One Trader Explains "The Worst Mistake You Can Make" If You Take Time Off This Summer

"There is a reason so many investors are increasingly becoming workaholics," warns former FX trader and fund manager Richard Breslow, "we are operating in a world where feelings always run high and ideas instantly become ideologies. Yet, no one really seems to believe in much of anything. "

In other words, the world is changing faster than ever - don't marry your biases.

If there is one thing every young trader should be schooled in is the understanding that, “If you snooze, you lose.”

As Breslow notes,

"Go away for a few days and it has become almost a parlor trick to be able to guess where markets will be...

And the worst mistake you can make in trying to pull that off is following the news, but not the price action, while away.

Which of course raises the question what is one to do, short of simply becoming a day trader?

Via Bloomberg,

My first reaction was to deal with it by being grumpy and cynical. That was short-term palliative but not ultimately lucrative. Although any desire for a return to full-on QE, with the mindlessness of front-running forward guidance, was resisted without effort. I’m hoping this is a transitional phase rather than a really unacceptable new normal.

So, fickleness is cheating me out of positioning for the long term based on the news. Can’t keep up with the text-readers who have direct links to the exchanges in trying to dance to headlines. And most unnerving of all, my beloved moving averages are not returning the affection. There are many things I can live without in this life, but Fibonacci isn’t one of them. Especially when I harbor the suspicion that he ran off with my horizontal lines.

Fortunately, necessity is the mother of invention. Plan B, or is it C, D or E, is to rely on two measures I never liked nor had much faith in. I guess they existed all this time for a reason. And it is their moment. But if keeping my head above water in these wacky times requires using some things new, I have also dusted off an old-time favorite. Letting other people do the heavy lifting for me. And for that, I am much appreciative.

Never has the weight of positioning been more impactful on where things go. Both in the build-up and the washout. I used to say that it didn’t matter if a trade was crowded if it was right. That is no longer true. It always matters.

The markets can simply no longer provide the liquidity. Nor does the private sector feel the responsibility to do so. But the trick is to spread your net far and wide in tallying up just what you think are the sizes of those crowded or deserted trades. CFTC data is only one imperfect measure that gets too much attention. But fortunately we have the BIS, IMF, World Bank and the like feeding us information like crazy. And so do many banks. You just need to dig it out, because the packaging isn’t necessarily done for everyone’s convenience. The other factor to remember is that the definition of “crowded” varies very much by asset class.

Rates and Bonds at extremes...

Net USD Shorts starting to drop from extremes...

My other new friend is the hammer. Nothing smashes a trend quite like a technical pattern that screams irrational exuberance. Oscar Wilde was wrong. In this case the cynic, or at least the well-compensated one, gets to learn the value of everything and realizes that it is the price that is irrelevant.

And lastly, all this position building and in your face price action can take place through someone else’s efforts. You get the opportunity to wait for the set-up and take the good risk/return reward.

What does this all mean? For traders, trends both go viral and are viral. You just have to choose which half of that definition you want to try to bank. It’s really hard to have both. Especially if you plan on taking that vacation.

Comments

Scuba Steve Wed, 05/09/2018 - 14:59 Permalink

Or you could just set your limits to get out of market, go on vacation and think of some new ideas for the 2nd half of the game (year).

But of course, these traders are way more sophisticated using OPM that is riskless to the trader.

Son of Captain Nemo Wed, 05/09/2018 - 15:03 Permalink

Thanks to the "algo adjustments" (probably done on a calendar weeks in advance by both day, date, hour, second and millisecond), line of sight data pipes along with "circuit breakers" to halt trading when it is most desirable... YOU DON'T NEED TO WORRY ABOUT WHAT WILL HAPPEN WHEN YOU'RE AWAY!!!...

All taken care of!... Until of course the code to program this stuff along with the hardware "does somethin really BAD" and "CRASHES"... VERY HARD!...

Or...

Your President takes you to WWIII

Because the $bonds that buys the $tock$ and the $crypto ain't cuttin it ANYMORE!... And all those foreign destination(s) that it's parked in are coming home with a one way ticket and a "rubber stamped" visa that says DO NOT RETURN!

buzzsaw99 Wed, 05/09/2018 - 15:13 Permalink

the author needs to take a lot of time off this summer because he is losing it.

Get some rest. If you haven't got your health, then you haven't got anything.  [/Count Rugen]

Pernicious Gol… Wed, 05/09/2018 - 15:21 Permalink

While the wife and kids are at the pool you can hang at the business center screaming at the slow connection and the foreign keyboard that hides all the letters and symbols you really need.

IDESofMARCH Wed, 05/09/2018 - 15:30 Permalink

Market don't care what the company does, does it have any asset value, is it got any real  money.  It's all about the talking heads, 21 day, 50-200 day Fibs., wedges. It's a gamblers paradise and everyone always wins so lay down your cash and hop on the elevator that only has up buttons. So If you want to get off use the window.

Mike Rotsch Thu, 05/10/2018 - 02:06 Permalink

Day trading changed a lot starting last February.  Buying dips was pretty much routine.  Now at least half of them are bull traps.  Other chart patterns which used to be fairly reliable, simply can't be trusted anymore.  Low float / high volatility shares are getting harder and harder to borrow.  And at least half of those who have them are shorting stocks which are heading upward - enough of them to actually pull them down.  Even on good news.

Why?

The SPY has formed a descending wedge on the daily chart (beginning in Feb) and it's nearly complete.  I would expect a sharp drop before the end of the month (and that's being conservative).  I don't think that today's current conditions are going to be an "unacceptable new normal", but I do think that this is a transition to a bear market altogether.