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Random Thoughts: Trading With a Scalpel, Not a Sword


Trailing stops a choice approach.


Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community. See also The Great Wonder of the World.

Gate Sniffage! - 10:47 am

Lots going on in the land of flickering ticks as we edge into a fresh five-session set. As a function of respect for your time and lack of management of mine, I'm gonna hop to it and get through it as we edge into this minxy Monday.

  • Keep Syria on ye radar as we continue to cast a wary eye towards the Middle East. Remember, this region is a principal point of concern as the White House attempts to transfer the baton.

  • My partial exposure is predicated in the commodity space, including the underlying (gold and crude) and snivlet positions in Weatherford (WFT) and Newmont (NEM). Just trading and doing so with trailing stops.

  • Until proven otherwise, the October 10 intraday lows are large and in charge.

  • But that's the chief beef with technical analysis, right? It's "better" higher and "worse" lower. In fact, all the primary metrics are inherently flawed with viewed in isolation.

    • Fundamentals are "best at the top and worst at the bottom".

    • Psychology is backwards (sell hope, buy despair).

    • The structural element is infected by government intervention.

    • That's why an assimilation offers the most balanced approach (or it used to when the markets were free to trade).

  • Eyes of the world include firmer homies, relative traction in the retail space, troubling breadth and perhaps most relevant, yet another jump by the dollar (which points directly to deflation).

  • While I could make an excuse that I never played Texas Hold 'Em before, that wouldn't be entirely fair. My 8-year old nephew Brad bet like a banshee and after warning him of excessive risk-taking behavior, I matched his "all in" bet to teach him a lesson. The little bugger had a full house and excused his uncle from the game.

  • I'll be back, Minyans--it is, after all, the Monday's.

The Full Monty - 11:44 am

  • Israeli Prime Minister Ehud Olmert is warning Iran and Hamas not to "try Israel's patience." Maybe something, maybe nothing but most certainly worth noting as we continue to monitor the potential of an uptick in geopolitical strife in the region.

  • The bull case, at present, is that the government will pull additional bunnies from their magic hat. I've heard everything from another global round of fitty bip snips to the reduction or elimination of reserve requirements. I'll simply ask Minyans to see all sides and shape their risk profile accordingly.

  • What are all sides? If the S&P 840 breaks, it "works" to S&P 777 and then S&P 600. If Hoofy can put some distance between himself and the 2008 intraday low, a mad dash of performance anxiety could manifest into year-end. We spoke of these both here and here and, as always, we must respect the entire probability spectrum.

  • For my part, I've been trading with a scalpel not a sword. That includes defining my risk, trading smaller as a function of volatility, understanding from where we came (I was entirely more bearish last October), respecting the magnitude of the crisis (the cancer is bigger than the patient) and allowing for a margin of error in my approach.

  • With regard to my current trading tries, trailing stops continue to be my approach of choice. Remember, good traders know how to make money but great traders know how to take a loss. My modus operandi is to make a few shekels if they're there while preserving capital while the dust settles.

  • Of course, where you stand is a function of where you sit. If your time horizon is a few years out, partial positions will likely be rewarded but investors should be prepared to buy them lower. IFN (India) and FXI (China) come to mind as I scribe that vibe.

  • Shifting gears, and for whatever it's worth, I think Mike Singletary is gonna make a heckuva good NFL coach.

Answers I Really Wanna Know... - 1:00 pm


Did you know the doors to Festivus 2008 are officially open? Have you yet locked your spot for the critter trot as last year's soiree sold out? (This is our annual event to commingle our professors, partners and Minyans while chowing down and listening to live music. The very best part? It's for the kids in the good name of my grandfather.)

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Positions in DXO, GLD, WFT, NEM, crude proxy
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