Friday, July 25, 2014

7/25/2014 Portfolio Review. least I don't own BCOV.

Saturday, July 19, 2014

7/19/14 Anatomy of a Loss/ Miners

I took two consecutive (simultaneous, actually) losses on Friday: (i) a position in VXX went against me almost immediately, and (ii) a short on Emerging Markets (the bet was a continuation of global selloffs overnight) which landed me on the wrong side of an extraordinary squeeze.

Losses are part of trading.  One might even say it's the most important part of trading.  Yet it's a topic that's not often discussed.  Let's discuss it.

(a) The difference between a good trader and a great trader lies in the ability to handle losses.  (There are no bad traders, as the term is an oxymoron- no one who trades badly survives long enough to become a trader.)

(b) I'll start by being lazy and include two more quotes, this time from Barry Ritholtz:

Loss cutting:  Trading has this amazing historical footnote: If you study the great traders throughout history, they all share the same statement as their number one rule: CUT YOUR LOSSES! Capital preservation “keeps you in the game.” It is especially important once you understand the math: a 25% drawdown requires a 33% gain to get to break even; Down 33% means you need to rally 50% to get back to square one; As we saw in 2008-08, a -50% loss requires a +100% gain to get back to even. In sports “Defense Wins Championships.” The same goes for stock trading. Most traders need to focus more on defense.

Even Warren Buffett understand the traders credo: “The first rule of investing is don’t lose money. The second rule is don’t forget Rule No. 1.

(c) VXX.  I set a stop that made sense from the perspective of my psyche.  I stopped out at the point at which a loss would offset a gain on the same position the previous day.

(d) RYWYX.  From the same perspective, this loss was fundamentally more difficult to handle.  Being on the wrong side of a squeeze is painful enough.  Having the position 'locked up' until one of two trading windows is worse.  But I knew this going in.  Thus, my backstop (not just financial, but also emotional) was position size.  A 'very small' position enabled me to bypass the 1030 am window and give the position more time to play out.  It played out even further against me, extending a -3.19% loss at 1030 est into a -3.84% loss at 4 pm.  No worries- I had sized the position correctly.

(e) So how do I define 'handling a loss?'  I use a proactive definition.  I open a position not with a target gain, but a target stop.  Defining my loss parameters then allows me to appropriately assess and size the trade.


Gold and miners caught bids at important support levels at Tuesday's close, then rallied hard Thursday on high volume (GDXJ or juniors in particular).  On Friday, they had every reason to give it all back, yet both majors and minors managed to retain most of Thursday's gains.  IMO, that bodes well for prices going forward.  No guarantees, of course.  Which is why I opened positions with target stops.  That said, I place odds on another leg up in miners next week.

Thursday, July 17, 2014

7/17/14 Lack of Faith

The market often punishes unyielding conviction, but it also punishes lack of faith in one's sixth sense.

(a) I almost posted 'We crash tomorrow last night.'  (Really.)  It was a just a fleeting thought, and I brushed it off.
(b) This morning I scanned through my watch list.  Noticed the bid/ask on VXX @ 27.88/27.90, and kicked myself in passing for not opening a position @ 27.2x on Wednesday.  I never chase, and set it aside.  Maybe an hour later, the pre-market ask hit 27.60, which prompted a half position.  I added the second half after the open @ 27.44, watched the position rally to 28.50 and held steady.  Why?  Another fleeting thought re a plunge in the US indexes.  Unfortunately, we experienced a head fake first, which sent VXX plunging instead.  I exited at 27.96, then patted myself on the back as prices continued south to 27.30.

We all know the rest of the story.  (30-f---ing-54?)

Well, ---- that.  It's water under the bridge.

(a) Picked up a small position in RYWYX at the close (15.10).
(b) After hours, opened another small position in RSX @ 24.50 (-8% from yesterday's close).  If strapping a rocket to my Camry can send markets in Russia down -8%, it's an overreaction.

Side note: ATACX closed down -2.42% for the day, sending what was a +7% YTD gain on June 30 into red territory!  Looks like Michael and Charlie have more explaining to do this Sunday.

Sunday, July 13, 2014

7/13/14 Down with DB/ The ATACX Puzzle

(a) Deutsche Bank (DB) has given up 1/3 of its share price since January.  This has resulted in the usual analyst downgrades, accompanied by lowered price targets in the twenties (it closed Friday at 34.68).  I'm now an interested buyer.  What concerns me is whether DB proves to be the front man for the European Financial Crisis.  Take a look, for instance, at the price action in London's Barclays Bank, off over -20% YTD.

(b) For those of you still following the ATACX fund managed by Michael Gayed and Charlie Bilello, here is Michael's explanation for the recent drop in share prices.  (You'll recall that I exited the fund last Spring after losing patience with their 'once weekly' strategy, which did not mesh well with my 'skate to where the puck is going' trading style at the time.)  Given their track record in 2014 (a +7% YTD return through the end of June), I naturally assumed the -6.7% drop over the past two weeks must be an artifact (a yet-to-be-recorded dividend payout, for example).  Kudos to Gayed for giving us the play-by-play in this Sunday's Week In Review:

No strategy is perfect.

Tuesday, July 8, 2014

7/8/14 Post 4th Comment Cleaner.

Time to get back into the game! Opened positions in BALT/MONIF and added to CYTX. Still holding ARR and that juicy divy. Will look to enter BXE after a little more reading. Thanks for the link BB. Momos got spanked across the board as they should. Hopefully we can get some more pressure to the downside for more quality names.

Wednesday, July 2, 2014

07/02/14 The China Play

FXI (China) looks to be breaking out of a long, long base.  Scaling into China.

Monday, June 30, 2014

06/30/14 The Tasmanian Bear

Extinct, or scarce at the very least.  We're approaching the outskirts of a trading zone I'm looking forward to.  Opening small positions in VXX (Volatility Futures) and HDGE (a bear fund I've highlighted in the past).  The plan will be to close VXX on spikes, but to accumulate a position in HDGE.