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Blog

ignorance

“The people who were right a lot of the time were people who often changed their minds.” – Jeff Bezos

Now what does Jeff Bezos has to do with trading? A lot! He might not trade futures, or day trade Google options, but he is a business man and a speculator, like all of us full time traders, and as you can see from the quote above, he understands and incorporates “stop losses” into his business philosophy.

Jeff Bezos goes on, “Consistency of thought is NOT a particularly positive trait. It’s perfectly healthy — encouraged, even — to have an idea tomorrow that contradicted your idea today, the smartest people are constantly revising their understanding, reconsidering a problem they thought they’d already solved. They’re open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking.”

Too many of traders, fall “in-love” with their trades. In communicating with like-minded people (like other gold bugs), they build a circle of “confidence” around themselves. This helps them feel emotionally secure, but they should be looking for holes in their trading ideas instead.

The ability to be open to different points of view  know that it is OK to change your mind, i.e. take that  stop loss, is CRUCIAL for any business man, as well as any trader. Take Jeff Bezos advice and run your trading business accordingly.

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Frank Clements and Michael Martin talk about the past week in Energy Futures and about the upcoming week also.

weeklynaturalgas

NYMEX Natural Gas, Weekly

dailynaturalgas

NYMEX Natural Gas, Daily

dailycrudeoil

NYMEX WTI Crude Oil, Daily

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Goldfuturesshortselling
(click for larger image)

Gold sold off about 1% yesterday and if you’re not short, you haven’t missed anything. The worst thing you can do is obsess over a missed trade or an opportunity you see after the fact. Two, this market was in a tricky range before yesterday’s sell off.

Here’s what you should look for IMHO:

1) Wait for the contract to rally up to the trendline and hopefully settle there. That’s at about $1170.

2) Sell the contract short on the reversal off the trendline. That is your lowest risk entry.

3) After you’re short, you’ll be looking to make sure that GC sells off and sticks. Make sure it takes out the lows of yesterday ($1729) and of 9/26 ($1738) and that it stays there.

The 20-day ATR is about $20. A good indicator of when to cover is on a day when you see the contract off $40.

Risk Management

If the daily vol is $2,000, you don’t need me to tell you that you should have between $100 and $200,000 in your account. Of course, some of you don’t, so you’re likely trading with leverage not by choice but by necessity. This is why you cannot chase something and that missing it is better for your mental health than some of the popular notions about how devastating it is to some to miss an opportunity. Get over it and don’t believe everything that you read on the internet.

You’ll miss plenty of opportunities regardless of your methodology over the course of your career. You’ll always have more than one chance to enter a trade. The moves worth being in don’t happen overnight and then “that’s it.” They last for weeks and months and there will always be a second chance to enter a trade for the first time.

goldweekly
(click for larger image)

Further, you should always be uptiming and downtiming your trades. Look at the charts over multiple time periods for perspective. When you see GD in the weekly charts, you see it’s in a trading range. So what’s the big deal?

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Is fire dangerous?

Fire can burn your house to the ground, save your life, protect you from predators, and help you sanitize water.

So is fire dangerous? It depends how, where, and when you use it.

Options are like fire, even though they have a reputation of a product used by reckless speculators. They also can either burn or save your portfolio…it all depends how you use them.

Constantly apply long spreads and other long gamma strategies to your portfolio, and options just might save your year when the unexpected happens. See Google chart above as an example of the potential benefit of some leverage and absolute risk control. Own the stock in the 750 range or own 720 calls or maybe a bull call spread.

Which is potentially more risky?

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Nassim Taleb

Tony La Russa

Since I won’t be watching any baseball this weekend, I’ll be catching up on some reading.

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