I've started reading Bacevich's "The Limits of Power" using a non-linear reading method prescribed online. The link to a PDF outlining the reading process is in my previous post.
Today I started the preliminary, "discovery" stage of reading. According to the guide, you ought to read through the book three times, with a different focus each time.
The first of these stages is the "discovery" stage. In this stage, the main focus is to gain an overall grasp of the author's key ideas, points, methodology, and context. In order to do this, I got a stop-watch, a highlighter, and a note-pad and pen.
I set a goal to read the whole book in 6 hours. By the professor's metric, the first read should then take about 35-40 minutes. I took 69 minutes, a little over an hour. I will definitely get better and faster at this--this was the first time I ever attempted to do it, and I eventually got into a faster groove as time went on and I honed my practice.
Results:
This was fun, and I could probably have a conversation about the whole book, even based off this preliminary, short read.
I have 5 more hours to read. I estimate I'll take 3.5 to 4 hours on the actual reading, then 1 to 1.5 hours typing up notes and formulating critique and counter-argument.
This was fun!
It's time for me to actually start doing this again. It's very easy to get out of this good habit, at least right now.
S:
Why I think this will go up: This is a channel/resistance buy. The trend has been up, and it also has been bouncing on the bottom level of it's current trend-line. A pure technical play.
When my assumptions will be proven wrong: If the stock price breaks down out of the trend, then the trend I've drawn is no longer viable, and I'm wrong.
At what point will you sell for profit? I will sell for quick profit on the next bounce up to the top of the trend-line. This level will change (go up) as time goes on, but could potentially be around 4.80 or 4.90.
FEED:
Why I think this will go up: FEED just experienced a huge triangle break-out. These breakouts usually go up, then consolidate for a little while before continuing very large up-trends. Through the breakout and consolidation, it started to form a "pennant". A pennant is a continuation pattern which mark a small consolidation before the previous move resumes. They usually mark a mid-point of a move.
When my assumptions will be proven wrong: This will not be a successful pennant if the price of the stock drops below the bottom horizontal line of the pennant, at around 3.30. If I stop out the stock at 3.30, I'll have lost $67. If I complete the move, I'll have made $600 ($1/share first move, consolidate half-way, $1 share second move).
When I will sell for profit: If the overall market shows a confirmed downtrend, or if the stock reaches it's objective around 4.30, I'll sell for profit.
SWC is near a breakout of two different types of bases over two different time frames. This could be explosive!
GNK has had a big rally, but is about to hit another resistance level!
JASO already had one "triangle" formation, but it failed to act and just started making an even bigger one. Watch this for a break out/down:
I alluded to the need for balance in this post.
Here, I’ll illustrate my points with aviation.
Balance is essential for beginners. When you learn how to fly, or are an amateur, licensed pilot, you typically fly aircraft that are designed to be balanced, and stable, like this:
A Cessna 152.
What do I mean by “stable”? I mean that it’s designed to revert back to the norm when you input a change. If you pull way back on the stick of this airplane for a few seconds, then let go, what’ll happen? It will take a steep climb, lose airspeed, then dive for a while, gain airspeed, climb, lose airspeed, etc, oscillating up and down, and eventually stabilize itself back to level flight. Your input is damped out, and things return to normal. The plane could, literally, fly itself until the gas ran out.
This is opposed to an “unstable” airplane, like this:
An F-14 Tomcat.
Opposed to the damping input, this kind of aircraft is unstable in that it AMPLIFIES your input. You pull the stick way back, and it will scream upwards. If you let go of it, it’ll go completely out of control, and you die.
Why would they build an inherently unstable aircraft? Because if you know what you’re doing, you can make it do unbelievably nimble, tactical aerobatics. IF you know what you’re doing.
The slow Cessna will be less affected by your piloting, whether they’re horrible or superb. The Tomcat will amplify your skill, or complete lack thereof.
This is where I’ll segue into trading in the stock market.
Living a “balanced” life as a trader means that if you make one error, the inherent stability and balance in your life and trading plan will damp out the error, absorb it, and eventually even things out. The drawback here is that if you’re really good at trading, the balance, (which in my mind means time spent exercising, sleeping, spending time with your family, etc) will also “dampen” your success. Your skill won’t show up quite so much, since trading is a smaller part of your balanced life. Hence, “balance” helps you when you’re new and learning from mistakes, but restricts you when you really know what you’re doing.
The Obsessed Expert versus The Obsessed Imbecile
I notice my life becoming unbalanced when I stay up late, spending way too much time looking at charts, over-trade, and generally become consumed with the stock market. When this happens, even my small errors lead straight to bigger ones, and occasionally, a death spiral.
Have you ever noticed the time-stamp on blog posts or comments made by some of the tabbed bloggers on this site? I wonder how, for example, The Fly gets any sleep at all, when he’s trolling the PPT at 2:30 am on a sunday night. From my perspective, he and others here are very unbalanced. They’re abnormal. But that’s because they’re flying the F-14, and are able to “fly” circles around the idiots, shooting them down and moving on to the next tool. Their abnormality enhances their success. They should be unbalanced, because they’re that good.
Following _____’s Trades
I think it’s amazing, reading comments of a few clearly dimwitted people on this site who like to try and follow on Fly’s trades, or anyone’s trades. That’s potentially like a new private pilot watching the Blue Angels, and then thinking,
“I’m going to get in a supersonic jet and follow that guy, and do all the same aerobatic moves he does! This will be easy!”
If you don’t have the hair on your chest yet, don’t fly with the big swinging dicks! Learn some of the principles they use, then scale it back a little bit. Keeping balance will keep your wits about you, and keep things in perspective. Someone who reads Cramer’s investing books and then starts trading with FAZ and FAS, or TNA for that matter, is probably caught in the bizarre misconception that you can make money without putting in hard work.
I remember a month or so back when THE FLY bought TNA. A bunch of people said that they got in that trade, following him. Did they have any idea of his rationale behind buying it? His timeframe? How that buy worked into his other strategies? Negative. Many of them jumped in the cockpit of a dangerous machine, and were subsequently keelhauled.
I learned this through trial and error, noted it, and moved on. I’m an amateur, and try not to get into deeper water than I’m able to swim out of. I’m learning more with every mistake made, and lately, that it’s important to seek balance.
Follow the Warning Signs
Also important to note is that there are always signs which warn me of pending imbalance. For me, some of them are:
I notice a few of these , and throttle it back a bit. What level of equilibrium are you comfortable with? Are you in way over your head?
In conclusion, take some risks, and learn from them. Your trading risk can mature as you mature as a trader, speculator, or investor. Think about what a balanced life looks like to you, and what might be warning signs of imbalance. Over time, you’ll be able to catch dropping knives, fly with the pros, and one day, bank some serious coin.
For a few weeks now, I’ve meant to get around to writing about the extreme importance of having balance in my life in order to be successful. This is still not that post, but such thoughts will be forthcoming.
I’m pretty embarrassed at my conduct today, market-wise, and I blame the stupidity of my actions on the recent self-inflicted imbalance my routine has taken. I’ll work my way backwards, here and now discussing and addressing the stupidly made errors.
I say stupidly made, because a few of them are repeats. An error is acceptable, providing that I learn something from it. A second time, means I didn’t take the time to view that error as a lesson carrying the seeds of success, rather than an affliction, driving me toward failure.
Briefly, here’s the time-line of events:
That’s where I lie now. It’ll take a few days to un-fuck my account, and I’ll definitely get a hair-cut on the bottom line, regardless of what happens. Here are some warning signals I should have seen, aside from the “red flag” of showing up 5 minutes late to work. This is starting to get into the issue of maintaining balance in life:
The unsettled funds trading shows a complete departure from a sober approach to trading. I am not beating myself up for it; the market will take care of that. The stock market is merciless toward the slightest mistakes made. An “efficient” market also means that people who act stupidly will lose their money.
I’m glad I “awoke” from this daze. Sometimes, losing in the stock market helps me to remember to invest in the OTHER parts of my life. I figure that I’ve lost some money, but I can grow richer in other ways: by reading and learning more about the world, by getting in a good workout, by studying my profession of warfighting.
Hopefully this kind of review will prevent future mistakes from being made in the future. Pointing out the mistakes made and the signals missed will make them more noticeable next time. Tomorrow is another day!
Some crap I'll be keeping an eye on tomorrow:
XOM:
TXCO:
FEED:
OVTI:
And my favorite for tomorrow, SWC:
I went crazy today and made a bunch of trades.
FEED: Out at 2.93 from 2.35 (nice)
SH: Out at 72.16 from 78.63 (ouch!)
SWC: In at 4.4, out at 4.75 (nice)
LDK: In at 8.3, out at 8.15
GNK: In at 15.05, out at 15.40
Exhilarating.
At the end of the day I realized I was seeing too many mixed signs about the market. I had been a converted bull for a few hours, buying break-outs like it was 2007, but then realized that after having some fun in the water, I shouldn't forget to watch for lurking sharks. I have a feeling some of the giddy bulls around here are going to get their prairie oysters shucked off unexpectedly and ground into oblivion.
I'm probably wrong. Hopefully I'm wrong--it'd be great to see a confirmation of a new bull market. We'd need two things to set a new trend, at least according to the Dow Theory:
The breakouts I bought today will SOAR if news turns out well in the next few days. I'll catch the late train and bank less dough, paying for my uncertainty.
Read this post by Alpha and I looked up a platinum mining company. Here's my chart idea:
I recently came across "Rounding Tops" (and bottoms) in Technical Analysis of Stock Trends By Edwards and Magee.
The "Rounding Top" is a gradual, progressive, fairly symmetrical change in the trend direction. They are more commonly found in more exclusive equities, shielded from the daily excitement of the masses. (Note: An index like the SPX may exhibit a similar quality.)
Top formations are completed in a relatively short amount of time. As you can see in the chart above, a whole semicircle has been drawn using a fibonacci ark, and we're currently at its peak.
Other characteristics of a Rounding Top: Volume should ebb to an extreme low at the top of the pattern if its implications are to be trusted. Check out the low volume at the recent highest days.
Disclosure : I'm long SH (short SPX) and long FEED
Poignant and realistic commentary on the market, from a fundamental perspective:
"ARE WE THERE YET?
We have found that the incessant questions asked by children on a trip are also imitated by adults on CNBC and virtually everywhere else.
We have heard literally thousands of times in the last months “Is it time to buy the financials? Is the market at the bottom? Is it time to get in?” The questions go on and on by many who should know better because, of course, there is no answer.
More than 663,000 jobs disappeared from the economy in March bringing the total in excess of 5 million. Tragically, we seem to be getting used to figures like these. The first three months of 2009 saw the unemployment rate soaring to 8.5% up from 7.6%. This is the highest level in more than a quarter of a century. More than 2 million jobs were lost according to the Labor Department's employment report released on Friday, April 3. Nearly every job category was affected, and Dean Baker, a director of the Center for Economic and Policy Research in Washington said “There is just no way we are anywhere near a bottom. We’ll be really lucky if we stop losing jobs by the end of the year.”
/**********Hammy Note: What would you call a bottom? A)The number of lost jobs per month starts to decline, or b) we actually start gaining employment?***********/
This severe recession/depression was initiated by a crisis in the credit markets. The crisis still exists as no one has yet been able to determine the value of the toxic assets that the banks and the non-banks carry on their books. We believe that AIG still carries approximately $1.6 trillion of toxic assets on its balance sheet. Until an answer can be found that can put a value on the toxic assets held by the banks and “non-banks” the crisis will continue.
Consumer spending appears to have leveled a bit after nose-diving in the last quarter of 2008. Auto sales improved slightly month over month in February versus January, and house sales have been improving in important markets like California and Florida although at substantially reduced prices. These are all most welcome signs, but they hardly negate the overwhelming problems our nation continues to face. Another good sign: Stock and bond markets have been stabilizing when compared to the last five or six months, and there have been rallies in this extremely volatile bear market that have been strong enough to bring risk-takers back into the fray. We are encouraged by these developments, but do not believe they can be sustained until we see concrete improvement with regard to the fundamentals. We repeat that the basic problems, unfortunately, will continue until a workable solution can be found for the all pervasive credit crisis."
Note: all emphasis is mine.
This came from a newsletter issued periodically by John Hamilton at www.hamiltonadvisors.com. As may be apparent, they don't waste resources on a flashy website.
Hamilton Advisors is a investment advisor/management company located in Greenwich, CT, founded by my grandfather and run mainly now by my dad. It's personal service, and you can really get to know the guy who's banking you coin; many of the business relationships turn into lifelong friendships. If you ever consider trusting someone else with your investments, give these guys a call and find out what they're about--you won't regret it!
anyone else been having a bad week?
Time to make some decisions.
When I traded into SH at 791, I stated the following:
What invalidates your assumptions? Breaking back into the last up-channel would signal another trend-change. There is high possibility of sideways action, fake-outs. We’ve seen one lower high, and have now broken the downside too. To shift this trend, we’d need both a higher high and lower low.
here is a look at my market trends in the S&P when I bought it, then (3/30/09):
Well, based on the assumptions I made when I bought it, this trade has gone kaput. However, I’m tempted to hold on to see it test the prior up-trend from Feb 9, around 870. If it passes this, then that’s a good case that the bull market could end. That would be a higher high, and to confirm the uptrend, we’d see a higher low.
This was, primarily, a channel trend, and the price action has broken out of the channel. I need to look and see how hard I should hold to the trend integrity principle: If it breaks out of the trend, the trend is likely to fail. So I look and see : How much has it broken out by? Has it broken out and re-entered before? Did I draw the channel incorrectly?
I redrew the channel. It actually works nicely and makes me sort of want to keep holding onto the short. This could be the exact pivot point for getting short:
Here is one of my lessons learned.
To restate what I said in the picture, incase the graphic is lost ever:
“The ‘channel’ trade is good as long as the price pattern stays inside the channel. There are a few things I’ve learned to keep in mind from now on: The upper and lower limit of channel trades is dynamic. Prior to each day, or each week, determine what price level invalidates your price range. Today, it was around 830. I mistakenly had 845 in my head as a sell point, but that’s the limit from a few DAYS ago. Had I sold at 835, I would have saved myself from a 23 point short squeeze, as we ended today at 858. “
I’m going to hold onto my position. The downward trend hasn’t been broken yet, and we’re at the top of the upward channel I drew. I think selling right now might possibly be the worst thing I could do.
I’ll review this in a week to see how it went.
On a separate note, keeping charts and blog posts of my trades and market outlooks has pointed out nearly half a dozen serious mistakes I commonly make. Many of them, when they’re pointed out (by myself through reflection, usually) seem obvious and glaring, but they never were until I attempted to explain my thought process. I’m definitely getting better at this. It’s just taking some time!
just bought 1000 FEED @ 2.42
Why I think this will be profitable: FEED just broke out of a multi-week bull flag to the top-side on good volume. I believe the break-out signals a new bull run-up.
When my assumptions will be proved wrong: If FEED breaks down from the breakout and passes the bottom trendline of the bull flag, then it clearly hasn't broken out and my assumption that it's going to rise will be severely challenged and most likely, wrong.
It always helps to keep multiple time frames in perspective.
Here's a look at the long term (multi month) downward market we've had:
That last leg up is the March rally. Notice how it just hit the top of the trend line. It's following the same pattern as all the previous rallies (nov to january, october to november).
Zooming in a bit, here's a view of our recent March rally:
Take a look at that, then take a look at the chart above it to gain some perspective on where the March rally lies in the overall market.
Now, here's a zoom-out with tracing of recent action:
I'm betting with the longest term trend. If the SPY was hitting the lower trend-line of this channel, I'd take a smaller long position. It'd be small since I'd be betting against the longer-term trend, but with good reason and evidence that it's going to oscillate once more. However, we're about to experience a down-trend within a down-trend.
My assumptions are:
My assumptions will be shown to be wrong if:
I haven't been paying much attention to the daily action during the past week, because I'm thinking in a 3-5 week timeframe. Also, so long as my assumptions about this downward market aren't shown to be wrong, my plan (based on those assumptions) is valid.
Follow the trends. If you are patient enough to confirm reversals, you'll only be wrong once, and the one-time loss of a reversal will be surpassed by your wins.
The new possible downtrend in the SPY will be confirmed if we get another small rally that doesn't surpass the last one. Once that turns over, it's time to get short!
There are a few things I certainly need to write about, but I'm just going to enjoy myself and forget about the "work" i have to do tonight.
I am still bearish, but this makes me a bit less so. Trends have to change somewhere, and usually show their change with a recognizable pattern. One such pattern is the double bottom base. As described in "How to Make Money in Stocks" by Bill O'Neil, a double bottom requires:
The buy point is located on the top right side of the "W" where the stock is coming up after the second leg down, and should be equal in price to the top of the middle peak of the "W"
What do you think out there? Does a double-bottom base need to take place over a longer time period in order to be valid?
845 is the apex of these three lines. I predict a decent move down in the short term (1-3 days) and in the mid term (3 weeks).
I'll revisit this post within those timeframes and evaluate my trend-line-drawing skills.
If I'm wrong, a 1-2 percent move above 845 will persuade me to get long. Note, as time goes on, the sloping, longer term downtrend gets lower, and the mid-term uptrend gets higher. The S&P is going to have to make a decision. Where does the real strength lie? I put my money with the bears.
disclosure: long SH (short S&P)
Trade System by "cuervoslaugh" here.
Results:
we're breaking out of trends today. Here's another one to test. Breaking this one will be aid in confirmation of a new longer-term uptrend.
putting my feeble opinions in contrary to The Fly, I expect to be summarily bereft.
Charts on the Fly's recommendations via Fly's article:
All commentary beyond here is my own.
YGE: Due for correction. Hasn't shown reversal yet.
CSIQ: 6 months down, 4 flat. Now @ top of channel, will bounce down
I'd wait until it makes another reactive correction.
Here's ANH. This wedge actually goes back to mid 2007:
GLG has become flat, but hasn't shown evidence of reversal:
TIBX is in a 4 year downtrend, thought you can't see it here:
CY is going down:
TLAB: down due to channel, though it's been showing a new uptrend. A breakout would be very significant.
What do you think?
Time to take a look at all the bad decisions I made over the last week or so of stock marketry.
Here's a link to my last trade review. The main thing I learned that week was to bet with the overall trend. Looking back on the steps I formulated for better trading, I realize I basically outlined the Dow Theory without ever having read about it. It's pretty simple stuff, but that shows these trade reviews help me learn how to be smarter in investing. *I know it's the Dow Theory now because I started reading Technical Analysis of Stock Market Trends, which outlines Dow Theory in the first couple chapters.
So here we go. I'll look at both trades and market predictions. I'll decide whether, in hindsight, I should have bought earlier or later, sold earlier or later, and try to catch some things I missed. I'll review if my assumptions were reasonable and if I set prudent points to consider my trade a bad one.
3/25/09
3/26/09
I did make some good assumptions, and "break through resistance" buys are OK as long as it's a confirmed breakout. I just need to confirm a breakout with decent rise above resistance, and good volume. I'll miss some of the first fruits, but it'll be a safer, surer trade. It might not hurt to mix some Dow Theory in there, and look for either the new support to be tested and stand, or to see a decline w/ a low above support to confirm even more. CONFIRM THE BREAKOUT beyond mere price action.
3/27/09
I decided to trade with the trend, once resistance was breached. Again, I was not looking at the overall, long-term trend. My reasoning was OK, but I need to adjust a few things. This has become trend in myself over the last few days: first, confirm breakouts with decent price breakout, and volume to confirm. Don't just buy once it enters a resistance/support zone. I was trading with the mindset that went like this: "We're still in this upward channel. Chances are, the trend will continue and this resistance will turn into springboard support." This would be a combined channel/price support buy. The perspective of a longer trend was the one caution I was missing.
this is when i finally learned my lesson.3/30/09
3/30/2009
That's about it for now. I'm still short SH, due to convictions discussed in this post.
I'm definitely learning a lot. Here's a summary of the lessons learned over the last two weeks (at a decent price, too):
