I've been trading almost my entire working life, almost 20 years. I've tried and rejected a number of approaches to reach my present state of thinking.
I started this trading blog to keep myself honest and doing only the very smartest things I can think of, transparently and honestly.
My methods... plain and simple. I reject no technical or fundamental (or, hell, astrological) arrow in my quiver. How you manage your positions is almost as important as what you pick. Dr. Elder's Trading for a Living and his subsequent works have greatly influenced me.
When picking a vehicle in a particular market, I tend to look for
a) divergences in oscillators and trend indicators in
b) stocks with a clear technical pattern in
c) groups that exhibit the same characteristics in
d) a general market likely to support the directional move I anticipate
I believe the most important rule for trading successfully is to limit losses. My elevator pitch on this goes something like this:
- In a bull market, which is 70% of the time, you must perform as well as or better than an unmanaged index. Else, there's no point in trading.
- In the 5 year bull market from 2003 through 2007, the S&P averaged 10.8% annual gains. The Dow was even better, at around 13.2%.
- In order to outperform the unmanaged S&P, you must have 60% winners with an average near 25% gains and limit the remaining 40% losers to an average of 5% or less. This performance would only allow you to have stayed *near* the Dow.
- In 2 decades, I've never encountered a trading philosophy that can consistently produce 60% winners.
- You have to make up any difference by outperforming during the 30% of the time the market is declining.
So, for me, a position risks no more than 1% of the account. 0.5% is even better. I might have a position that's 10% of the account with a 5% stop, for example. 5% stop isn't a hard rule. The tighter it can be, the better, but I'm going to put it somewhere that makes sense with respect to support/resistance.
I assume I will be stopped out fairly regularly. To prosper, I must hit lots and lots of singles with many small, winning trades.
Now, totally violating the Elder principles, specifically, the last year, I've always had a balance of long and short on between 60/40 and 40/60. When the oscillators reach a significant level of oversold, start covering shorts. When they reach a significant level of overbought, start selling longs and adding shorts. It's always a bit of daily gnome's work whittling down positions on one side and building them back on the other.
I usually use the double-long/short index products for this. DDM, DXD, SDS, etc. The way the last year has gone, the sharpest rallies always seemed to be in the things you had to hold your nose and buy the week before, for no discernible technical or fundamental reason.
I refuse to believe that anyone is that good. I think you have to try to steal a little bit of the move with index products, bought and sold by the oscillators and sentiment. And still be willing to take some pain.
About the title... I'm really not a crass person at all. It's merely a statement about avoiding distractions and focusing on making money.
I've been a regular at nearly every important internet financial site for over a decade now. Even among so-called professionals (I'm looking at YOU, RealMoney columnists), the emotionalism - cheerleading, pollyannism, apocalypticism, book-talking, what-have-you - tells you they bring an agenda to the table. I suspect it has cost many of them alpha along the way.
One thing I vow - you will never see me make a FIGJAM post ("Fuck, I'm good, just ask me.") like these assclowns. My own experience is, when I feel all warm and FIGJAMmy inside, it's time to take some money off the table.
At first, when I disagreed with someone, I'd respond with a coldly reasonable, defensible post. I realized quickly this was a waste of time. So now, whenever I think about responding to someone, I evaluate it by asking, "Will engaging in a difference of opinion help me get rich or make me more appealing to hot girls?" The answer is almost always "No."
Applying that more generally to life, I'm a lot happier after I vowed to ignore anyone who processes the world out loud through a prism of politics or religion or other mass delusion. I believe people have the right to hold whatever crazy-ass belief system they want, as long as it stays confined in the comfort and privacy of their own gray matter.
The ground rules here:
- If you trade anything based on anything I write, you're on your own.
- If I do anything with a position, there may be a lag before I write about it. I may not say anything about it at all, especially if it's something thin. I'm so paranoid I have to consider the possibility that there would arise a cottage industry in fading my picks. Realistically, though, I'm trading things with daily volume in the millions, so this won't matter much.
- I'll never write about economics or politics. If you want an econo-pollyanna, go to Kudlow's site. If you want to read about the coming apocalypse, go see Faber or Roubini. All you'll ever get here are buy points, sell points, stops, things I'm looking at.