Wednesday, July 05, 2017

Make peace with not catching every move

  • Posted by 
  • on April 7th, 2013
We had two conversations about a particular  trading topic on Friday — one was with a long time sub we like very much, and the second was with an internet Troll we blocked after a few minutes.   The gist of it is this:     The one thing traders have to accept in order to have any type of peace with their job is that they will not be able to catch every move, every turn in the market.   That’s not what short-term trading is about.
Trading is about coming up with strategies that yield good risk/reward returns.  Now for us often this is waiting for a support long at a certain point — we sometimes try to catch it short before it hits that point, but often we’re not successful and instead just wait for our spot.     Let’s say stock HCPG is hovering at 52 and we see multiple support converging at 46.    We have a good idea that at 46 we will be able to catch a very good risk/reward trade.    Over the next two days it does go from 52 to 46, a 6 point move down, but we’re not able to catch it short, that is it does not set up in any strategy that we know that offers good risk/reward for the move.    At 46 though we buy with 50 cent stop.  Over the next two days it rallies to our target of 48 and we sell it all.  For us that is a solid trade, our meat and potato trade, catching 2 points on 50 cent stop.
The internet troll comes along and says, ha ha, while you were looking for a measly 2 points I caught the 6 point short.    That’s where the internet troll shows his real colors, that of the infamous noob.  We are patient; we wait for everything to line up, and then pounce.  A stock could move 10% before we make our move looking for 2%, and that might sound crazy to a non-trader, but that’s the way it works.  Just because a stock moves 10% doesn’t mean it’s easy to catch.  We only trade what falls in our strategies, nothing else.   We miss moves ALL THE TIME.   Every trader does.  That’s not what trading is about.  The other obvious point is risk/reward, 4x your risk is the same if you risk 50 cents and make 2 points, than when you risk 5 points and make 20 points.
Unless you make your living off OPM,  comparing yourself against market benchmarks is counter-productive.   If market goes down 20% for two years and your fund goes down “only” 8% you are a rock star fund manager.  However, if that happens to us, we’d have to shut down.   Short-term traders like ourselves are all about consistency, being able to pull consistent profits from the market, no matter the condition.   Our PnL does not correlate to market %.   In fact some of our biggest profits are made in flat markets while we tend to under-perform in slow grind-up markets.   As traders know, the more volatility, the better.  The goal of trading for us is not to beat a certain benchmark %, or to be in the top 10% of any list, but to be able to make a good living year in, year out.  Every month we want to be able to pull money out to pay the bills that sustain our lifestyle for our families, and save whatever is extra — which basically is what every worker wants.  That’s about it.
As for future internet trolls– we’ve been trading for 16 years.   We’re good at what we do and we’ve proved that on the stream with real-time calls over and over again now for over four years, and in our newsletter for seven years.   If you want to follow us, great, be quiet and learn.  Don’t criticize, don’t offer advice, and if you don’t like what you see, simply hit that Unfollow button.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.