Wednesday, December 8, 2010

A Public Apology to Hsin

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As many of you know, Hsin Yen and I trade together, e.g., we have joint access to multiple accounts.  There is a tremendous amount of synergy that exists when two like-minded individuals pool their knowledge and resources.  There is also danger when when this sharing disconnects, even for a day.

Yesterday, accounts that Hsin and I trade took a beating, and because of this, today's setup is at a disadvantage.  Hsin, being the consumate professional that he is, took the responsibility for this performance in his blog at

http://athenastrategytrading.blogspot.com/

Let me say, with no ambiguity, that the performance yesterday was due to my actions, and none of his.  Specifically:
  • I moved into the markets on the news of the previous evening (extension of Bush tax cuts, extention of unemployment benefits, etc.), and not on the actual performance of the equities that I selected.  We have a rule not to trade news and I violated that rule.
  • I moved into the markets in the pre-market period, which in retrospect, has not been a successful avenue for me in entering trades (determined in hindsight analysis yesterday);  We have a rule not to enter markets before 9:46 and I violated that rule.
  • I moved into positions that were extended, and violated a rule that he and I agreed to that the entry needs to be less than the EMA8 + 40%ATR(20).  NONE of the positions I purchased fit this condition, so I entered positions at an overbought/over-extended level. 
  • I did not properly screen for sector diversification.  As many of you know, at one time in my past I religiously ran daily correlation studies on stocks, ensuring that they were from uncorrelated sectors.  There is no excuse why I am not doing this now, and as a consequence, 35% of the position was weighted in various precious metals.  Precious metals fell hard yesterday.  I intend to ensure sector diversification going forward.
In any post-mortum analysis of "why" trades fail a dozen reasons can be created.  These are simply excuses.  The bottom line is that I had not internalized these rules, and because of this, we've been hit hard.  As a consequence of my actions, hard-earned gains of the last two weeks were wiped out.  Because of this I owe Hsin a most heart-felt and somber apology, and a promise to stick to our rules.

Hsin, I have the utmost respect for you as a trader, investor, confidant, and friend.  Please accept my apology for my actions, and please know that I absolutely know that we have jointly created these money-management rules because we have made these mistakes in the past, and vowed never to repeat.

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GGT Summary
  • In general, the LCR system is heathly/bullish.  We are at an early stage though, so a failure could certainly materialize.  ALL the slopes of the EMAs are positive, and ALL of the "slopes of the slopes" of these EMAs are positive.  This is overall bullish.
  • In general, the Pricing system is healthy/bullish too.  ALL of the slopes of the pricing EMAs are positive, so we are in an uptrend.  We do have headwinds though, as ALL of the "slopes of the slopes" of these EMAs are pointing downward.  We're pulling back slightly in terms of prices, which provides entry possibilites.
  • While %B has fallen from 1.0047 to 0.9073, the GGT strength index increased 3.7%.  This divergence shows that there is still "gas in the tank" for a bull leg.
  • The short-term LCR Change Timer is LONG.
  • The intermediate-termed Elder Force Index Timer is LONG. 
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I'm in Ft. Worth this week, so I'll post entries as my schedule allows.

Regards,

pgd