had regular session test that many had been waiting for today.  Bottoms are never made in one day — confirmation is always needed.

As noted before we’re swing long partial $SPY.  Why?  We got off decent entry and have cushion, we like how market acted post low, we like copper holding, and we like the financial bounce off the lows.     Stop now break-even (maximum, we’d probably bail at 130 break) at $SPY 129.66.

Even with all the red, there still is very little fear in this market (note $AAPL all time highs today — as an aside great trading there by our buddy @gtotoy )

Until we get smacked in the face our modus operandi will be to buy dips.   It’s been working for 2 yrs, and we’ll keep doing it until/unless we break 2009 trend-line or we get hit.  Whichever comes first.

SPY talk

We tested the top of the previous range last week at 3AM in the futures and we finally tested it in the regular session today.   If there was ever a place for the bulls to push — and not just a good close but a continuation tomorrow, it is now.

Position long $SPY and will swing on any close over 130

Trading Screen Configuration

HCPG trader screens are more or less configured in a similar fashion — emphasis is on a layout which  gives us a quick idea of what is happening in the market in terms of sector strength and breadth.   Let’s take a detailed look:

The following configuration can be done with 3-4 monitors, our ideal size.  We’ve basically had this configuration for our entire trading career (and have sent versions of it over the years to our subscribers).   It’s basic, and it works for our style.

On one monitor we have our trading broker and a  range look on an Interactive Broker page with some of our favorite trading stocks/etfs gives us a quick read during any time of the market:

We use E-Signal for our charting platform.  Even though HCPG hammered out a  partnership with E-Signal in May  (HCPG subscribers who transfer over to E-Signal are eligible for significant discount) we started using E-Signal even before that date as they are the best charting service that we can find for our trading needs.

We follow our “core” stocks in loose sector groups in one monitor.  Note that we have different pages on E-Signal that we flip through — but this is the main one.

On another monitor we have different time-frame charts of any stock we pull-up.  Note that we use 20EMA, 9EMA   and pivot points.  These are the only intraday indicators we use and find them invaluable to our style.

We follow 3 min, 5 min, 15 min and 60 min.

On another monitor we have our StockTwits desktop and Tweetdeck.

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We’d like to thank everyone who sent us screenshots of their configurations — included below.  Enjoy.

@joeyfishface     I mostly employ a VWAP reversion strategy, supported by OHLC, Volume, T&S, and Volume Profile.

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From @IndependentTrdr

I have been doing a lot of trading lately on a laptop. It’s not a big laptop either. 11.6″ screen, running at a resolution of 1366 x 768. When I started day trading full-time back in 2005, I had 6 monitors going. Over time, I have found it to be more of a distraction than anything else to have so many screens. I do have another computer that I use for net browsing, TweetDeck, etc..

My setup is simple, Esignal and my broker platform. The broker platform is mostly hidden behind Esignal. Starting on the bottom left there is my position monitor, showing symbol, position size, and avg price. Then to the right, I have two order entry windows. All the rest of the windows are from Esignal.

 This screenshot shows the daily chart in front, behind it are two intra-day charts. One for 60-min/120-min charts that is zoomed out pretty far so I see a lot of data, and one for lower time frames (1-min, 2-min, 5-min, and 15-min) that is zoomed in closer. Switching the bar interval in the Esignal 11 is simple. When a chart window is active, just type the interval number you want, then press enter. For example, if I’m currently viewing a chart with 2-min bars, and want to see 5-min bars instead, I just type 5 and then enter.

To the right of the charts are my quote/alert windows, called “Watchlists” in Esignal 11. I’ll start with the first column to the right of the chart. On top is my Focus List for the day. These are the stocks that I’m most interested in for that session. Below this is my Alert List.

All of my Watchlists that are for alerts have the following columns.

• pPrice = shows the price of my alert
• ExtHtsL = last traded price for that symbol
• %Ret = how far the last price is from my alert price (this is the field that the Watchlist is constantly sorted by)
• Vol % = shows the current days volume as a percentage of the average of the past 30 days volume

The final column of Watchlists contains 4 different windows. On top are my support long alerts, and directly under are my resistance short alerts. Like all of the other alerts, they are sorted by distance to the spot. The third Watchlist down shows my Key Stocks. Just a group of about 20-30 stocks that I want to always keep tabs on. I also sometimes switch this Watchlist to display my ETF sector list. The bottom most Watchlist contains the 3 index ETFs that I follow, SPY, QQQ, and IWM.

That’s pretty much it. Keeping my setup simple helps me maintain calm and focused while trading.”

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From @alfietrade

I’m not sure how best to capture it cleanly because I have limited screen space so with many charts open at the same time, I tend to just move charts to the forefront when I need to look at it.

I always have the following open:

- IB TWS

- IB option trader

- IB charts (ES, NQ (two days and one month timeframes), and about 12 other names I trade regularly displayed in the 2 days, 5min bars configuration), other charts I need I would open and close as needed.

- Freestockcharts.com

- Tweetdeck

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From @steelertrader

My Screen Real Estate has changed over time but here is what I am currently watching on a daily basis:

Center Monitor:  Upper Left is my main QuoteTracker Window that shows my core watch list for the day.  The columns in all my watch lists are Last Price, Net Change, % Change, stock’s current % within daily range, % of average daily volume. Just underneath that is a list that is populated from stocks that may have fresh news that morning that pop onto my radar and below that is a watch list of index and sector ETF’s.

Next to those are my futures charts (NinjaTrader Platform) for the 3 main Indices- They are usually set on 5 minutes but can be changed easily.  Those charts contain 8 and 34 Ema’s along with a parabolic SAR.

I also have ThinkorSwim platform open with two quote windows (Indices/Futures) and charts for the TICK and Advance/Decline Line.  The red and green dots on the AD Line chart are for extreme tick readings.

The remaining ThinkorSwim Charts on this Monitor are USD futures, TLT, TNX or /ZN and Copper Futures.  All of these are 5 minute charts with 2 trading days of data.

Underneath those are 3 Quote tracker charts are for the 3 Sector ETF’s that I watch most closely- IYR, OIH and IYT.  All my quotetracker charts contain the 9/21/34 EMA’s, VWAP, Pivot Points and the prior day’s Hi/Low/Close.  I start the trading day using 1 minute charts, switch to 3 minutes around 9:45 and eventually sync them all to 5 minutes as the day goes on.  In late afternoon they are sometimes changed to 10 minute candles.

Left Monitor: Upper Left is a Notepad where I do my best to write down some thoughts on entries and exits which help me with my trade review and journal.

Next to that are 4 quote windows each containing approx 20 tickers: Retail/Casino’s/Misc Momo, Tech, Financials/REITS/Industrials and Commodity.  Several come and go but probably 70% of these tickers will typically stick around with the most change coming from the left most watch list.   I also have one “bellweather” quote window (12 stocks) for giving me a quick read of what I consider the markets key stocks.  I also have one list for levered ETF’s and for Alerts

Below the watch lists are room for 6 equities charts that I am keeping an eye on at that particular moment and one space for one random Futures chart (/GC, /SI, /ZC)

Right Monitor:

Ninja Futures charts for Euro and Crude

ThinkorSwim 6 window linked Multi-Time Frame Grid (5 min, 15 min, 30 min, hourly, daily, weekly)

Browser with FreeStockcharts and Stocktwits

Chatroom from @gtotoy’s daytraderbootcamp, where I hang out during the trading day.

GChat windows for traders that I rap with throughout the day.

TweetDeck

Laptops: On one laptop I run my Lightspeed Trading Platform.  It has 4 separate linked windows for order entry, level II and Time and Sales and on my other Laptop I have a newsfeed

 

 

Screen Configuration Bonanza

There are lots of threads out there on traders sending in snapshots of their workstations — that’s fun to look at but what is more useful for a trader is how they actually configure what’s on their screens.  We’re doing a post on how we configure our screens and would like to add other trader configurations.    Please e-mail us at  info AT highchartpatterns DOT com with snapshots/(and if you wish explanations) of how you configure your trading software and we’ll add it to the post including your StockTwits/Twitter handle.

Here’s a random one found on google image.   Go $GOOG!

 

Like a Zombie that won't go down

Like a zombie that won’t go down this market keeps getting hit with bullet after bullet and yet refuses to roll.    Many are looking for a regular session test of the $SPY 130 test (we already had that test in the overnight session on Tuesday $ES_F).

The market is absorbing bad news well.  Let’s take a look the afterhour action of Wednesday and Thursday of the Moody and S &P rating news.  The market immediately went down 10 points on Wednesday after the Moody’s review news and then recovered within hours:

Next on Thursday came the after-hour news of S&P possible downgrade PLUS the little detail of the agency asking for 4 Trillion deficit reduction deal in order not to get downgraded.    Again, ES plunged and recovered.

Dip-buyers have now been rewarded for two years.   There will come a time when the dips cease to be bought — we think it will come if/when we break the March 2009 trend-line but until then we’ll keep doing what has worked so well now for so long.

Note that range-bound strategy rules supreme in the current market hence the other side of the equation  has worked equally as well (at least this year) which is  sell the rips.    However as long as we are holding above a 2 yr trend-line we prefer to focus on the long side as we believe the force is stronger in the bulls.

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SPY areas to trade against

We’re at the close here and bulls  held the 20SMA/50% retracement of recent rally/ $ES_F AH low.

So what if doesn’t hold?  Next support comes in at 1295 on the $ES_F which is the top of the previous range (corresponds to around 129.8-130 on the $SPY) which also is around 61.8% retracement of the rally.

As to our position, we’re all cash.   If market rips then we’ll pay up for it and trade whatever sets/triggers.    However, we won’t be looking dark until we lose that 2009 trend-line — so far all we’ve had are mean reversions up and down as rips have been faded and dips still have been bought.  Until that changes we’ll be trading the status quo.

Big beat by the $GOOG machine in AH — ball is in bulls’ court now as they need to hold this technical level and rally from it using the earnings beat as a  catalyst.  A push from this 20SMA/50% retracement area would be a great start which in turn could bring in the “fear of missing” mentality.

Watch that Tuesday night low on the ES_F

 Remember this line in the sand we posted yesterday?  It’s baaaaack:

Tuesday 3AM futures tested and passed the top of range test.  We’re getting close to it again now.  Click to enlarge:

And on the $SPY it corresponds to 129.8-130 range.

Fun times.

Thank You

First of all, we completely forgot about our 5 yr business anniversary mark (June 13, 2006).    However, a belated note hopefully is better than nothing.   Opening the HCPG business forced us to step up our game — and for that we’d like to thank our subscribers, many of them who have been with us for years.  We may have many faults but lack of loyalty is not one of them — we always remember the people who have helped us over the years and want to give a quick shout-out on this 5 yr mark.

A year and a half ago we joined the world of StockTwits/Twitter and for that we’d like to thank @downtowntrader for giving us the initial push to join,  @howardlindzon, @ppearlman and @ldrogen for welcoming us aboard and getting us started via the Suggested Stream and later with a partnership with StockTwits.    Working with Dr. Phil has been a fantastic experience — he makes you feel you’re on his team and like a good coach, he’s always looking out for you,  pushing you to take it up a notch, and take that next step in becoming better.

We’d also like to thank all those that have given us increased visibility, too many to mention, but especially early RTs from (now) buddies like @gtotoy @traderstewie, @szaman @chessnwine ,  The Reformed Broker and the WSJ links, @DinosaurTrader for links to his early blog and the RO,  Charles Kirk for early links over the years on the The Kirk Report, and @abnormalreturns for links on his fantastic site.    Being part of the community of such a young and growing company such as StockTwits is very exciting — for us it’s a great win-win.  We’re happy to contribute value to the community, grateful for the friendships we’ve made, and for the fanastic exposure we’re experiencing alongside the growth of StockTwits.
Looking forward to the next five.

Look what happened while you were sleeping

We bounced right at the previous top of the range on the $ES_F — click to enlarge:

Too bad it happened at 3 AM…   Anyway, that’s the line in the sand going forward and the line that the bulls will have to defend against all lehman-cello type events.

News tapes are our least favorite tapes, add the fact that our beloved semis are getting clocked today, and you’ll find us mostly chilling today.  We have numerous alerts that could trigger but the market would need to firm up before anything like that occurs.  As for being a bear — not until we close under the March 2009 trend-line on the $SPY.

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In it for the long term

We’re active traders (probably 80% day-trade, 20% swing) and quite aware that the burn-out (and blow-out) rate in our business is quite high.   It’s a given that trading is stressful, probably more stressful than many jobs out there, and because of this  there are certain measures we’ve taken which have helped us avoid burning out (so far anyway, going on 14 years trading, and 5 years since we founded HCPG).

1.  The most important decision for us was to become trend traders.  For the most part we’re breakout traders.  Even when we do support longs we’re buying oversold markets bouncing on longer-time bull-trends.   We sometimes engage in contra-trend trades  but rarely for long stretches of time.   Why?     Because going contra-trend for extended periods of time is exhausting.
Have you ever noticed those that are bears in bull markets cover way too early when the tide finally turns?  Or perma bulls  in bear markets who sell into the first real rally when things are just getting started and go into cash very early in the rally?  It happens all the time.   They’ve been underwater in their positions for so long that when they finally go green they’re psychologically burnt out and running on empty.  They take meagre profits when the run has just started.     This isn’t to say that contra-trend traders don’t make any money.  We’ve always said that there are many ways to make money in the market and for the most part it’s a personal preference.   But it’s not for us –we find contra-trend trading too exhausting.  Kudos to those who can do it long-term.    In life often the easy path is the wrong path.  In trading the easier path (trend-trading), we’ve found,  is the right path.
2.  We’ve accepted the idea that we don’t have to catch every turn.   There are times, for example, when we feel the market is very bullish but extended.  Instead of looking for break-out failures the next day we instead chill and wait for the long-setups to get ready.   In the beginning of our career we weren’t like this — we were hungrier and wanted to catch every turn up and down.   As the years passed though we slowly decided the extra stress of constantly switching directions didn’t warrant the extra profits.   In the end it’s all about risk (stress)/ reward (trading profits).     In extreme choppy range-bound markets we still go back and forth but in strong trending markets we try to stick to one direction.

For example, as you can see in this chart of the $SPY it was smart to trade range-bound while in the box, but once we broke out of the range we were happy to stick to the trend and not try to go long/short at every small opportunity.

3.  Trying to find a balance between work/life is always a juggling act.    Our goal now is not to maximize profits but to find some form of balance between a good income and a good life.  A good life for us is one that consists of retaining a certain economic comfort while still having enough time to spend with family, friends,  on leisure, and exercise (post on home gym relevant to this point).   To state the obvious, consistent balls to the wall will wear you out.  There’s a time for intense work but there’s also a time to step back and balance out the work/life equation.  One of the most useful points taught in any ECON 101 class is the concept of the law of diminishing returns.   Our thinking is not to maximize PnL but to find that sweet spot between work/life that will most efficiently allow us to maintain a good life-style (money coming in via trading) while having enough free time to enjoy life.

Easier said than done of course but finding the balance between work and life is one that we’re constantly trying to achieve.
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Market Talk SPX

After a 100 point rip on the no-Greek default bottom $SPX finally seeing some fatigue in the market.  That being said the market held the gap today which is very impressive in itself considering how much it has already run.  Our general rule is to always sell the gap up after a large run.

We are looking for a consolidation phase now and a fill of the gap (blue rectangle).    This would aid in setting up new longs and be bullish going forward.

March 2009 trend-line, linear versus log

If you were watching for a bounce on the 2009 trend-line  you would have had two very different conclusions if your chart was set to linear (as ours are) or log.    Here’s the linear version that we always use:

$SPY sat on the 200SMA long enough for trend-line to catch up and bounced.

Log version shows complete break (interestingly enough we’re testing the underside of trend-line now).  Bears were very excited about this break.

What’s the difference?  In a linear chart there is no adjustment for a percent move.  A chart moves up 2 points if its a move from $20-$22 or $100-$102.  Of course a 2 point move in a $20 stock is worth a lot more percentage wise than a 2 point move on a $100 stock.   A log chart adjusts for that by moving same amount on chart based on percentage, not points in price.    For us, this is meddling we don’t want in our graphs.   We want pure price and time, not adjusting for percentage.   However, there is no “right or wrong” in this argument, more a preference.  E-signal uses linear as default for example while other charting platforms often use log as default (including stockcharts).
The 2009 trend-line for us is the big kahuna — it was THE focus for us in June as you can see in these four posts  March 2009 Trend-Line Sirens calling,  A visit to the Nasdaq Trend-line, Buy the first test not the second, and The only chart that counts  (hint, it’s the 2009 trend-line chart
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