Wednesday, April 16, 2014

MY Simple Plan

"Everything Should Be Made as Simple as Possible, But Not Simpler" -Albert Einstein

Well, whether Einstein did actually come up with the quote is actually debatable, but many people that use this quote like to give credit to him. Not the point of this post.

So, I am drawing inspiration from this post by Market Anthropology. Honestly, I love his posts. I always read it slowly and in detail whenever he makes a post. 

His post starts out like this...

A simple question deserves a simple answer. 

Are 10-year yields headed higher or lower through the balance of this year?

  • If you believe long-term interest rates are headed higher, sell precious metals and the broader commodity complex and buy the dip in equities - especially the banks.
  • If you believe long-term interest rates are headed lower, sell the banks and the SPX and buy the dip in commodities - especially precious metals.
Personally, I am in the camp of the second thesis for a variety of reasons.

I have already been stacking precious metals since December 2013, however, quite indiscriminately of dips or not. I guess I am not that much of a seasoned investor yet to be patient enough to wait for a dip and I'm too scared of missing the boat. I will try to maintain and be more disciplined.

Shorting The F***ing Rips (STFR) is the opposite of Buying the F***ing Dips (BTFD). While BTFD is the main strategy in a bull market, STFR is the main strategy in a bear market. I am quite a believer that we are in topping phase of this current bull, meaning that it's going to be a bear party soon. Hence, STFR mode-on.

So far my STFR has not been going well. I have finally realized why. When looking at the daily timeframe, not enough information can be extracted out to where a execute a short on a rip. On the hourly charts, the problem is the opposite. Too much noise on the hourly makes for messy entries on rip shorting as well. However, I have come up with a much prettier solution, the 4 hour chart.

I've always though the 4 hour charts were useless, but I think it is the perfect balance that I am looking for now. It gives multiple entries to trade, without too many false flags. If you don't believe, go look back at the SPX charts on the 4 hour timeframe. The past 2 peaks were almost perfect, and currently at GMT 07.41, it looks like we're at the next interim peak as well.

I am going to try and force myself to be a lot more nimble in taking profits once a trade as run well, and also to give a bit more leeway for error (only if I am disciplined enough to stick to my rules, since the risk-reward ratios would be very nice on those set-ups). This is opposed to my previous train of thought of just holding on to positions as long as I'm in profit. I think I have missed massive opportunities so far and my account is basically back to square 1 now.

Oh, the greed.

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