Aug

4

In consideration of some recent market themes and timeless maxims I have been thinking about the following:

1. Develop your own repertoire of analytical and combative techniques. What works for one person is not the same as what may work for another. Faulty and ill reasoned theses will detract from your ability to succeed. Is the U.S. really like Greece? What are the similarities and differences between say Greece and Puerto Rico? Learn from and incorporate from others but you need to sow your own techniques and own the trades.

2. The right distance is critical in both being able to strike at opportunities and not be hit by ill-timed forays. If in fact the U.S. is like Greece what, when, and how is the best way to trade that view? You want to keep a distance at which you can activate offense at any time and score. But, you want also want to be able to keep your distance measured so mental and physical capital is not unduly expended.

3. Utilize the power of the message of the markets and prevailing trends. The recent trend in commodities, emerging markets, and related assets is a prime example. Was it right to anticipate a top in 2009 if the thesis was the bailouts, monetary, and fiscal measures globally would not sufficiently engender an economic turnaround? Or was it better to wait until that fact became evident to enough market participants?

4. Anticipate the markets through analytics but wait for the market to confirm before fully committing.

5. Hone your focus and test the waters with small forays into a thesis with limited risk through options or position sizing.

6. If the thesis is right what is the best way to leverage not only the capital in a portfolio but the power of the market? How does one not sit idling by and watch an expected move with an incorrectly sized position?

7. Consider warning signs as to when that trend may be exhausted and due for a correction or reversal. For example does the recent establishment of short positions in gold by speculators mean anything? How might this be combined market positions and expectations with the upcoming data releases in the US, Chinese stock market, US Fed policy and expectations, Greek developments?

8. Find the most direct expression of a view, don't get distracted by trading the derivatives of a thesis.

9. It is not about what you think is right but the what the market is doing. The recent plunge in the US consumer confidence indicator and market reaction was not about what the validity of a number but what the number was going to be and how to predict the number and the market reaction. Ari Kiev used to emphasize this to me all the time in our frequent discussions.

10. Find the balance of not being complacent or dogmatic but also fully committing mentally and with sizable risk when a strong thesis is in motion. Mushin no Shin .


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