Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Psychology Patience

By

Fare ye well into the bell!

PrintPRINT

The waiting is the hardest part
Every day you see one more card
You take it on faith, you take it to the heart
The waiting is the hardest part


(Tom Petty)

One of the toughest tasks facing active traders is the ability to exhibit patience while following the flickering ticks. The trick, as we know, is to adopt a risk profile that is adaptive yet mirrors the time horizon of your thesis. The only difference between being early and being right is whether you're "there" when your ship comes in. Therein lies the critical element of successful money management and the key to the vault of returns. I will use two real-time examples with the hopes that you can extract value from my experience.

The first is the secular trend that I mapped out late last year when I opined that I wanted to toss on the "long energy/metals vs. short tech/financials" pairs trade. While my style has never been to slap on positions and walk away (dangerous game), I've allowed my views to manifest via my stylistic trading approach. In other words, when I've looked for long exposure, my eyes migrate to the former and when Boo comes knocking, I've directed him towards the latter. In hindsight, I could have skewed my profile more aggressively but for purposes of this column, the approach is what matters most.

The second example is that of Fannie Mae (FNM:NYSE). Minyans know that I've had a love/hate relationship with this stock for a mighty long time (read: I've loved to hate it). In fact, I've donated more money to the Fannie Mae put memorial fund than I'd like to recount. The smoke in the GSE's and the attendant ripples have been on my radar for years--I was actually chided on TV for bringing it up last summer--but it didn't "matter" until recently (and some would argue that the holders are still in denial).

There are a few ways I could have approached the Fannie but I ultimately fumbled the position. As I'm a big believer in defined risk, I owned "out month" puts and continually rolled them as expiration neared. I eventually became so frustrated that it started to get personal. Now, if I know anything about the market, it's that emotion is public enemy #1. As such, I placed Franklin's Pain on my "restricted list" and focused my trading attention elsewhere. (The fact that I was bidding for puts the night before it blew was the definition of minxy irony).

What would I have done differently? A few things--I would have spread the position and elongated my time horizon (to match my risk profile). I would have also paired my risk differently (by adding other longs) and let my position run. Don't get me wrong--I still believe that there is plenty of trading left in this name--but the only difference between mistakes and lessons is the ability to learn from them. It's my hope that by sharing my missteps, you'll avoid them altogether.

Turning our attention to the tape (quickly), the gory story continues to be rude crude and the shiny metals. The dollar has been quiet--almost as if it's hoping nobody notices it--but it doesn't feel like it's going anywhere today. Equity land trades alright (the internals don't budge) but the sudden supply in select financials and a spate of sell signals from one of my trusty guides (DeMark) has my right hand up. What else is new, right?

Gonna hop back to the Buzz. I sincerely hope you're all faring well and keeping your head in the game. It's not easy, that's for sure, but it's not impossible either. It just takes patience, discipline and a trusted network. The first two are up to you but the circle of trust is something we can together share.

May peace be with you.


R.P.
< Previous
  • 1
Next >
No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE