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Hi jnk1997,
Sunday, September 14, 2003, 3:27:29 AM, you wrote:
j> I went "all cash" in my trading account during Thusdays rally in
j> order to protect substantial profits.
j> Am I "out to lunch" here or are many of you seeing what I am
j> seeing in the charts (Dow, S & P and Nasdaq)?
Normally would not touch this thread with a 10-foot pole <g> but
tomorrow is a public holiday in Japan, so here goes:
What I see in the S&P:
It has gone nowhere since 6-17. Absolutely nowhere. So, it's
already "flat", and has been flat for three full months. Everything
right now is fully priced in, and there is a broad general agreement
about equity values right now. It's going nowhere until something
changes that.
What I see in the DOW:
About the same as the S&P, just a hair better, but not much. But
then the DOW is so narrow anyway.
What I see in the Naz Comp:
Gee, we are up nearly 12 percent here in the past 3 months -- quite a
different story.
Now . . . Are you out to lunch? ^^_^^
Depends on so much that is personal to you -- how you trade, what
your time frames are, etc., etc., etc. There just is no simple
answer.
However, in a market like this, there is great danger stepping 100
percent out until stepping 100 percent out is the *proven* thing to
do. Stepping out is how you miss the home runs. Things suddenly
lurch higher while you are out, and you simply never find a price you
are comfortable re-entering at. Gone. Gone. Gone. I say this from
years and years of experience, some of it very painful in this exact
regard. "Protecting substantial profits" costs additional substantial
profits, time and time again. In order to hit home runs, you have to
be willing to risk a substantial portion of substantial profits.
There is no other way, because they all head-fake and jive you out if
you play it too tight.
Now, I am inclined to think that both the US and Japan have seen most
of the excitement for this year already. But, until this is
*proven*, and it absolutely is NOT yet proven in my book, if you are
sitting on great positions (positions with substantial profits) the
thing to do is hold them. Eventually, you are going to take a nick
when it becomes apparent that getting out is the thing to do. That
nick may come next week, but it also may come next spring, from
substantially higher levels. There is no way to know, and "talking
heads" would be the absolute last to know. (I try and tune this
stuff *completely* out, as I find listening to it gives me a desire
to anticipate rather than flow with, and I find this is usually very
expensive.)
But one should NOT anticipate in the direction *against* the trend,
which is what you are doing by going to all cash right now. If you
must anticipate, anticipate *only* in the direction of the trend
(anticipate a resumption of trend after a short breakdown). This
puts the odds in your favor I think. At least, hedge yourself. Going
to *all* cash right now is quite a gamble against the trend.
Anticipating the end of an up trend is exactly the opposite side of
the coin as bottom-picking, and is just as expensive, albeit usually
only in lost opportunity (assuming you're not crazy enough to back
your bet with a short) rather than lost capital (going long at a
"bottom").
As Jesse said, (I paraphrase) "The money in stocks is made mostly in
the sitting, not in the doing. Most men are very good at the doing,
but not very good at the sitting." I doubt truer words about the
market were ever spoken or written.
My own experience this year:
I caught the early trend in May and June, and made a year in 6 weeks.
I got out in mid July on seasonal intuition, knowing our O-bon
holiday season would soon be upon us, and trading volume would dry up
and long positions would be risky to hold. I would come back in late
August or early September, probably.
First day of the O-bon high holiday period was 8-11. The Nikkei
lurched suddenly higher out of a pull back, but on very weak volume.
Very light. But price was very strong. Yuki wasn't about to be
suckered back in by that volume though. Not during O-bon week. ^^_^^
But volume and price just continued to make stronger and stronger
daily moves throughout that "vacation week",(something I've never
seen before during O-bon, but which is really no excuse) and I just
doubted it, and watched it. By the end of the week we were up where
I'd bailed, maybe a touch higher, and I hesitated once more. Now we
are 7-9 percent higher, and I'm sitting on the sidelines stuck just
running my short term trades, hoping for a major tradable pullback. I
could have made 2 year's profit since May, if I'd just sat tight. And
I would have had to sit tight from 10,000 on the Nikkei to about
9,200. But we are now at about 10,700. (I even had my price levels
for going back in, as well as time frame; I was going back in around
late August, or around 8,800 basis the Nikkei. Ha, ha, ha, Yuki. It
just never got down there, and it took off when it seasonally simply
could NOT take off.)
I guess if I could draw any conclusion about this, and about human
nature, it would be that even someone who has been trading 30 years
(me) has trouble doing the right thing. Even someone who knows
better. So how easy, how utterly easy, it is to do the wrong thing.
So we must somehow discipline ourselves to try only those things in
which the odds favor us. The odds favor trend resumption . . . every
time. Eventually, trends all fail. But the odds are what we are
interested in, and where the money is.
Locking in *some* profit is usually a good idea. Going *all* to cash
is pretty risky when it is clearly betting against a fairly well
established trend. The earlier you got in, and the more "substantial"
your profits are, the greater the risk of getting out without a very
very clear sign that this is what you *need* to do. You will feel
very uncomfortable getting back in again at prices "substantially"
higher than what you paid a few months ago. This is human nature,
and very very hard to fight. You can say you will fight it, but when
it comes time to place the order, what usually happens is you
hesitate, then don't, or you go in with a very small position because
of the perceived higher risk.
These old saws about the market always amuse me. One of them is
'bears make money, bulls make money, and pigs get slaughtered'. So
true. But when exactly is one a 'pig'? When one tries to ride a
trend into irrational exuberance and beyond, never taking a cent off
the table? Sure. But maybe one is also a 'pig' when one tries to
preserve 100 percent of one's "substantial" profits in a rising
market. That is simply a different form of "piggishness", and you
can get slaughtered (at least psychologically) trying to do that,
too.
Yuki (do what I say, not what I do) ^^_^^
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