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John Ward
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Equities trader. I currently live in California. Email: Twitter: JWard_73
  • July 28, 2011

    “So, after a strong run of profits, I try to play smaller rather than larger. My biggest losses have always followed my largest profits.” - Marty Schwartz, from Market Wizards.



    In between the islands of Maui and Moloka’i is a channel the Hawaiians call Pai’lolo, which, loosely translated, means “Crazy Fisherman.”  This channel is famous for the powerful trade winds that, via the venturi effect, produce some of the nastiest currents you’ll ever meet; in fact, the rough and volatile waters are often referred to by boaters as the “washing machine.”  The reason I cite the Pai’lolo is that the markets this year have done much to remind me of the sensation of sailing through that choppy channel. 


    QE3, PIIGS, tsunamis and earthquakes, housing starts, non-farm payrolls, debt ceilings – you name it, all sorts of cross-currents have been roiling our markets.  Here the market looks as though it’s falling apart at the seams; there it recovers against all odds and rallies.  One week sees four of five sessions close at least 1% off their peak; the next it bounces as if nothing were wrong in the world at all.  Look now, the last hour of trading on the S&P has been a sight to behold for over a week.


    This kind of news-driven action is enough to flabbergast even legendary operators like George Soros.  Back in April, he had this to say: “I find the current situation much more baffling and much less predictable than I did at the time of the height of the financial crisis. The markets are inherently unstable. There is no immediate collapse, nor no immediate solution." 


    Soros has since closed his hedge fund to outside investors.   


    Many traders are no doubt sitting on some handsome profits from the last two years.  It would then be wise to consider where the market is in the current cycle. Year Three’s tend not to be all that kind, especially to markets that have recovered from such steep declines as this one.  2011 is proof of this.  Also, one always wants to be cognizant of the psychological aspect of the craft we’ve chosen.  Achieving outsized gains and making a lot of money can actually be detrimental to one’s equilibrium.  We’re all fallible and subject to succumbing to those human flaws that are a stock trader’s worst enemies – namely, greed, arrogance and recklessness.      


    All too often our greatest defeats succeed our greatest triumphs.  This is not restricted to just stock trading either.  It applies to all aspects of life.  After all, Washington probably felt pretty good about himself after his victory at Dorchester Heights…but then came New York.  


    Jesse Livermore made millions shorting the market during the “Bankers’ Panic” of 1907, yet by 1914 he had filed for bankruptcy.  Why?  Avarice, pride and, later on, exasperation at a trendless market all conspired to undo the masterpiece he’d pulled off just years before.  Don’t think it can happen to you?  The Apostle Paul warned the Philippians to work out their salvation with much fear and trembling, let Livermore stand as a stark warning to work out our trading psychology with no less vigor.  


    No one knows what the market will do over the next year or so. Will it be a ’38-’42 redux?  Or will it, God forbid, flatten out like ‘10-‘14?  Or will it be something altogether different and unexpected?  Impossible to say.  All we really need to know is what it’s doing now and that right now ain’t exactly pretty.    


    Just as there are certain channels one would need to be crazy to try to fish, for trend followers there are certain environments where one would need to be crazy to try to trade.

    Jul 28 12:11 PM | Link | Comment!
  • Marty Schwartz on cutting losses

    What happened that Monday? When did you get out?

    "The high in the S&P on Monday was 282. I liquidated my long position at 267. I was real proud of that because it is very hard to pull the trig­ger on a loser. I just dumped everything. I think I was long 40 contracts coming into that day, and I lost $315,000.

    "One of the most suicidal things you can do in trading is to keep add­ing to a losing position. Had I done that, I could have lost $5 million that day. It was painful, and I was bleeding, but I honored my risk points and bit the bullet.

    "That's another example where my Marine training came into play. They teach you never to freeze when you are under attack. One of the tactics in the Marine Corps officer's manual is either go forward or back­ward. Don't just sit there if you are getting the hell beat out of you. Even retreating is offensive, because you are still doing something. It is the same thing in the market. The most important thing is to keep enough powder to make your comeback. I did real well after October 19. In fact, 1987 was my most profitable year."

    -From "Market Wizards"

    May 06 2:36 PM | Link | Comment!
  • February 8, 2011

    If the market continues its winning ways, focusing on stocks like BIDU, NFLX, OPEN, LULU and PCLN should serve one well.


    PCLN reports on 2/23 so an emphatic move either north or south could be in the works.   



    Should the market turn tail then look to short those stocks that appear to be setting up to fail:  CTRP, V, MA, VMW and FFIV.


    FFIV might be forming a “head and shoulders” pattern.  Presently, it’s running into an area of resistance around the 50 day moving average.

    Feb 08 12:29 AM | Link | Comment!
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