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Full Disclosure: A Lesson in Discipline


Measuring the mechanics of our swing.

Editor's Note: Todd Harrison will be away from his desk this morning as he tends to some personal matters. He'll be back on the Buzz & Banter -- where he posts his vibes in real time -- this afternoon.

I must have written "hit-it-to-quit-it" times over the last year or so, and for good reason. That stylistic approach not only racked up stellar performance in my trading account, it allowed me to sleep at night knowing that my risk was defined and opportunities would emerge in the morning.

A funny thing happened last week during the bipolar market stroller: I became emboldened after a string of successful trades, and rather than cover up a right-sized short-side bet-after flattening my directional risk in its entirety at S&P (INDEXSP:.INX) 1540-I opted to carry newly-initiated exposure overnight.

When the market gapped higher Friday morning, I revisited the technical context (there is, as we've discussed, tiered resistance between S&P 1560 and S&P 1610), added to my short exposure, and brought those September SPY (NYSEARCA:SPY) puts home for the weekend.

On Monday, I had an opportunity to cover some exposure but I was at the hospital (for the opening) and missed the window (both to fade (read: sell) the gap higher and cover that overage on the subsequent pullback). When I finally got back to my turret, the tape again probed S&P 1560 on the upside, and I added more short exposure.

I often write that "a momentary lapse in judgment can wipe out our hard-earned gains," and almost prophetically, that proved true, at least thus far. It is one thing to talk the talk about how "good traders know how to make money but great traders know how to take a loss," but that's verbiage if you don't practice what you preach.

While our all-important level of lore-S&P 1575-remains within spitting distance, I made a few major mistakes in my trading protocol that warrant attention. First, I got too big, too early (with regard to the size of my exposure) as "defined risk" didn't arrive until the levels we saw yesterday. Second, I did so knowing that I would be IN-N-OUT for some personal matters in the coming weeks. Indeed, if ever there was a legitimate excuse to flatten my pad, a hip replacement operation would likely qualify.

As it stands, I will be out of the office for the better part of today, getting probed and prodded for pre-op (the surgery isn't until Tuesday). While I will (or, should) have the ability to navigate the tape remotely, a smartphone is far from optimal risk management equipment. Be that as it may, I got myself into this pickle and I'm a big boy (and getting bigger by the pound).

The AP Twitter Flash Crash!

There must have been something funky in the air yesterday. As I sat through an MVP Products meeting-one that should have finished at 1:00 p.m. EDT but ran a bit long-Michael Sedacca poked his head in the door and said, "Todd, you need to see this-something about an explosion at the White House, the market is crashing."

Talk about an attention-grabber! I literally hopped back to my turret to find the markets trading as if the mini-flash crash never happened! I immediately pinged a few pals to ask, "Did anything trade down there?" (I was told yes) and I, like you, was left to decipher the remnants of what's now being called the AP Twitter feed hack.

We often muse that Twitter is to media what HFT is to trading, and yesterday's events illustrate that Ready-Fire-AIM mindset in the modern-day digital realm, one where hair-trigger reactions (by humans and/or machines) can feed on themselves before information is fully qualified.

We used to talk about credit of a different breed-that of credibility-being the issue at hand for markets at large, but (being honest) we were referring to truth and trust at the human level, not the integrity of the systems that hold our financial machination together.

Only time will tell if yesterday's blink-and-you-missed-it event brings back memories of the 1,000-point plunge, but one thing is for certain: We live in some very interesting times.


Twitter: @todd_harrison

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