Oil has backed off of its recent high a little bit. I wrote a week or so ago that I thought it might go back to the low $60s and that was right for about ten minutes until Rita popped up;-)
At the start of the month I was hitting hard on the fact the market has only been down in both August and September six times in the last 20 years. Well with a week to go anything could happen but it looks like I will be wrong about September not being down.
I thought that the treasury market would unwind its Katrina rally, which it did and from here I do not think the ten year will go down to 4% again because of Rita but this has been a very volatile market.
I have been leaning toward a weaker dollar for quite a while now and that has not really been working since the French vote in May.
Are you getting the point? It is easy to be wrong about different things happening in the market. The overall portfolio has done relatively well this quarter. I attribute this to something that I try to do but have not mentioned much lately; I try to get more big themes right than wrong. The sentence, and the strategy, assumes I will get things wrong. And I do. You will too and that is ok.
As a writer for RealMoney.com I get a free subscription and I have to say the content from the other writers is very good. There are a lot of articles that chronicle well thought out opinions and the actions taken around those opinions (this is not a pitch for the site). What I have trouble getting a hold of is that there is so much demand for content about what trades to make this week, or even just today. Clearly there is demand for very short term ideas, I'm just saying it is so foreign to how I look at things. Barry Ritholtz had an interesting comment in a recent article when he said (paraphrasing) treat 5% of your portfolio as hot money for short term trades. Maybe more people do this than I realized. Wrong yet again.
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6 comments:
If you are interested in very short term trading, why not trade the futures? Be it currency or index futures. They move a lot and offer enough oportunities intraday to get a few good trades. At least with these you don't have to search for something new to trade each day. Like stocks, each future has it's own personality and moves slightly different from all the others. You can't compare trading the ES with trading the Bonds or Oil. But after a while you will get familiar with your portfolio of futures you like to trade.
Trade stocks in your swing or investment portfolio. For this you can take the time you need to decide what to trade and when to trade it. But intraday at least for me it makes a lot more sense to trade the futures instead of looking daily for new opportunities in stocks. Did it ever happen to you that the market went down, while your stock stubbornly refused to sell-off with the market, even if you could not find a reaon for it? Of course! And were you not sitting there in front of your computer asking yourself, why this s**t stock refused to go down? The answer is simple: You have market events and corporate events going against each other in your case, with corporate events holding the stock up, even if the rest of the market is going down. So, if you find yourself usually trading market events, then leave the intraday stock trading arena and goto where the market events are played only. Index or currency futures.
Sure you also have your homework to do, when you trade futures ( http://globetrader.blogspot.com/2005/07/do-your-homework.html ), but you can concentrate your attention on your trade-system instead of first looking for a trading vehicle for the next day and then applying your trade-system to it.
This is absolutely a valid idea.
I do not think it is easy, but clearly valid.
Roger,
We can all agree that diversification is important, but why limit it to one dimension? I have a longer term portfolio, but I also trade short term, including a lot of day trading. I look on it as a form of timeframe diversification. Another benefit is the ability to leverage your long portfolio intraday without paying margin interest, plus you have the ability to hedge long holdings.
the annymous comment has plenty good of logic.
i think some introspection is required to know how much of this would be right for you.
The two biggest problems with the idea of doing short term trading only a small portion of the portfolio is a time allocation issue and a restraint issue. There are only so many hours in a day and I question the ability of someone to devote the necessary time to successfully do both short term and long term strategies.
Regarding restraint, in my personal experience, it is very difficult to segregate the two strategies. I find that my short term thinking tends to infect my long term strategy and rarely to my benefit. Suddenly I find myself buying or selling long term holding due to short term trends. I suspect I am not the only one this happens to either. This stuff is hard enough. Know your limitations.
I'm the first anonymous above. Let me respond to the second anonymous. I agree that trading multiple timeframes is tricky and can lead to problems, not only in terms of focus but also the dreaded turning a losing trade into an "investment." With experience however, it can be done. It helps if one has a limited number of setups for daytrading, say opening gappers, plus focusing the rest of the time on a limited number of stocks with sufficient volume and volatility to be useful.
Another interesting question concerns the optimal time frame for longer term holdings. Of course, we'd all like it to be 'forever", but that seems to be increasingly unrealistic ina world dominated by sector flipping and one month trends. I find I'm increasingly turning over my longer term portfolio every month or so and frequently holding >50% cash. Too risky to just sit there and see what happens, even if you're diversified.
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