Getting Caught Short: It Happens!
How to respond to adverse conditions
While getting out of the shower, Jamie walked by and said, "Did you see that Jefferies cut Research in Motion (RIMM) from 'Hold' to 'Underperform,'---whatever that means?" She heard the news on Bloomberg TV and felt compelled to share as she knows I've been involved in the name.
"Good," I responded, "I bought a placeholder back yesterday and I've been waiting for lower prices to add more exposure." That's not post-rationalization; right or wrong, the goal in trading is to be in a position to use price to your advantage.
I continued to get dressed-in a suit on a Friday, if you can believe that-walked through our apartment, kissed all the kids on their heads, grabbed my jacket and headed to MVHQ. I knew the real news of the day had yet to arrive and I wanted to be planted in my seat when it did.
BOOM! the change in non-farm payrolls exploded to 243,000 (vs. estimates of 140,000), the unemployment rate dropped from 8.5% to 8.3% and the pre-market futures exploded to the upside-which is awesome considering that last night I went home short for the first time this year, both in the S&P (under 1335) and the NDX (under NASDAQ COMP 2875). Nothing like getting triple wishboned before the market even opens.
The reaction to the news is always more important than the news itself, and the reaction to the price action defines the result of the trade. And while in the back of my head, I can't help thinking, "Market rallies end on good news, not bad," I have defined risk parameters and will adhere to them, should they trigger. As we're apt to say, good traders know how to make money but great traders know how to take a loss.
Yes, I believe a tradable cusp is close although, as discussed, I'm typically early in these vibes.
Still, no matter how strong your (or my) sense, discipline must always trump conviction when managing financial risk. I noted my parameters above-S&P 1335 and NASDAQ 2875-and I will remain short until such time the market proves me wrong. As always, we'll be discussing these dynamics (and more) on our real-time Buzz & Banter application. You can take a free trial to the Buzz if you haven't before. Even if you have previously had a trial or subscription and want to jump back on for a free peek, give us a call at 212-991-9357 and we'll hook it up.
Think positive; today's fun and games have only just begun!
Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
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 firstname.lastname@example.org.
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.
Daily Recap Newsletter