Here are some lessons learned from the last week (2014/10/24 to 2014/10/31):

1. Potential energy is very great for a rise in stocks. Any big central bank, any big pension fund, any big asset allocator can raise the proportion of its mix of bonds and stocks by a little, and the market can jump 3 or 5% just on the thought.

2. It's easier for a market to go up 10% from a low, then to go down 10% from a high. And improvements and much more likely than falls.

3. All my people know how to make money after the market is going down, but none of them know how to make money after the market has gone up. It's just as bullish after the latter as the former.

4. The worse the news, the better it is for the market as weak hands have got out.

5. When you are way down on a position and it goes to a point of manageable loss or worse yet break even, it's a great time to double up rather than get out.

6. Markets like to go to a round number. Crude broke 80 and gold broke 1200. And SPU broke 2,000 among others. The rub is what will they do when they get to the construals. In two cases they broke right through, in the crude case, they went right back up.

7. If you put in positions of size over night, you are a goner. Either you'll make a small profit, or you'll be wiped out, so you have to stay awake the whole time, for 24-7 which is impossible.

8. When the market refuses to hit your limit for a very long time but touches it the way my bond positions from the long side did often last week, prepare for a big loss.

9. The ratio of stocks to bonds is bounded on one side but not on the other.

10. The unexplained strength in the market on Thursday, was a precurse to Japanese activity on Friday.

11. After a streak of wins you are likely to lose if you try the same thing over and over again.

12. Having positions in many different markets is very dangerous as they all can go against you, especially temporarily in an effort to force you into oblivion. The markets often have a theme and if you play the theme in many different markets, they'll kill you in an ensemble when they go against.

13. The gold bulls, the doomsday crowd, with all their bravado is more pusillanimous then a mouse as witness a 6% decline in gold in a week.

14. Ephemeral things like protests in Hong Kong are opportunities to buy.

15. The favorite thing for market commentators to do before an election is to say that the market does better when the agrarian reformers win rather than the enterprises. Yes, that's true, when an agrarian is going to win, the market will go down 10% in the weeks before, and when an enterpriser is going to win, it will go up 10% in the weeks before.

anonymous writes: 

Great points Victor, maybe add:

Have something in your arsenal for markets that are trading not in your preferred setup mode, (mean reversal, say, or breakout) but are exactly where your fundamental bias lies. A good example this week was dollar yen for me after FOMC. It was effectively the strongest recent currency against the weakest but nothing was done on the long side here as my trading tool arsenal was too rigid and zero opportunity presented itself. The rocket took off and the trail is still burning.

Gary Rogan writes: 

Up until about 2009 I have been a great stock picker, but since then my record has not been too good. But my mental commitment to never sell other than to balance the gains imposed on me by buyouts has been a pretty good strategy. Most of the winners from way back when are still with me and they don't know any better, they just keep rising. Unless Alan Abelson is proven right posthumously I expect the latter to continue.


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