Where the Wild Profits Are

May 18, 2012
By

Notes and musings from a wild couple weeks:

“Acropolis Now” Redux

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I have been an Economist reader since 1996. One of the best things about The Economist is the covers — every once in a while they come out with an instant classic.

Perhaps the greatest Economist cover of all time — in terms of mega-contrarian indicator — was their “Drowning in Oil” issue in 1999.

It showed two filthy oil workers, covered in crude, trying to handle a gushing well head. That cover (and its prediction of $5 per barrel oil, when crude was just above $10) marked the all-time forever low for oil, within months (if not weeks) of the bottom tick.

The “Drowning in Oil” cover is suitable for framing and hanging on a trader’s wall, given its place in market history.

“Acropolis Now,” featured right, is another one worthy of such honor… and as I write these words, we are experiencing Acropolis Now Redux.

We have been making solid profits on our shorts, but also keeping a light hand on the exit trigger — if Germany caves and does a weekend deal with Greece, markets could go vertical. (On “no deal,” however — or an actual Grexit — markets could full-on crash… go figure.)

Silver-Plated Patience

Moving on, the recent action in silver reminded me of this Michael Marcus excerpt, on Ed Seykota, from the original Market Wizards:

Ed provided an excellent role model. For example, one time, he was short silver and the market just kept eking down, a half penny a day, a penny a day. Everyone else seemed to be bullish, talking about why silver had to go up because it was so cheap, but Ed just stayed short. Ed said, “the trend is down, and I’m going to stay short until the trend changes.” I learned patience from him in the way he followed the trend.

As did we, as evidenced by our current short silver trade:

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I’ve met Ed Seykota, by the way, and hung out at his house a couple times. We almost collaborated on a book together.

It’s a funny story. Remind me to share it, in person not in print — if we run into each other at a Mercenary event.

On being asked why we shorted AGQ at that particular juncture, this was my message board reply:

Head and shoulders type formation in SLV… violent high volume breakdown across entire PM complex on Feb 29th… bearish macro prospects for PMs on prospect of “risk off” retail liquidity rinse / portfolio contagion dump + flight to safety USD strength in hostile environment… clear break below clustered 50, 100, 200 day EMAs… 3/19 last day of countertrend retest, 3/20 resumption of downward momentum.

It’s our standard practice to combine technical precision (price action validation) with fundamental backdrop / macro awareness for targeted entries on both trend and swing trades. Similar process for buying VXX breakout on 05/14.

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Rest In Peace Maurice

On a more personal note, last week Maurice Sendak passed away. You may know him as the author of “Where the Wild Things Are,” and many other dearly beloved children’s books.

I spent a lot of time with my grandmother — “grammy” — as a kid. We had many wonderful memories of watching The Muppet Show on the couch in her library, eating vanilla ice cream with salted peanuts and chocolate sauce.

My fondest memories of grammy, though, centered around children’s books. For the first few years she would read to me before bedtime — until, precocious little bugger that I was, I started reading to her. Sendak’s “Where the Wild Things Are” was one of my early favorites.

What does a children’s book author have to do with trading, you ask?

Well, the guy had a wonderful attitude toward his life’s work — one that all traders would be wise to emulate.

Here is the money quote (hat tip Daniel Coyle):

“It’s sublime, to go into another room and make pictures. It’s magic time, where all your weaknesses of character, the blemishes of your personality, whatever else torments you, fades away, just doesn’t matter. You’re doing the one thing you want to do and you do it well and you know you do it well, and… you’re happy. The whole promise is to do the work, sitting down at the drawing table, turning on the radio, and I think, what a transcendent life this is, that I’m doing everything I want to do. In that moment, I feel like I’m a lucky man.”

- Maurice Sendak

Right on… that is exactly how yours truly feels about trading.

Even when market conditions suck (as they sometimes do), trading is still the best job in the world. Compared to trading, there is no other potential occupation so interesting, so fascinating, so varied and new from day to day.

Not to mention the 4 second home office commute… or the ability to work from a laptop, in a beach chair, taking in the surf off the coast of Nicaragua (or anywhere else in the world you choose)…

And as for the upside opportunities, well… let’s just say Soros’ original plan was to make a million dollars, then retire from Wall Street as a philosopher.

As Martin “Buzzy” Schwartz, perhaps the greatest S&P daytrader of all time, has said:

I always try to encourage people who are thinking of going into this business for themselves. I tell them, ‘Think that you might be more successful than you ever dreamt, because that’s what happened to me.’

The hidden key…

There’s no denying it though — trading can be hard. The learning curve is steep, the apprenticeship long. As with entrepreneurs and small businesses, many who reach for the brass ring fall short.

(I believe it is no coincidence that the failure rate for traders, the failure rate for poker players, and the failure rate for new small businesses is roughly the same.)

So what’s the key to being successful — to becoming one of the 10%?

Well, there is the talent and drive aspect of course. You either have the innate potential (reasonable intelligence, self discipline reserves, emotional management skills) or you don’t.

There is something else though… something harder to define that separates the many and the few… and this is my guess at what it is:

Too many people go into trading for the wrong reasons — just like they start a business for the wrong reasons, or try to become a pro poker player for the wrong reasons. That dooms them from the start.

You can’t have an “away” motivation only and hope to become a successful trader. It’s ok to have “away” be PART of your motivation, but it can’t be the whole thing.

Your fuel, your inner power source, has to be more than the desire to leave your shitty job or unfulfilling career behind — and if you’re going to make it through the tuition gauntlet that all new traders face, fantasies of “retiring in X years” will not be enough to sustain you.

No, to truly have a shot at becoming a successful trader, you have to have a strong “TOWARD” motivation too – ideally much stronger than the “away.”

Gotta Have the Love

The upshot is, you can’t just “like” the idea of trading, of becoming a trader.

You have to LOVE it. To embrace it. To make trading a passion, a powerful driving force, a deep internalization and a critical aspect of who you are. Because if you fail to do this, your lunch will get eaten by those with more passion, more fire, more deep love than you.

Those who merely “like” trading, or worse yet, are swept up in the fantasy-fueled “idea” of being a trader,  will have too many doubts, too much uncertainty in their chosen path, too much negative energy weighing them down like a backpack full of rocks, on those inevitable days (sometimes stretching into weeks or months) when markets are misbehaving and the road has gotten tough.


Those who love trading, though — who have learned to truly immerse themselves in the nuances and subtleties of the game, the ongoing personal development process, the multi-faceted aspects of transforming one’s self into a successful trader from the ground up and the inside out — will have a super-powerful passion they can tap… an internal converter that burns up those negative sentiments and turns them into fuel, like garbage in a white-hot furnace.

In other words: If you LOVE it, you power through… and passion creates your best shot at powering through, to that place where markets are an inspiration and a challenge to be relished most days — even the hard days, the crappy days, that would break a lesser trader’s stride.

So how do you get that kind of passion? How do you find a way to bound out of bed every morning, intensely interested in what the market — and the world — has to offer you that day?

In the humble opinion of yours truly, a CHILD-LIKE LOVE OF LEARNING is key.

Be honest with yourself. If you don’t have that passion to learn here and now, then organize a search and rescue party, break out the self observation floodlights, and tramp deep into the woods of your own heart and soul.

FIND that curiosity you once knew… rescue it, cultivate it… draw out your inner 5-year-old, your innate sense of wonder and possibility, and let it romp and play.

Heavy on the quotes today… I’ll close with one last favorite, from the mouth of Merlyn, in T.H. White’s “Once & Future King:”

There is only one thing for it then—to learn. Learn why the world wags and what wags it. That is the only thing which the mind can never exhaust, never alienate, never be tortured by, never fear or distrust, and never dream of regretting.

- The Once and Future King

Have a great weekend!

JS (jack@mercenarytrader.com)

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