FuturesTechs Blog

I thought it would be a bit of fun to ask our Professional client base for their favourite market-related catchphrases, and to do a Blog thereon.

There were two things that I didn’t realise when I embarked upon this idea. Firstly that there are so many that are rude, and therefore may be tough to incorporate into such a blog, but secondly that so many had valuable lessons for any trader ingrained into their meaning.

So here’s a few, and I hope you enjoy this piece, as well as possibly get something out of it!

By far and away the one that came put top was (and I really hope this doesn’t offend anyone) “Don’t be a dick for a tick”. Clearly many of my clients have spent many a year working a 15 bid on something only for the market to trade down to 16 then set off on a stonking rally. It is one of the hardest things to deal with as a trader. I’d say it’s probably harder once you’re in a position and looking to get out. Putting an offer in at 30 because FuturesTechs has a level there, only to find out later that it traded 1000 lots at 29 but never got to trade 30 is highly frustrating, especially if this means a potential profit ends up being a scratch or worse.

The next one that really seemed to feature amongst answers given was something to do with what “Bottom Pickers” get. Apparently this isn’t a very fulfilling pastime. I couldn’t agree more, at least where the market is concerned!! Those who try to buy at the very bottom of a move often get in bother. Whenever I do seminars with people who are new to the City or trading I always try and convey the idea of trading in the direction of the Trend. Markets that are plummeting lower can often keep doing the same for longer than you can stay in your long trade. Actually that was a John Maynard Keynes quote: “The markets can stay irrational longer than you can stay solvent”. This whole debate doesn’t stop at one catchphrase though. There were plenty of candidates. “Don’t try and catch a falling knife”, or the one I heard in October 2008 “Don’t try and catch a falling fridge”. What you really should try and do is remember that “The Trend is your Friend”. Just be careful of the “Dead Cat Bounce” though, and don’t worry too much about those who tell you to “Sell in May and Go Away” – well not this year anyway!

This sort of trading is akin to “Picking up Pennies in front a Steam Roller”. Often people lose so much money on these sorts of ventures that they end up with a “Trade that turns into an Investment”. This is why we need to have stops, as long as we use them. “Stops are for buses” is on the “what not to do” catchphrase list, along with “double up to catch up” and “Don’t get out unless it’s a winner” (Very naughty!).

The better advice for stopping out trades may be that “The first cut is the cheapest”. If you end up in a losing trade it’s best to own up and take the loss. Don’t “stick it in the bottom drawer”, after all “Denial is not just a large river in Egypt”!

Trading psychology seems to enter the equation for a few phrases as well. The ones that cropped up a few times in our little survey were “Don’t get high on your own supply”, “Don’t get too long of yourself” and “Don’t believe your own publicity”. They all say the same thing, and it’s a really valuable lesson for any trader at any time of their career. The market is the most fantastic leveller, it seems!

Finally special mention needs to go to the following responses.

“More Shorts than the front row at a Wham concert” made me chuckle, as did “He who finesses, wears frilly dresses”, “Scratching is for DJ’s”, and “If you want to hedge get a Garden”.

Many thanks to all who proffered replies. It certainly made my Columbus Day go a bit quicker!

Have a good week all.

Cheers,

Clive.

We always welcome feedback from clients and free trialists here at FuturesTechs, so we can strive to provide the best possible service to aid your trading decisions.

I thought I’d use the Blog to answer publicly a few questions we have been asked of late, so here goes with one:

Dear Clive,

Re buying Technical Analysis, I always find myself thinking the same question: “If it were that easy/obvious……’we’ve been bullish almost right from the start of the recovery’……….’gearing up for a sell-off’…… why do analysts like yourself not just make loads of money trading futures or spreadbetting?

If I found it that easy/made so much money I wouldn’t bother selling my levels…

Regards,

RJ

This is a question I’m often asked, especially at Seminars. People are, quite rightly, confused that I appear to be so well equipped to trade the markets, yet I don’t.

I think there are several reasons why I don’t trade, so let’s try and go through a couple.

1. It could be argued that YOU wouldn’t want me trading, because then I would be skewing my comments and ideas around my own position. If the market was clearly going down but I’d been caught with a long position I might be trying to talk it up, convinced that my position was right, and the market was wrong. The problem with this is that the market’s never wrong! But I am a human being, so I am subject to emotions just like you, and fear of cutting a wrong or losing position is one of the most powerful (negative) emotions in trading. The flip side to this argument is also pretty valid, though. The idea that an analyst should be able to trade their views put their money where their mouth is has merit, sure. The problem I’ve found with this is that good analysts generally don’t make good traders. I’ll come back to this notion in point 4.

2. I don’t have time. I run a growing company that’s trying to reach out to all sorts of traders, through seminars, increasing product breadth, and finding new delivery methods to take the product to a wider audience. Not only that but the day-to-day analysis takes a good chunk of time each day as well, starting nice and early at 5.30am each morning (although I’m not on my own, it must be said!). So I don’t feel I have the proper amount of time to devote to trading. I don’t think this is something you can do properly with 20 minutes work a day, and if you believe in those ads that tell you this then maybe you should think about the old “if it sounds too good to be true, then it probably is” rule.

3. I haven’t made (consistent) money before as a trader. I have had a go at trading a few times. In 2001 I worked in a Trading Room in the City for a year. It was a “Prop” room with a bunch of short term traders doing “high frequency” trading. These guys were happy to make a tick on a trade, and did at least 50 trades a day. Whenever I had a position on in the Bund Futures that was more than 5 ticks onside the rest of the guys couldn’t believe I was still in the trade. I wanted to run it for another 10 or 20 ticks, but found myself taking the smaller profit. In other words I allowed what was going on around me to affect my trading decisions - Bad mistake. The other problem was that my trading was fitted around writing the analysis. I would write the analysis from 5.30am to 8am, then trade until 10.30am, the write the analysis from 10.30am ‘til midday, then start trading again. - Oh dear! The result? I broke even, so lost money over the course of a year, when taking into account expenses like the cost of the desk and the professional trading software.

Then in 2005 I put some money into an account to have a go at trading UK Equity CFDs, all the while continuing with my daily analysis, as well as providing stock tips for a CFD firm. I lost most of my stake because I was long of a bunch of stocks one week in a nasty bear move, when my FuturesTechs FTSE report was as bearish as it could be… So I was bearish in my view, but bullish in my positions. Pretty dumb, huh?!

I closed this account down, deciding that trading wasn’t for me, which brings me on to my final point, because so far, re-reading what I’ve wrote, it sounds like a bunch of lame excuses. There is a much more important reason why I’m not a trader.

The main reason I don’t trade?

4. I don’t enjoy it, or maybe I’m just not cut out for it. I am an emotionally highly charged person. I am extremely passionate about what I do. I am also extremely self-critical. I hate it when I get the market wrong when I’m writing about them, and I’m 10 times worse when I’m trading. I turn into a total pain in the butt, and my wife likes me even less than usual! During the two stints when I was trading I found my mood swings to be unpredictable, I found my home life was affected; snapping at the kids, and finding a quiet corner of the house to have a sulk when my P&L wasn’t going the way I wanted to. I don’t like being this person. While I care passionately about the markets, about Technical Analysis, and the FuturesTechs product, I don’t wish to jeopardise things that are far more important.

So my own personal journey of discovery has led me to make the firm decision that trading’s not for me, and that I am far better cut out to analyse the markets, and continue to aid real traders (who can manage their emotions!!) to trade the markets using Technical Analysis, one of the most powerful tools available to anyone who wishes to make a success of trading.

I’m happy to admit that I’m not a good trader then, which is possibly why I’m doing okay as an analyst, because there is a school of thought that a good trader will never be a good analyst, and vice-versa, just because we’re all “wired up” differently.

Next time I’m going to talk about some more technical stuff; we’ve had a few questions from readers about gaps, and how to trade them.

In the meantime if you are a FuturesTechs member and have any questions that you think would be suitable for a “public” answer then feel free to ask away!! (Click here).

If you wish to have a look at our service please click here to request a free trial.

It never ceases to amaze me how many people cite Edwin Lefevre’s 1922 book “Reminiscences of a Stock Operator” as one of their all time favourite books on investing and trading the markets.

I am one of those people. I read this book at least once a year. However busy I am (and I’m pretty bloody busy right now!) I make time to re-read this classic tome.

So what’s all the fuss about? This book was written, as mentioned, in 1922. The author, Edwin Leferve, never traded a stock in his life. It is believed that he based the book upon interviews he did for a newspaper column with the legendary Wall Street trader Jesse Livermore, although Livermore isn’t named in the book. The central character is known as Larry Livingstone, and the book is his story, from rags to riches and back again, several times.

So it’s a story about a trader who made and lost loads of money almost 100 years ago. So what’s the relevance?

I’ve wanted to make this a blog subject for a while now, so when I re-read the book this time around I highlighted the “gems” that I considered were totally relevant to today’s markets. Here’s a few:

On the second page: “…there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again”.

If you look at our previous Blog article on the sentiment cycle you will see that we firmly subscribe to this view; that what we’re going through right now is NOTHING NEW.

We need the market to stop trying to pick bottoms and for those same bottom pickers to give up and turn outright bearish before we can make a bottom. The market needs to feel discouragement; tired of trying to find the bottom, resigned to the fact that we can head lower to who knows where. Then we’ll start to rally!!

How about this one; “…I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”

Or this; “…there is only one side to the stock market; and it is not the bull side or the bear side, but the right side”

How about “..in losing money I have gained experience and accumulated a lot of valuable don’ts”

Gems, all of them. New traders: You have to realise that you will make mistakes. Just make sure they don’t cost you your account. And learn from these mistakes. And “don’t” make the same mistakes over and over.

A classic problem traders of all levels of experience encounter is running losses but not running profits.

“They say you never grow poor taking profits. No you don’t. But neither do you grow rich taking a four point profit in a bull market”.

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight.”

One of the hardest things to do is to run a winning trade, beleive it or not, but when you’ve got trends akin to the sort of thing we’ve seen in Oil this year the real money has been made by staying short all the way back down from $147 (or $135, which is where we turned bearish).

I could go on and on, but I’m going to tie things up with a quote that is poetically relevant in the current climate, and adds weight to my loudest recurring rant of 2008: “Stop trying to pick bottoms”.

“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth - or the first. These two are the most expensive eights in the world”.

Thank you Mr Livermore/Livingston. I couldn’t have said it better myself!

As usual, keep safe in these markets,

Cheers,

Clive.