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Message-ID: <35132C90.431981B9@xxxxxxxxxxxxx>
Date: Fri, 20 Mar 1998 20:57:20 -0600
From: TomB and/or Roz <roztom@xxxxxxxxxxxxx>
Reply-To: roztom@xxxxxxxxxxxxx
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To: Timothy Morge <tmorge@xxxxxxxxxxxxxxx>
Subject: Re: David Neal / Money Mgmt
References: <35130825.12E23ACD@xxxxxxxxxxxxx> <35132570.92D51D73@xxxxxxxxxxxxxxx>
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Ah yes Tim:
The good old days..I'm lucky I survived it. Cost me a lot/saved me a
fortune over the long term - i've never spread off a loser again - just
take the loss. Frees up the Psychic/emotional energy too. No sense
fretting over a position you won't get paid on.
While I'm sure there are many on this list who are wiser and more
experienced then I , since we were talking about money mgmt we should also
talk about things you can't control and sometimes you can't control risk.
BTW this is not to demonstrate my great knowledge or experience - I am
continuously aware that I am and always will be a student of the market.
I still traded currency spreads quite heavily but always felt I had no
real risk control. Gaps are Gaps. I wasn't into the Interbank mkt - didn't
even get it. Today ould rather stick to bonds, Stk indices, copper, a
grain , maybe cattle - crude, still like currencies but not like before.
> TomB and/or Roz wrote:
> > One of my trader buddies said spread it off- so I sold a dec
> > against my sept. About an hour later the market
> > rallied but I had locked in my loss right near the
> > bottom.
>
> Tom:
>
> I assume you were answering the question someone posed about hedging.
> My personal feeling is always to just grin and tak the loss [or
> grimace and take the loss]. In your first example, of course, you had
> had enough and the only opportunity for you to limit your loss from
> that point forward was to use a spread.
>
> I think so many traders find their way to bad habits by trying to do
> the right thing and then find that they have cut their loss at the
> low. But I think in your example of the T-Bills, you did the right
> thing. You reacted to a behaviour the Fed had never exhibited before.
> You got tagged for a much larger loss than you bargained for and even
> though in hindsight you hedged near the bottom, you managed your loss
> as soon as you could. It would be unfortunate if this example had led
> you to 'learn' to hold losses longer.
>
(I think some might be interested in this, if it bores you I apologize in
advance)I learned to respect the mkt and be prepared for the unexpected.
When i first started i watched the Hunts get squeezed by the Fed with
"Liquidation only" silver went from $50 down limit, limit, limit and then
all the traders trapped long got hit for margin calls so they had to sell
positions in other mkts - it sucked the liquidity out of the other markets
and they all started falling - i don't remember if t-bills rallied i
assume they did(don't remember) - flight to quality - just like '87 when
the stk mkt 'crashed'. I respect the market - I use stops - I traded thru
the Gulf war had my pit broker have a nervous breakdown in the crude oil
pit and throw his deck up in the air and walk out. They couldn't find my
orders. Everything was fast market on a not held basis. (Which means grab
your ankles and kiss your butt goodbye)I had a large position on. After
the dust settled i ended up in arbitration with a clearing firm who isn't
around anymore and can you believe I lost ! Moral of the story. Use stops,
risk only 1-2% per trade and know that statistically that besides some
great opportunities there are BOUND to be some BUMPS in the night where
your anticipated risk will be exceeded..
> There was a saying I used to use quite often in the market place [I
> trade in my home office now and so I try to avoid talking to myself
> too much]: If you didn't like that price, wait until you see the next
> one. I always find that when a position gets out of where I expected
> it to go and I haven't got a resting stop in the market, as soon as I
> feel like the prices can't get worse, they do. So when possible, have
> stops there. Period. That wouldn't have helped you in your original
> example. But in most cases, it would.
>
> As for sprading off a position because it is at a loss, I feel losing
> positions are a drag on your thought processes. When a position has
> gone far enough that I want to limit my losses, I will always take a
> loss, id possible, indstead of spreading off the risk. Then my mind is
> clear of that losing trade and I can get a clear, fresh look at the
> markets. And with spreads, somehow getting into a calendar position or
> futures/options position I haven't planned on being in doesn't sit
> right. Even a spread is an exposure.
>
> Tim Morge
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