Sept. 8, 2011- A Little Common Cents Corner #11- Is it Worth The Mental Energy? (Piranha Markets)

“The first thing to realize is that people are unreliable.  You only have yourself to rely on 100% all the time. Any person , no matter how strong is capable of giving up on you at any given moment.  The second thing is, losing any single person won’t kill you.  It may hurt you and you might feel like walking around with an arm missing.  But at the end of the day, you’re alive and breathing and nothing is better than that.  So love yourself, because really, that’s all you have for you and you have to take care of that.” – A text message from a friend

__________________

I am not your sentiment indicator.  It’s flattering but I’m not a sentiment indicator.  Only the large speculators, perhaps. Period.  

I understand that a lot of people have developed many esoteric indicators from females’ hemlines to beer sales to the path of the moon.  Research data has found that when females’ skirts are steadily decreasing, the market is getting bullish, so go long- because richer pockets are more daring and will try “sexier” outfits, on the other hand, when skirts are lengthening, the market is getting bearish, because people are becoming more frugal.  (Reference and image courtesy of Forbes )

I, as a trader, require the least thinking, when it comes to processing information.  The mental energy of deciding whether a certain stock (example LC/LCB/MA/MAB) has hit bottom is taxing to me.  Thus, I just refuse to trade.

The Current Philippine Markets In A Few Words?

Define Noise. Define Emotions. Define Volatility. – We have it all.

What is a rally? (ORE)  What is a range?(LC,LCB)  What is an irregularity?(DIZ,AGP) How about what is a sell on good news? (BHI)

A trading range is nothing more but a push and pull between buyers and sellers.

Ideally, if you want to accumulate as a bargain hunter, you want tighter ranges and not 10% ranges in a single day where you can either be up or down 5% assuming you’re caught in the middle.  If you’re lucky enough to pinpoint and guess the bottom of each day, then those are your emotional gut instincts (which works as a good contrarian sentiment indicator) to which you are following from.  With tremendous volatility, whipsaws are normal.

For traders like me, I’d rather stay sidelined.  It’s a strategy that works well for me.  I do not like trading volatility.  I’m not good at picking bottoms.

I ask myself “Is it worth it?”.

From a trader’s perspective, I never mind the fact that there are 8-10% ranges, and if one’s successful, one can probably get 6% profits intraday.  To me, this picture looks like the following narrative given by Mr. Higgins (Analysis for Financial Management 3rd Edition):

” Market efficiency is a description of how prices in competitive markets respond to new information.  The arrival of new information to a competitive market can be likened to the arrival of a lamb chop to a school of flesh-eating piranha, where investors are plausibly enough- the piranha.  The instant the lambchop hits the water, there is a turmoil as the fish devour the meat.  Very soon, the meat is gone, leaving only the worthless bone behind, and the water returns to normal.”

Perhaps your economic choice of catching knives, and like a piranha eating a lambchop, you enjoy bargain hunting, and feeding all the infinite possibilities in your mind. It’s an emotional hot button.  It’s difficult to measure.  There’s no telling, whether mining stocks will go up or go down.  Direction of sideways trading ranges are sideways.  It goes up and down every single day (and is not interchangeable in a single day).

My preference is the least resistance.

Confidence and emotional control are extremely important in order to become a successful trader.

Why did SMPH had an expansionary breakout just awhile ago?  If the overall market internals were great (and not just rising due to the JAP frenzy – AGP,DIZ,ORE,MIC), I’d probably be trading SMPH’s setup.  It’s perfect in a textbook technical sense, but all the other market averages are just humming quietly in their sideways Rip Van Winkle mode.

I’m walking out.  There’s no such thing as a risk-free trade.  I just think it’s not worth my mental energy to think.  Maybe you’d like to think for me.  Please comment down below.  😀

– The Faceless Trader is neither bullish nor bearish- sidelines means neutral.

P.S.

If you must trade volatile stocks, my advice is anticipate cheap and use your emotions as a contrarian indicator to buy the fear.  Also, just day trade.  Buy the open and just sell the close.  Flip a coin and you have 50-50% chances of getting a bullish candle or a bearish candle for the day. It’s quite simply the same as baccarat tables.  If you play the right size, you’re likely to make money over time. A 50% hit ratio is quite enviable to say the least. 😀

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2 Responses to Sept. 8, 2011- A Little Common Cents Corner #11- Is it Worth The Mental Energy? (Piranha Markets)

  1. Tyrone Villaluna says:

    Nice read FT. Madami ako trading mistakes ngayon kahit may mga technical breakout. Hirap at sobrang risky pag ang overall market ay sobrang volatile.

    Thanks for visiting by the way. Good luck! 🙂

    Like

    • sandra says:

      in every scenario, there is a learning experience. FT you are correct, best to step aside and watch. this market is not for the weak heart and limited capital. too much volatility is stress in itself.

      Like

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