Market Curiosity: Exploring Markets And Systems

February 5, 2011

Long SLW, again part 2: How to overtrade and reap -10% while long in a bull market

Filed under: Long Calls, Mistakes — Tags: , , — Jeff Fitzmyers @ 2:15 pm

Long June 36 calls at 3.65. Exited 3.30 -10%

The nectar form this experience is that:
+ The idea that day trading is not my forte was reenforced.
+ I re-learned the importance of keeping the core position without too much cost.
+ I can get right out of a position and then right back in and the world won’t end. Meaning I can make mistakes and correct them quickly enough so that they are not a big deal. This is an accomplishment for me: really grokking that the market does not care about the size of my position, my leverage, nor my timing. It just does it’s thing.
+ Unless things are obviously overextended, only trade 25% of the core position.

Things done correctly:
+ Added to the core and very speculative June 60 calls.
+ The lesson only cost half of open profits at probably the beginning of a strong move up. (As compared to 3/4 of profits at the end of the run.)

Things to do better:
– On any windfalls, immediately withdraw some money. A couple percent off my trading account is smaller than the noise of mistakes and non perfect timing. But it’s a relatively big deal to savings and checking accounts.

Rick Ackerman’s timely post: Trying to play top-caller, going 100% into cash before a “reaction,” then attempting to get “all-in” again before prices blast off, is a sure-fire way to get knocked off the precious metals bull, landing on one’s back, and most likely staying there for the duration. Granted, there is nothing wrong with trading some holdings into market strength and then looking to buy back on a reaction… the greatest traders out there – the iconic Jesse Livermore, the late great Sir John Templeton, legendary goldmeister Jim Sinclair and his father, Bert Seligman – all sought to lower their cost basis by carefully selling certain rallies and buying certain declines.

Stewart Thomson … “Only losers try to trade their way through a bull market with core positions. They end up at the end of the bull with nothing. Winners grip core positions tighter in corrections and add to positions.”

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