May

6

 A while back, someone asked about the value of doing nothing. I had two positions on going into this morning - short S&P, and short natural gas. Had I not turned on a computer today, I would have made enough money to forgive many a sin of the first quarter. As it is, I ended the day breaking even when I had started out being significantly short two markets that gapped in my favour and then later basically went over a cliff. I won't go into the gory details of what and why I traded - nor share my feelings - but I'm pretty convinced that I'm going to have to hire a guy with a gun who, after I've set up the trade and the risk management, under contractual obligation is required to say to me "Sir, step away from the keyboard, or I'm going to have to shoot you in the head."

I would say there is value in doing nothing.

Speaking of doing nothing, the hockey game is on and the couch beckons.

Alston Mabry comments:

 One sympathizes. It brings to mind this proverb.

Kim Zussman writes:

 Randomly speaking, the market might have just as easily shot up and you could have avoided regret.

Gordon Haave writes:

Whenever I am in a business meeting and someone has come to it with some pressing need we have to react to right away, I always ask "what if we do nothing?". Everyone is always stunned.. they haven't even considered not doing anything. After asking that usually the consensus become to, in fact, do nothing.

Alston Mabry writes: 

 I would say that the over-arching issue is that the Market Mistress can torment her lovers in many, many ways. And experience would lead one to believe that tormenting her lovers is, in fact, her main obsession.

George Parkanyi replies:

Oh sure, Kim, you're right about that. But I had my risk management in place. Stops. But the point is, I had my idea right, and the method of executing basically set up to exploit the anticipated scenario. That would have played out very well, since there was nothing more that I needed to do at that point. Then I started changing stuff …

I don't mind being wrong, because that always happens in the markets, and you plan for it. What really gets me angry at myself is when I'm right and then I get in my own way. What other people do, I can't control, but what I do I SHOULD be able to control. Not being able to maintain self-discipline is a character flaw that has to be actively managed, and today it got the best of me. Doesn't always, but today it did. (Tomorrow may not be so good either, because before the close I went long a little silver.)

Jim Sogi writes:

Well, the next best thing to doing nothing is doing just a little to see what happens. If you're wrong, not such a big deal, but a small sample gives a good sign. Like Commodore when the guy gives him a hot tip in Reminiscences of a Speculator. See how it gets swallowed up.

Jeff Watson writes:

Jim mentioned probably the best thing I ever learned in my speculation game which is still going since 1973. "See how it gets swallowed up." Second best lesson I ever learned, but it only works with big orders and can tell so much about the markets, where they are, where they're going, who want's what, etc. Many things can be said with words, but until the order is put to the market, one can't say anything. The order getting digested is where the rubber hits the road and contains so much information(even in these electronic days), almost 10,000 pages per order if one is willing to keep an open mind and analyze it. The Commodore's system still works well in the grains, more than any other market I've seen and has been responsible for much of my limited success.

Vince Fulco writes:

The multi-day swing boys and the deep pockets are the big winners in GC1 so far tonight. Late afternoon, the contract came in like a ton of bricks as ES tumbled, with modest movement in equities after hours, zoom goes Gold as if the latter part of the day didn't even matter. The solid long moves all seem to be held "in reserve" till the day traders are flat.

Jim Sogi responds: 

I know its so minuscule, but the market knows when I put in my and my order makes it harder for Globex to move to the price and for a fill. I try to stealth even my limit orders keeping them mental until the price is where I want, ambush like. It puts me near the end of the queue, but at least its the right queue at the right price tick. Less chance of the hunter becoming the hunted, less exposure.


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2 Comments so far

  1. steve on May 6, 2011 4:25 pm

    sports provides so many great lessons here. Perhaps legendary basketball coach said it best “Dance with the girl, you brought to the dance.”

    A football team is leading a game call them A. Their opponent B gets the ball for one last desperation drive. Immediately A converts their defense to a “prevent defense”. Giving up 5 and 10 yard passes thus eliminating a big gain. Soon A realizes that B has moved the ball methodically across the field. B gets to the red zone makes four attempts to score a touchdown and wins the game.

    Bottom of the 9th. The visiting team has their closer in. The closer has a cannon for an arm. Instead of putting his best against their best, he tries to shave the corners, introduce curves and sliders in place of gas, and loses the game.

    One last possession left in a pro basketball game. Instead of letting the star player take the last shot, the second option heaves up a desperation shot and misses. Game over.

    My point is we live in an imperfect world filled with incomplete information. When you have a plan stick with the plan. You may have to adapt, refine, and adjust it but don’t abandon it.

  2. steve on May 7, 2011 10:10 am

    One further thought.

    I believe my friend Jeff Watson poker player extraordinare would concur with this.

    There is an old saying in poker: You play by the year and not by the day.

    Poker is all about winning money and not about winning hands. Surprisingly many players never learn this maxim. They never keep records, they have no cash management plan, they play way too many hands they don’t understand the rake and the toke and they have haphazard strategies. No surprise here most of them lose in the long run. True poker pros are direct opposites.

    They understand that in order to win on a consistent basis the majority of their time at the table is spent folding.
    they spend their off-time studying their opponents observing analyzing the table. They enter into pots that they have a decent shot at winning. And they go after the easy money at the table. They look for the fish. the low lying fruit and pick them off one by one. After all Sharks don’t attack other sharks.

    What makes most people abandon their strategies is they feel the pressure of compressed time. They move everything up in real time and make moves that they should not. An 8 hour plan suddenly becomes the next hand plan. They get edgy they get bored. All the attributes of anxious traders. This tends to happen near the end of a session and they start to play bad cards. This is a certain recipe for ruin.

    I strongly encourage the reader to go to The Education of a Speculator and reread chapter 1 The old trader and the yen. The Chair displays his greatest asset at the time of patience to wait things out until the trade comes into his domain.

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