Slope Of Hope with Tim Knight

A Perfect Ten

I recently saw this posted by a friend; as an avid student of U.S. History myself, it had particular interest for me:

In 1825, the year before his death, Thomas Jefferson — the 3rd U.S. President and a Founding Father of the United States of America — was asked by a father to supply some words of wisdom to his young son, Thomas Jefferson Smith, who had recently been named after him. Jefferson graciously responded with a handwritten letter, at the end of which was the following 10-point list of advice for the youngster, titled, "A Decalogue of Canons for observation in practical life."

A Decalogue of Canons for observation in practical life.

1. Never put off till tomorrow what you can do to-day.
2. Never trouble another for what you can do yourself.
3. Never spend your money before you have it.
4. Never buy what you do not want, because it is cheap; it will be dear to you.
5. Pride costs us more than hunger, thirst and cold.
6. We never repent of having eaten too little.
7. Nothing is troublesome that we do willingly.
8. How much pain have cost us the evils which have never happened.
9. Take things always by their smooth handle.
10. When angry, count ten, before you speak; if very angry, an hundred.

A Slight Change in my Stops Strategy

Regular readers knoiw that a key component of my trading rules is to have stops in place at all times and to keep them up-to-date.

Over the course of this year, I have been shafted a few too many times by opening-bell nonsense that I've decided it's time for a change. My short position on SQM last Friday took the cake. Here's the minute-bar graph of Thursday and Friday. You can imagine where my short got stopped out:

Premature Emissions

If there's one thing that binds bulls and bears together, it's the mistake of closing out a position too soon in order to (a) take profits (b) avoid any chance of a smaller profit or, worse, a loss.

This is a beginner's mistake, and it's one that I make from time to time as well. Just yesterday I covered two profitable shorts - SPRD and GMCR - simply because they had nice profits and I thought the risk of them reversing was high (these are pretty volatile beasts). Well, here's what has happened today, and I've marked the approximate point-of-closure with an arrow.

So.....great picks, Tim, but sub-optimal closings, to say the least!

Don't do this.

That Perpetual State of Disappointment

This is one of those "got to get this off my chest" type posts.

I cannot help but feel very disappointed in today's action. It's not so much that the market isn't doing what I'd like it to do - - that's something none of us can ever control - - it's the fact that the way this market is behaving is rewarding rule-breaking and punishing rule-following.

One of the most basic rules is to let profits run. You don't close out positions the same day you open them just because you happen to have a small profit. You let them run, updating the stops along the way, and hope that they will blossom into big winners.

Well, that's what I try to do, and it's not working. What we're going through today is a perfect example of this. Yesterday the market fell nicely, and I had a handsomely-profitable day. Now that the Summit is done, it seemed that things were in line for a continuation of a soft market. Irrespective of one's views of what the market was going to do today, the fact is that there was no logical reason to scurry around just before the close and shut down all my positions just to take profits.

But that is precisely what I wish I would have done, simply because the market is rocketing higher today. It seems that we're on an endless cycle of up/down/up/down/up/down/up, and it's enough to break one's spirit. After all, if we can't manage to hold on to gains for more than a day, what's the point of any of this?

I took some profits on some of my riskier positions earlier today, and I've bought a big block of DIA (and shorted a medium-sized TLT) to help balance things out. But this market is exhausting, I've got to tell you, and as much as I'd love to pretend to wallow around in the joy of trading every single day, I'm frankly getting awfully tired of this. I imagine some of you are, too, and I wanted you to know you're not alone.

The Wisdom of the Unwieldy Portfolio

Given all the insanity of this day, I was reminded of this post that I wrote a year and a half ago about why I have so many positions. The quantity of my positions have been the butt of a lot of jokes by my detractors (most regularly by erstwhile vistor The Hun), but I have my reasons for holding on to such a wide variety of positions.

A day like today, in which I've definitely caused myself a bit of self-harm by chasing a rally, was largely saved by the fact that the vast majority of my shorts were left in place because, frankly, it was too much time and trouble to close them out in the first place. Here's how I explained my style in the aforementioned post:

Your Trading Journal (Market Sniper)

In the past few days there has been a lot of discussion on The Slope about keeping a trading journal. Here is a very brief examination of the subject. I hope it helps!

I cannot over stress how important it is that the trader maintain a constantly up to date trading journal. Yet most traders do not even have one! A trading journal is NOT just a compilation of entry, exit and net profit or loss for each trade. That is what is in your brokerage statements . Of course, you should also include that information. There are many things that can go into your trading journal and each trader will do it differently. Here are just some ideas of what can be included and they are by no means exhaustive, far from it. Nobody but you will ever see your entries in your journal. Be brutally frank.  Use your journal as a vehicle for improving your trading. Here are just a few ideas to get you started.

• - Did I follow my trading plan for the trade? If not, why not.
• - At what point in the trade did I doubt the trade.  If so, why
• - What  did I do right in the trade
• - Where did I stumble in the trade?

 When  you make an error, make a statement of correction. An example: I did not honor my stop in the trade according to my trading plan. I moved it NOT according to plan…therefore, in my next trade,  I will adhere to my trading plan as to stops. I will place stops and manage my stops according to my trading plan. This will demonstrate that I am a patient and disciplined professional trader.

Trade Like a Patriot (by phantomcapital)

Trading is financial war.  Losses are casualties, profits are territory conquered.  An innumerable amount of trading lessons can be drawn from the study of military victories; however one specific war applies best to the individual trader:  The Revolutionary War.

On April 18^th, 1775 a disjoined group of local militia fired the first shots at Lexington against the greatest military force the world had ever seen and changed history forever.  However, it is how the Colonials won the war that provides a cardinal lesson for the individual trader.  Very simply we, the individual trader, are the Colonials waging war against the financial superpowers of our time consisting of the Fed, the ECB, and corrupt investment banks.  It is an honorable fight, but a battle that must be waged correctly.

Learn To Cut Your Winners Short (by Ryan Mallory)

One of the problems that I find with trading today, is that there are a lot of popular cliches that people hold on tight to, considering them to be untouchable in practice and theory, and the act of challenging these popular beliefs will label one as a trading outcast, reject, or even dangerous. Just like Maverick in Top Gun:

Developing Moneyball Trading Goals (by Ryan Mallory)

When you are in a trade, regardless if it is going in your favor or not, ask yourself this question: Are you in it for this trade only or are you in it for what your portfolio will be worth at the end of the year?

In my previous post, entitled, "Finding the Stock Market's Moneyball", I talked about how Oakland A's manager Billy Beane started from the top goal that he had for the season and worked his way down.

Finding the Stock Market's Moneyball (by Ryan Mallory)

I recently saw the movie, "Moneyball", which starred Brad Pitt playing the roll of Billy Beane (General Manager of the Oakland A's). I must say it was one of the best movies I have seen in years. And there wasn't even anything that belew up during the two-hour movie. Nonetheless, that movie was riviting, and as a baseball fan, I remember reading and following the Oakland A's back in 2002-2003 when they were defying the odds. 

But what Beane did with the Oakland A's is transform baseball in a major way. You see, we are all enamored with the home-run hitters. We associate the best players in the game with those who crush the most number of balls over the outfield fence.