First Steps into Trading

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Rank: Neanderthal | 2,888

General Note:
The purpose of this blog is to provide commentary on my simulated trading experience. It is mainly aimed to students and graduates interested in a career in trading and looking for ways to improve their knowledge of the field by providing them examples of the material I have found helpful so far. Comments from professionals are nonetheless welcome. The trading simulation is hosted by stockfuse.com.

Introduction: </ strong>

I started my two portfolios approximately last December, trading stocks listed on the London Stock Exchange and Exchanged Traded Funds listed on the New York Stock Exchange. While I make some ''real markets'' experience, I try to expand my knowledge reading blogs and books on the topic. One that has been particularly influential so far is ''Market Wizards'' by Jack D. Schwager. It's a series of interviews with some of the most profitable traders until 1989 and provided me a number of key principles I would say anyone who starts trading should keep in mind:

* There isn't a single correct way to make money. Some make money following trends, some make money on ''reversals'', some trading a single product, others by trading everything.
* If you have a strategy, stick to it. The easiest way to lose money is to chase the market because it is not going in the direction you thought.
* Have a stop loss. Stop loss is the maximum amount you are willing to lose on a single trade. Just like there isn't a single way to make money, there isn't a single method to ''stop the losses''. It is completely arbitrary, what is important is that you stick to your own method.
* Don't take tips. It isn't trading. Someone else is trading and you are completely dependent on them.

The Good and the Bad:

So, how would I judge my first 4 months of trading? December was the time of rookie mistakes, January was great, February was ok, March was nasty. In April so far I'm doing well, learning from the mistake of the previous month. During December I basically did the opposite of what I just described above; by January I had learned to stick to my strategy and the value of my portfolios went from 100,000$ (or PS in the LSE portfolio) to 166,000$ and 171,000PS. I will describe my strategy in details below. During one of those days I thought ''wow, trading is easy''. By the time March was over I was down to 119,000PS and 117,000$. Not only I lost more than half of the returns I had made, but I lost for 6 weeks consecutively, often losing for four days out of five business days. That hurt. The first half of April is being satisfactory.
I'm back to +40% and +22%.

See the attachments for the screenshots of my portfolios

Lessons learned:
* Markets can make you poor as easily and as fast as they make you rich.
* Know when to get out. (I understood the importance of having a stop loss in March)
* Diversification is a hedge for ignorance (William O'Neill in ''Market Wizards'').

The Ongoing Strategy:

My primary choice has been short-selling the energy and commodities industry. I read various explanations about the collapse of oil prices last year, ranging from the oversupply, to a market share war between Saudi Arabia and Russia, or Saudi Arabia and the shale oil industry of the US, I'd personally add that the Islamic State selling oil at 30$ per barrel in the black market did not help either; whatever you want to believe it does not change the reality of oil prices, hence shorting LON:TLW, NYSEARCA:USO. As it affects the whole industry, it makes little sense to me focusing on the fundamentals of companies, thus I regularly switched to LON:BP, LON:RDSB or NYSEARCA:OIL.

Additionally, the low copper prices due to the slowing down of the Chinese economic growth add pressure to those companies that operate in both the oil and metal industries: LON:RIO, whose core operations are in Australia, a major exporter of metals to China, and interchangeably LON:AAL or LON:GLEN proved so far to be satisfactory picks.

What happened in the second half of February and March, the 50% surge in oil prices, seems to be explained by[/embed] the mass liquidation of short positions. Mark Weinstein in Market Wizards says that ''people taking profits'' is often misunderstood, the reality is that they are cutting losses. It might as well be true. In a hindsight, since I did not know what was going on, I should have stayed out. Lesson for the future.
I tend to agree with this explanation; the reasons behind the short logic are still standing, the Baltic Dry Index collapse additionally points towards a return to the downward trend, thus I resumed my strategy, though I might temporarily get out as we approach an important meeting of the oil producing countries in the second half of April.

The above mentioned index collapse paired with[/embed] a number of reasons indicating the possibility of a recession ahead for the US lead me to buy LON:RRS, a gold mining company and NYSEARCA:GLD in late December.
I originally bought 1800 stocks of Randgold Resources at approximately 4700PS and liquidated at the end of January at 6000PS , which has proved to be my best trade so far. I remain bullish on gold, thus after taking profits at 6000PS and again at 6200PS I recently reopened the position.
An alternative to gold is the so called ''volatility index'' NYSEARCA:VXX, the Standard & Poor's short-term futures indicator of the anxiety and fear of markets.

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Image icon Profits London34.5 KB
Image icon Profits ETFs31.27 KB

Comments (57)

Apr 13, 2016

lol

    • 1
Apr 13, 2016

I for one an grateful for this post, there is so much to learn about trading, from volatility markets to non volatility markets. I was taught in College that the beta and non beta stocks are where to invest in based on CAPM, can you help clarify if that is correct? Thanks!

Want to Lose the body fat, keep the muscles, I can help.

Apr 13, 2016
workrelated1:

I for one an grateful for this post, there is so much to learn about trading, from volatility markets to non volatility markets. I was taught in College that the beta and non beta stocks are where to invest in based on CAPM, can you help clarify if that is correct? Thanks!

I do not use technical analysis right now because it has proved to be unsatisfactory for the state of the markets. I do not even focus too much on the price of the stock, if not purely for stop loss purposes. Trend and trend reversals are what matter to me.
In general, the higher the beta the higher the risk and thus the chance of returns or losses. I would say in terms of beta all of my picks are rather high in terms of risk, and I tend to counter that with very tight stop losses.
I plan to expand on that in my next week post.

Apr 14, 2016

Great, thanks!

Want to Lose the body fat, keep the muscles, I can help.

Best Response
Apr 17, 2016

The first thing you should realize when trading, is that both fundamental analysis and technical analysis are required. Fundamental analysis will help you understand the long term direction of a market (and only if you are right), but technical analysis will govern the short term price action of how market will get to that long term objective.

Knowing where an asset price will be 1-3 years, or in 1-3 months, in the future will do NOTHING to help you make (or lose) money trading an any 1 trading day.

The more leverage embedded in a market (leverage here defined as %of float held short), the more technical analysis will govern the price action of an asset. Why? Because leverage creates more opportunity to create volatility, and volatility creates more opportunity to squeeze out levered positions. This fact should keep market participants from using too much leverage...but human nature (fear and greed) overcomes this fact. People are emotional, and emotions are the cause of pretty much all human suffering, and most trading losses.

So, how can this information help you? First, you need to find a method of technical analysis that accurately describes the price action of your market. For some markets, a bollinger band is a great predictor of price action.

Lets zoom in on the bollinger band.....just as an example. A classic Bollinger Band (BB) is a 20bar simple moving average of closing prices, and a 2 standard deviation band (both above and below the BB moving average). A bar can be a day, a week, a month, or 5 minutes (or any other time frame). Depending on a markets volatility, you will need to choose the bar size (and # of standard deviations) that best describes the price action of your market.

I trade mostly 30yr bonds (and bond futures, so ZB is the futures ticker)...and i find that the 4hr and 30min bars with 3 standard deviation BBands are the most descriptive for my market (i actually add some other adjustments, but this will get you 80% of the way there)...so i look at multiple time frames. However, that's not enough. you must understand how positioning works in your market. (are central banks directly involved? Pension Funds?, banks?, hedge funds?, CTAs? Trend followers?) What are the calendar of known events?
How do traders "setup" for these events? You must also understand "how your technical indicator describes your market". For the BB, the bands expand and contract as buyers and sellers battle, and ultimately price "settles" into a stable state (stable for the time period you are looking at).

I could go on, and spend hours talking just about how to use a Bollinger Band (do you want to know how deep the rabbit hole goes?)..but i think you get the point. Trading is incredibly intensive. You are trying to predict the behavior of the crowd...many large participants, all with differing views. Add your own bias to the mix, and predicting price action (while not impossible, sometimes) is incredibly difficult. Perhaps one of the hardest intellectual pursuits. Some large hedge fund might believe that a company is fraudulent, and then bet with leverage that the stock price will go to zero...but then the market price might rally, and that hedge fund might get squeezed out of their short position because of too much P&L pain. Even if ultimately, their thesis turns out to be correct. Knowing where an asset price will ultimately go does not guarantee that you will make money trading an asset, because you need to not only be correct about the future price, you also need to be correct about the PATH of future prices.

It will take you years to become proficient at this...and even after that, there is no guarantee that you will be successful.

This is not to say that you will not be successful....or that you will ever be able to accurately predict the path of future prices...but the more you learn, the more you will discover that you do not yet know. This should not dissuade you from seeking education and knowledge. Right now, you are completely blind. First we need to open your eyes...then we can start to teach you how to focus your eyes, and then we can teach you pattern recognition. First you must learn how to walk, then yo can try to fly.

If you skip these steps, you will most likely just fall down and fail.

"WE" are the market....and we teach only thru pain, and experience.

    • 9
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May 6, 2016

those are some good points, but i think it's ultimately about finding a discipline/ set of rules that work for you. i don't believe bollinger bands or even a 30min/4hr time-frame have any predictive power...

May 7, 2016

put a bollinger band on the 4hr chart of ZBM6 (june bond futures)

Apr 18, 2016

Honestly, this is cool and all, but there's a reason everyone is a great paper trader. Personally, I think it's very dangerous to overly buy into technical analysis. To me, there is too much proof in the randomness of prices, and at the end of the day, fundamental analysis and macroeconomics drive prices, not chart patterns (maybe over the extreme short term, but then that's not a very viable long term strategy).

Read The Misbehavior of Markets as a counterpoint to your trading education. Too much of TA is self-fulfilling BS.

    • 3
Jul 19, 2016

so pretty much GS is the best of the best?

Jul 19, 2016

Ya it was a good article, thanks!

Apr 18, 2016

Thanks to Ironchef for the thoughtful reply.

I'm going to address your last point first: I'm well aware to be ignorant on the topic, I never pretended otherwise and truth be told the main reason I love trading is that you never stop learning.

I am reading reading right now ''Security Analysis'' (6th Edition) by Graham and Dodd and I look forward to incorporate anything I deem significant into my trading style.

On a general basis however, I do not trade on a day by day logic. I tried that at the beginning, in December, with poor results. Was I doing it wrong? Probably. Should I invest more time in understanding technical analysis? Certainly.

Certain people trade successfully using exclusively mathematics and statistics, I work with macroeconomics (because that's my university background), the psychology of markets and my own psychology.

Apr 18, 2016

Security Analysis is for value investing, isn't it kind of dangerous to mix up trading and investing strategy, also have you read Alchemy of finance by George Soros?

Apr 19, 2016
value.seeker:

Security Analysis is for value investing, isn't it kind of dangerous to mix up trading and investing strategy, also have you read Alchemy of finance by George Soros?

I haven't read ''Alchemy of Finance'' yet. If ''Security Analysis'' isn't helpful I assume I'm going to skip chapters until the end. I just started it, we'll see.

Jul 19, 2016

Sent you a PM

Jul 19, 2016

why not share your advice/thoughts with everyone? I'm sure a lot of people are wondering the same

Jul 19, 2016

Sure. In short, I found a local prop firm that was taking basically anyone who wanted to learn through Craigslist. Learned a lot and was able to speak to this experience during interviews, which helped.

Apr 18, 2016

there are many different types of technical analysis...i just spoke briefly (very briefly) on the Bollinger Band...and i could dive much deeper. If you look into technical analysis patterns (flags, pendants, trend channels, cup and handle formation, trendline, and trend line breaks, fibonacci retracements, ect...there are many ways to combine 2-3 different types of technical analysis, find a combo of patterns that seem to repeat on a particular market and exploit those patterns to come up with a better than 50% win ratio (i think 30yr bond futures are a great example of a market that sees repeats of technical patterns, over and over and over again). There are many markets out there...and they each trade differently. this makes sense...because Central Banks probably don't get involved in the coffee, cotton and cocoa market....but i know they are involved in the Gold, Interest Rates, and FX markets (just an example...but i think you get the picture).

Market participants (because they are human) tend to repeat their own patterns. I myself recognize that i repeat my own patterns. Portfolio managers at hedge funds, pension funds, ect....they too are human beings....and they will tend to keep their bias and type of pattern recognition. So, if you can find the pattern that seems to dominate the market that you are involved with, you will do better than if you had NOT found that pattern. This is not to say that patterns repeat 100% of the time...but we are just looking for an edge...something to get us better than 50% (> 60% would put you in the top 10% of asset managers). You should not be searching to predict the future...you get far too few chances to test out your hypothesis. Instead, you should be searching for a repeatable process that yields better than 50% results.

Technical analysis is not the only way to do this. But unless you have been deeply involved in markets for over 10 years, you have no business saying "i don't think technical analysis has merits" because YOU HAVE NOT TESTED THAT HYPOTHESIS.

YOUR OPINION MEANS NOTHING, unless you are swinging around billions. Technical analysis is an effort to find the guys (or girls) who are swinging around billions, and follow in their footprints.

    • 1
Apr 18, 2016

holy crap thanks for letting me know about stockfuse. Im gonna have to try this over investopedia

Apr 18, 2016

stockfuse is a great site

Apr 18, 2016

Try Mark Fisher's "The Logical Trader" ...Mark is a buddy of PTJ

Also, Murphy's book on Technical Analysis

Apr 19, 2016

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.

Apr 19, 2016
Arti:

Security Analysis for trading? lol

It is in basically everyone's top 10 list of books about trading. Are they wrong? Maybe.

Apr 19, 2016

the book has nothing to do with trading, it is purely about value investing which by its nature is long term, if you want to trade you should learn math, stats and programming

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.

Apr 19, 2016

Update * Week 2 *

General Note:

Thanks to all who provided constructive criticism to begin with, very much appreciated. I'm also glad students and graduates are appreciating it.

Performance Commentary:

April so far is proving to be quite satisfactory. The good performance of gold and a similar performance of silver combined with the rollercoaster of oil convinced me to drop $OIL and $USO in favor of $SLV. Both are in a bull market since the beginning of January, sharp increases are often followed by ''profit taking/losses cutting'' days, thus I am closing my position or reducing it every time there's a major bull move, to reopen it later. Last Thursday (14/04/2016) indeed gold was down but both my RRS and GLD picks were halved. I doubled them on Monday and therefore I was well positioned for today's big gains (19/04). RRS was actually down until the opening of US markets (I'm from Europe), but I held to it. I learned already that patience and confidence with my picks generally pays off.
SLV for my Macro ETFs portfolio however was the big winner since my first post, with today's 4.54% increase that brought my returns to almost 26k. In comparison, the rollercoaster of oil resulted in a drop of 1k in the London portfolio since last week, down to 39k in returns.
Yesterday (Monday 18th April) was actually my worst day in April with a 2% loss in London, while so far I've been able to contain bad days to +/- 0.5% moves and a one day 1% loss. The Macro ETF portfolio has a similar performance with the worst day being last Thursday, also approximately a 2% loss. Limiting the impact of losing days is definitely a major improvement in my trading experience.
You can see a graph provided by stockfuse about my daily performance in the attachments.

Strategy: ''You know, it's a bull market''

The quote is from ''Old Turkey'' in ''Reminiscences of a Stock Operator''. ''Old Turkey'' is an elder successful trader that Livermore meets and the quote is probably my favorite of the whole book. A lot of novice traders go to ''Old Turkey'' asking for advice of what to do with the profits they just made in a bull market, the elder always replies with the same sentence. Indeed, why would you get out in a bull market? A very common advice experienced traders seem to give is to learn to cut your losses and hold to your wins. ''Old Turkey'' a century ago meant to focus on the latter and that's in simple words my attitude towards precious metals.
Goldman Sachs a couple of months ago told its clients to sell gold, [/embed] their Q1 results however say otherwise .
Federal Reserve officials also stress about the positive outlook of the US economy, I beg to differ and so do the precious metals markets so far (thus long on SLV, GLD, RRS .
Meanwhile oil went from 35$ per barrel at the beginning of April to 42$ the 12th, down to 39$ the 17th and up to 42.5 today. Quite a rollercoaster, thus I have adopted tight stop loss strategy for LON:TLW and LON:AAL and completely liquidated NYSEARCA:OIL. I actually prefer having stop losses based on the oil price rather than the stock itself, thus a 0.2$ move of oil in the opposite direction liquidates my position , while an additional 0.2$ move in that direction reverses my initial position. This has worked well: losing days, even with a -7% at market opening, has turned into +/- 0.5% .
A 10$ move is instead my stop loss for gold.
See the attachments below for P/L and positions.

    • 1
Apr 19, 2016

Whats ur user, so i can follow you.

Apr 19, 2016
value.seeker:

Whats ur user, so i can follow you.

toyeca

Apr 26, 2016

Update Week 3

Performance Commentary: When My Strategy Fails / Handling A Bad Week
Let's start with what worked: in my previous update I explained my shifting from oil related stocks and ETFs to precious metals. As far as ETFs are concerned, it worked fine. During the first half of last week, both gold and silver accelerated to multi-months highs, then retreated on Thursday and Friday (21-22/04). Nonetheless my ETFs portfolio posted approximately a 1% returns for the week up to +25.8% .

[/embed]

My London stocks portfolios in the meanwhile crumbled. On Wednesday 40% of Anglo American PLC (LON:AAL) investors [/embed] voted against the 3.4$ million remuneration of CEO Cutifani in protest against the excessive wages of the board and then started dumping the stock for the following 4 days. AAL was one of the worst performing stocks of the London Stock Exchange last year, however it bounced back starting last April from 300PS per share to 792PS, just to drop back 667PS in the last few days.

[/embed]

Now what went truly wrong for me is essentially limited to two factors:
- AAL crumbling brought down the stocks of the whole mining industry on the London Stock Exchange , thus Rio Tinto, Randgold Resources etc.
- In the meanwhile, metal commodities were surging . Not just gold and silver, but also copper, nickel, platinum, zinc, lead.
So after a stop loss on Wednesday after a -10%, the surge in metal commodities prices lead me to reopen the position on Thursday and Friday while the investors protest continued and I ended up with a whopping 24% loss in just 4 days. To cut it short I simply did not understand how long would the protest continue, underestimating market sentiments and basing my strategy exclusively on commodities prices.

[/embed]

At the moment of writing it seems that the protest has finally calmed down and therefore I assume the upward trend should return due to the ongoing commodities surge. My risk management needs to be reviewed however.
As far as GLD and SLV are concerned, sudden surges are always followed by partial retreats, I plan to stay out of the market during those. The bull market of precious metals and commodities in general is still ongoing and I have not found convincing opinions against it. Stock wise, I learned an important lesson about the psychology of investors working against my own, though I plan to revisit it later with a fresher mind.
I completed my switch away from oil related stocks towards precious metals by adding LON:FRES to the basket.
Fresnillo is the world largest producer of silver.

Apr 27, 2016

amazing post. there are nice discussion about the first step of business. it will be helpful to everyone.

Apr 27, 2016

awesome thread. it will be very useful to me in future. thanks

Apr 27, 2016

Keeping a eye one these $RNN $TKAT $CLMT $CMRX

May 3, 2016

Update Week 4
Weekly Performance and Monthly Wrap Up: When everything goes as expected
The protest of Anglo American (LON:AAL) investors finally died out and the stock closed April as the best performing on the London Stock Exchange with a +42% , carried by the continuing surge of hard commodities and oil. My preference for precious metals however remains strong. Randgold Resources (LON:RRS) went up 3.9%, Fresnillo 3.5% as the upward trend of gold and silver continues. The ETFs NYSEARCA:SLV and GLD have performed similarly, leading the profits of my ETF portfolio from 27% to 35% at the end of April (with a 2% loss the First of May that you can see in the screenshot), for a total 15% monthly increase.
On Wednesday and Friday I added to the basket NYSEARCA:VXX, the already mentioned ''volatility index'' which indeed went up quite a bit before I closed on taking profits.
The London portfolio, which had crumbled into losses last week, saw another 15% increase, this time in a week, covering the previous losses and posting a 2% increase for the month. Overall satisfactory performance, with some regrets in not seeing the occasion to short AAL over the protest. The main reason is that I do not trade on headlines to begin with and I dismissed the news naively. The shift towards precious metals is paying off anyway.

[/embed]

[/embed]

Strategy
I'll open with a quick parenthesis on oil: I must have read over a hundred articles or analysis or interviews with experts in the last 12 months, and the only thing they had in common is that they ended up being wrong for the overwhelming majority; it is enough to convince that I don't know where oil is going, but neither do they. Fundamentals point towards a downward trend and I believe that is the long term prospect. In the short term however, I'm mostly staying on the margins or rolling with the bullish sentiment.
I already mentioned my intention to continue riding the precious metals bull, especially considering the deteriorating conditions of the world economy and the increasing doubts over the effectiveness of quantitative easing in stimulating the economy rather than inflating stocks. Technical analysis , which I had dismissed previously in December, is now proving to be worthwhile, to the point I will now alternate my reading of ''Security Analysis'' with ''Technical Analysis of the Financial Markets'' by John Murphy that someone advised in the comments. The former book is good especially if like me you do not have finance as your university major, but as others mentioned it is mainly from an investor perspective rather than trader. It is nonetheless helpful to enhance your financial knowledge.
On a side note about gold, one of the websites I use to check markets is investing.com (while I use Hargreaves Lansdown for London stocks). While browsing there, I noticed that one of the bloggers, Gary Savage, mentioned[/embed] the ''Old Turkey'' strategy . Now I do not really follow him but I had mentioned in my ''week 2'' update that ''Old Turkey'' was my view on precious metals. Gary seems to have a different view. We'll see.

May 6, 2016

Following you on stockfuse. This is actually an excellent series of posts man I really appreciate you doing this.

Keep it together and you will go far..

May 8, 2016

for anyone looking to get started trading, I can't recommend this post enough: http://www.wallstreetoasis.com/forums/how-to-start...
"Discipline is what is going to make you a good trader not brilliant ideas."

    • 1
May 8, 2016

ironchef, how many years have you been trading tbonds for?

Macro Arbitrage, are you a trader?

May 9, 2016

Posts like these give me the feeling if I put out how to actually make some cash in the market, you people would find a way to fuck it up.

May 31, 2016

show us what you got boy

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.

May 17, 2016

I would like to invite everyone to take a shot and discuss the direction of global markets in a relaxed way and take a look at the performance of my portfolios.

You can see the previous 4 weeks here.

Performance

Up in London, down in ETFs.

Markets seem to be in a stand-by mode:

-the S&P 500 floats below its peak at approximately 2100.

-similarly, the DOW floats below its peak at 18,000.

-Gold after breaking 1300$ has retracted and similarly floats at short distance.

-the only noticeable event was Oil breaking 46$ per barrel.

The difference in the performance of my portfolios was made by timezones. Gold had a technical retraction of about 30$ the day after my last update (Tuesday 2nd April). Expecting it, I reversed my position in LON:RRS after 10$ down, managing to take profits from the movement. By the time US markets opened however, Gold had already completed its movement and I had to take the loss on NYSEARCA:GLD.

The rest of the week was characterized by low volatility (S&P VIX index hitting 13) in most markets, except the technological NASDAQ that I currently do not trade.

[/embed]
[/embed]

Strategy: in case of Brexit

If it is indeed ''calm before the storm'', the British voting to leave the European Union is what could spark the downturn. For now, the majority of the polls give a ''In'' lead, however they also gave a Labour victory in the general elections last year, and the Conservatives triumphed: should they be disproven, given that I trade (virtually) on the London Stock Exchange, I better be prepared. A confirmation of the status quo is likely to see a couple of good days for the majority of the stocks, particularly the LSE (LON:LSE) itself which would see it as the next step towards its merger with Deutsche Boerse (note that the LSE Group also controls Borsa Italiana).

Should it be Brexit, I wouldn't be surprised to see the deal fall apart, regardless of what they said in February . Regulative changes, [/embed] the willingness of Euro Federalists to punish the UK for leaving would make the deal impractical. The LSE stock crumbling is likely to be followed by the big financial listed in London because many international banks would leave the British capital decreasing the volume of the business, thus I'd short banks (Barclays, Standard Chartered), insurance companies (Lloyds), asset managers (Aberdeen, Schroeders) and struggling industries (mining Glencore and Anglo American). The snowball effect would affect everything to the point I don't think I will keep open my positions in Randgold Resources and Fresnillo. A change of the status quo would cause more markets exuberance than its confirmation, that's why I prefer discussing the former.

In the latter case, I'd expect markets to keep floating: the stream of negative economic news continues and I'm starting to notice professionals preparing for the downturn even on WSO. Markets lacking direction also means lack of opportunities when it comes to trend following, but a good way to test and improve my technical analysis skills.

I do not plan to change my precious metals strategy. Unlike 2007-8, this time investors expect the ''correction'' and do not want to risk being burned. Indeed Q1 saw a 21% increase in gold demand , [/embed] Soros and Paulson are also buying gold .

[/embed]
[/embed]

Tl;dr:

-markets seem to be in stand-by mode

-technical analysis if it continues, focus on precious metals

-Big Short of financials in case of Brexit, long LSE in case of ''In'' victory.

May 20, 2016

Why do you guys bother using technical analysis? Have you guys not learned about the efficient market theory that we are in a semi-strong efficient market? No respectable business school would encourage trend analysis, its an optical illusion.

May 20, 2016

Both ''Security Analysis'' and a number of top traders in Market Wizards slam the efficient market theory as an academic fantasy that finds no match in real world markets.

I tend to agree with them.

May 22, 2016

Update * Week 6 *

Performance: ''bitter week''

Up in London (2%), down in ETFs (7%), again.

[/embed]
[/embed]

Very much like the previous week, time zones made the difference: whenever I see the technical withdrawal, I reverse or at the very least close my longs, however those movements were already completed at US market opening time. Unlike last week, this one left me a bitter taste. I can't explain why yet. I had much worse losses before, but this one was certainly the most annoying I can remember.

The withdrawal of precious metals was accentuated by the [/embed] federal reserve minutes suggesting the second gradual hike is likely in June . For 2 days, stocks were down, commodities were down, everything was down but bonds. I guess one of the reasons I was left embittered is that I do not see why is the Fed so positive about the state of the US economy and the global economy in general. It's still a market reaction that I have not seen before; especially considering it was not an actual increase in the interest rates but rumors, thus a lesson for the future. I tend to avoid trading on rumors or notes that do not have an actual effect on markets but apparently a lot of people do, so I'll have to keep that in mind.

Strategy: Oil going to hit 50$ per barrel. For now.

Bold prediction and I don't generally make ones like that. As you can notice from the screenshots I added to the basket LON:TLW and NYSEARCA:USO and that's because I'm convinced oil is going to hit 50$ pb, possibly within next week. The current price of oil defies any kind of fundamental analysis, so the most likely explanation is that commodities companies are stacking oil in storage to increase its paper price. It'll crumble down in due time, thus I'm very bearish in the long term. In the short term however, this artificial price movement is working fine, thus I'm rolling with it. I pick Tullow Oil over Royal Dutch Shell or British Petroleum because TLW suffered more than the other two from low oil prices, so I expect a proportionally bigger reverse pattern.

USO over OIL because the OIL ETF has shown movements that are not correlated to the actual price of oil like they should be. Investors losing confidence in the fund? Maybe. To me it's just more risky without rewards.

Regardless of what the Fed thinks, [/embed] George Soros is cutting stocks exposure and investing in Barrick Gold after buying physical gold in December as I mentioned in one of my previous entries. Soros success and longevity in financial markets is to me a better hint about the state of the economy than anything the Federal Reserve minutes can suggest. I take my weekly loss on precious metals and remain bullish for the future.

I honestly dislike being long only but shorting has become rather difficult due to the constant intervention of central banks to keep stocks up.

TL;DR:
- Questionable Federal Reserve hike likely in June crushed precious metals.
- Long on oil in the short term, short in the long term.
- Time off is needed to handle ''annoying'' losses.

    • 1
May 30, 2016

Update Week 7: Handling a Negative Streak

Many experienced traders would reply ''take the rest of your day off''. But what do you do to come back with a fresh mind the next day? How do you find something that takes your mind off the markets and wins your focus from unnecessary overthinking, overanalyzing, panic and make your losses even worse?

Reading books and watching movies or TV series simply doesn't do it for me. Right now I'm obviously focused on trading literature, but that's the last thing I want to read about if I'm having a bad day. An exception to this is historical books: I have always been very passionate about history; you can gain great anecdotes from the biographies of historical figures. I also love battlefield strategies, they blow my mind: whether it's Hannibal managing to encircle a twice as big Roman army at Cannae or Sun Tzu's Art of War, the sheer genius of such individuals intrigues me.

Sometimes however, I'm just not in the mood for reading. Last Monday gold was continuing its withdrawal after the publication of the minutes from the Federal Reserve, dropping another 20$. Silver also took a dive and the only thing that manage to limit my losses was that oil broke the 50$ per barrel. At least I had a right call on that one, but it didn't prevent my portfolios from taking heavy losses.

For a while I was tempted with the worst idea ever: chasing markets. That never ends well. So, I just closed all my positions , turned on my Xbox and play Halo online. Teabagging people online after blowing up their asses is a great way to improve my mood and competitive videogames have the benefit of gaining my focus and relaxing my mind.

In certain moments however, I just feel bad about myself. What better way to fix that than helping other people? I suffered from depression in the past and I have become rather experienced when it comes to fighting it. There's plenty of anonymous chat online where people go to discuss their problems without being judged and seek help. I go there, listen to their issues, give my opinion, share my experience, on rare occasions I even manage to turn their life around. I occasionally get emails from people I spoke only once, years ago, thanking me for the advice I gave them and telling me how their life got better. At the end of the day, life is not that bad after all. I'm ready to face markets once again. I had losses before, I always managed to come back.

Strategy

As I mentioned precious metals took a nosedive. Props to Gary Savage, whose opinion I had mentioned in one of my previous blog entries and had the right call. I have read a number of opinions, there's a lot of different views at the moment. Some say it's a consolidation phase after the withdrawal, other believe gold is coming back. I'm personally going to wait until the Federal Reserve meeting of the 15th of June. Until then I expect the fear of the hike to keep the pressure on gold to lower levels.

Oil broke 50$ pb as I expected. It quickly withdrew at about 49.5$, but those prices defy fundamentals anyway, thus there's no reason for me to be short right now. I still think it's being artificially pushed higher by storing it, thus decreasing the supply on the market and that will sooner or later end up having an effect on prices dragging them down.

I dropped out of silver to reduce my exposure to precious metals.

LSE weekly PnL= -9.5% ETFs weekly PnL= -4.5%

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Tl;dr

-history books, videogames, volunteering
-short on gold for the next 2 weeks, long on oil for the moment

Jun 4, 2016
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Jun 12, 2016
Jun 26, 2016