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Tossing the Coin

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I'm hopeful that by recounting the missteps, you'll avoid them in the future.

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Yeah runnin' down a dream
That never would come to me
Workin' on a mystery, goin' wherever it leads
I'm runnin' down a dream
(Tom Petty)

Good morning and welcome back to the flickering pack. The long week is ready to come to a close as the flickering ticks set to strike a new pose. The last four days have featured a hectic handful of earnings, economics, foreign mountain climbers and, for good measure, measured testimony from our fearless Fed leader. While we could spend some time noodling curious statements such as "Federal debt doesn't have much to do with the dollar" (say what?) or again chew through the historic returns after the Fed stops raising rates, I'm gonna take this morning's missive in a slightly different direction.

We had a Buzz exchange on Tuesday that addressed the question of bears in da 'hood. It started with an innocent mailbag from Minyan Tripp to Professor Herb Greenberg, continued with my honest response and feedback from Professor Sedacca and concluded with some salient thoughts from Professor Pepe Depew. At the root of the exchange were labels, interpretation, perspective, provocation and, of all things, balance. We understand that we talk about silly things like imbalances, compression, approval ratings, geopolitical risks and bar tabs more than other financial communities but it's in the vein of risk management more than overt bearishness. At least it was until yesterday, when I--and I only speak for myself--found myself with a little too much fur.

The Buzz & Banter is a unique thread of streaming consciousness and Minyans yesterday were treated to a real-time error in judgment. The trade is still partially open but, as I've always been a big believer that we learn more from our mistakes than we do from our successes, I wanted to quickly walk through my thought process. I've had some massively big wins over the years and, as any trader worth his or her salt knows, there are days when we should have never gotten out of bed. Yesterday was far from a disaster but I did lose money and I'm hopeful that by recounting the missteps, you'll avoid them in the future.

After paring both sides of my risk profile Wednesday (April was a very profitable month), I entered yesterday's fray with alotta dry powder and a rather clear head. I strapped into my turret to find the world digesting some fresh Chinese food for thought and began wondering if this was, in fact, the pin prick that would begin to tip the fragile dominoes. As the market opened, I sold the majority of my longs and initiated 25% of my desired put positions in the financials. In hindsight, I should have practiced proactive patience--I know enough to know that Boom Boom was gonna put lipstick on the pig--but I wanted to trade "in between" lest he didn't save the day.

As his testimony painted the tape, traders focused on the possibility that the Fed may pause the rates hikes "at some point." The opening gaps were quickly filled (in a matter of seconds) as I methodically layered another spate of puts into my profile. While the initial purchases were now underwater, this next round was somewhat snazzy. The second probe arrived, accompanied by 2:1 negative breadth, and I covered some token exposure as a function of discipline. As it would turn out, I clearly didn't cover enough.

As the lunch time hour approached, I chewed on some serious noodles as the humble pie baked in the oven. The Matador Crowd was sporting serious acne in the form of all-time highs (BKX) and I had some decisions to make. Now, to be fair, I 'traded around' a few positions and managed to mitigate the risk. But I also had some problem stocks in a parabolic frolic and those puppies are particularly tough to trade. As I often offer, good traders know how to make money but great traders know how to take a loss. While I've never offered to be a great trader, I deferred to discipline and unwound some of my risk in the afternoon hours.

Was I wrong or am I early? The only difference, as we know, is whether we're there to collect when the trade comes in. So, mea culpa on what I've booked and best of luck with the rest of my book. I deemed it to be worthy risk/reward, at the time, but our bottom line is the ultimate arbiter and it wasn't meant to be. I took some lumps and, while I've still got said exposure, I'm again in a place to view prices as an opportunity rather than a hindrance. I've lived through times when the definitions of my investments were trades gone awry but I've learned from those mistakes and, hopefully, you can too.

Good luck today

R.P.

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