scratch-mark

Always Fade The New York Times

Carl Futia is a really, really good swing trader and is one the the very few people I pay any attention to. Well over 99% of market commentary out there — particularly for short-term or "swing trading" — is worse than worthless. Worthless would mean that heeding their "predictions" costs you nothing and makes you nothing. But you’ll find that listening to anyone else as a substitute for developing your own independent judgment will almost always cost you money. And if you’re in vehicles like I trade, i.e., selling options where your potential loss is 5 to 10 times your max profit, you’re gonna get killed (yes; selling short; but both ways, i.e., calls and puts; yes, you can go short options as long plays on the market).

I particularly like Carl’s posts where The New York Times is used as a contrary indicator (not to trade by, but to judge market sentiment). Here’s another good one: Jay Leno is an even better indicator. And another: the NYT and The Economist; recent track record. Dismal; and people actually pay them money for this garbage. This is why I almost never turn on CNBC. I’ve found through painful experience that the less I listen to "experts" the better I do.

…Why sell options where I stand to lose 5-10 times my max profit, you ask? Because the plays I make are 80-90% successful by doing absolutely nothing once the play is made. The trick is is in getting the right balance between probability (delta) and profit (option premium). But the biggest trick of all is knowing when, on pretty rare occasion, to take a loss of 2-3 times your option premium and move on. That’s the toughest problem of all, and it’s 99% trading psychology, which is why you need to be totally independent. You haven’t lived until you willingly — gladly even — take a 200-300% loss on a trade that was a 99% probability of a win just a few hours or days prior. But this is precisely the "secret" to long-term success. They come along relatively rarely anyway (the probability), and you can get hit with one of those three or four times for every time you take a max loss, so, there’s the sum total of your risk management and it’s all in how well you are able to manage your own emotions.

It’s way, way tougher than you think; especially when you’re swinging a fairly large account and the loss you gladly take in order to live and trade another day is well into the five figures and there’s always that chance — that hope — that the market will turn the other way again. And then one time — maybe as a new trader — you go with the hopeium and it works out. Now you’re dead, because you’ve just trained yourself to take a deadly risk and set yourself up for huge losses.

That’s experience talkin’, baby. But for some of us, you can never really get good at it until you take a devastating loss (or two). Independence can be a double edged sword, but there’s really no other way to run. You must be independent, but independence can be your downfall. Once you’ve learned how to wield such a powerful tool, you begin to learn how to trade.

Update: Wow, right on the heels of this entry, Carl posts another.

Richard Nikoley

I'm Richard Nikoley. Free The Animal began in 2003 and as of 2021, contains 5,000 posts. I blog what I wish...from health, diet, and food to travel and lifestyle; to politics, social antagonism, expat-living location and time independent—while you sleep—income. I celebrate the audacity and hubris to live by your own exclusive authority and take your own chances. Read More

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