Thursday, June 08, 2006

Throw-up Action

This morning I felt I was going to throw up.

We're long a bunch of stuff and short a bunch of vol. Well, vol wasn't so bad since most of it (except for Oil) stayed out of the money. Long delta was another story.

Why are we long in this terrible mess? Because I know this is an opportunity that cannot be missed. It isn't every day that the whole world pulls a Y2K on us.

A lot of technical details can go into this, but the bottom line - the world is way oversold and according to any theory, buying this market right now is a high-odds game favoring longs.

However, regardless of my conviction, a wave of selling this morning made me literally sick. Now, I am not a puny guy and I can hold my water any day. Today I almost lost it.

Two things came out of it:
  1. I felt sick watching money evaporate right under our noses. The money wasn't being lost, it was EVAPORATING. If you have any serious amount on the line, that is a sickening sight to behold.
  2. I walked away, cursed in Russian (I rarely do these days - it's really vile) and came back to buy. We bought more Homebuilders and we bought Russia via RTF. And now I am looking to buy India.
  1. Risk managment is a wonderful, necessary thing. However, when the opportunity of this kind is here and the money goes against you, it's hard to get out no matter what your risk tells you. Reason: because when you're losing and about to throw up the opportunity is still there (and it's bigger than ever) and you #%^@^ know it. This does not by any means apply to every trade, but this does apply when you know exactly what's going on around you. You just have to have the balls to recognize it, face it and stick with it.
  2. When long term charts show strong technical alignments (look at Fib ratios on Russian and Indian ETFs) and your long, time-tested methods underline an opportunity, you take it, and you take it big. As a trader you literally can't afford to miss it - especially if you've incurred losses leading up to it (most of us would, and we certainly have).
I don't know whether this is the bottom, but I know this needs to be bought for a trade. These are the odds, I may be wrong and I may still end up throwing up.

But, this is the game and as traders that's the one we chose to play.



At 9:33 PM, Blogger Smart Money said...

Hi dmitry,

You have already won by acting on your conviction, and putting the money where your mouth is. Market is about probability, and if you don't take a plunge, there is no rewards.

Good Luck!

At 9:32 PM, Blogger market operator said...

Did you unwind your position on the late day bounce on Thursday? We were heavily short the railroads and metals and were stopped out on the bounce (although at a profit), noticed that only the weakest sectors were bouncing and those few names with early day strength seemed to be losing ground. So we were quite suspicious today. Had a theory floating around that some big Hedge Funds were looking to make some quick bucks and create an artificial short squeeze but can't really give any credence to that. Of course, this was with our universe of stocks so perhaps we were looking at different things.


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