June 27, 2016
Another market result of Brexit was a YUUUUUUUUUUUUUUUGE rally in US Treasury prices. How many times have I advised people — DO NOT SHORT BONDS. For the last 5 years people have gotten creamed shorting bonds. Yes, at times, I have been short bonds, but I always cover that trade into weakness. And it is only a TRADE. And yes I believe that we are in a YUUUUUUUUUUUUUUUUUUGE bottoming process in yields/top in price, but you have to understand that both bottoms (accumulation areas) and tops (distribution areas) in markets are PROCESSES. They take time -months or years. Or even decades. The longer the process takes, usually the bigger and more explosive the move that follows. Like the massive bottom in gold between Jan. 21, 1980 to the final low on Jul. 20, 1999. That was 19 1/2 years! To this day it’s why I’m so bullish on gold long term, but I will be bearish at times for intermediate term selloffs. Or how about the silver market. I believe that it’s still in a massive (or yes YUUUUUUUUUUUUUUUUUGE) area of accumulation by the big moneyed interests. And when silver really gets going up, it will be amazing to watch. As an aside, please, please ignore the silver perma-bulls who have been wrong for years, yet have ZERO HUMILITY to admit that THEY are wrong, but will immediately blame someone or someones else for their lack of skill to navigate markets.
Back to bonds, I’ve heard comments from many of you and yes we completely agree that bonds are eventually going to get creamed. The key word is eventually. They are not ready yet. Timing is everything in markets — EVERYTHING. It’s a mistake that I see folks constantly making. They have a big picture view of what is going to happen, so they just go ahead and put on a position now because they’ re convinced that the scenario they envision is going to happen. That is a complete misunderstanding of RISK. First of all, you might be wrong about that scenario unfolding. Secondly, even if you’re right, it may be years before the market does a turn/reversal in the direction that you think it’s headed. It takes years to become fairly proficient at understanding THE final bottom or top. No one is ever right about it 100% of the time. It’s a tough one. but if you only buy into extreme weakness, your PROBABILITY of nailing it is pretty good. Understand that it is the NEAR term RISK that is the most important to control. That’s why I keep repeating — what is the TREND. And I mean what is the TREND NOW. Don’t try to guess what it might be later. Deal with the here and now. It’s why FUNDAMENTALS of markets are almost useless, unless you also have the skills to understand the near term supply/demand situation. That’s how you control RISK. That’s what makes you consistently successful in your market operations. There are two parts to trading/investing — analyzing and trading. Trading is by far the most important.
In fact, you can be successful in markets, by just learning the skill set required to be a successful trader/investor. But the better your skill set is as an analyst, when you combine it with a great working knowledge of trading, then you have quite a potent weapon. And please understand that the shorter term your time frame is the more it favors only trading skills. The longer term your time frame is, the more it favors a combination of both. When I started as a floor trader in Chicago, I had zero trading and zero analyzing skills. And I certainly proved it with my performance. I was in the same place regarding markets that some of you feel that you’re at. So, stay optimistic. Because there’s a 100% certainty that I am no smarter than anyone else who’s reading this blog. But over time, I developed enough trading skills to make a meager living. Then I allowed myself some room and the time to continue developing and honing my trading skills. Then I slowly began to be able to correctly analyze markets. Therefore, I both bettered my consistency (less losses) and also I was able to stretch out the time frame that I held positions (bigger profits).
And that is exactly how you greatly increase your overall performance.
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