June 4, 2015
I am still maintaining positions in 7 markets and still consider all of them to have dynamic potential…Otherwise, I would not be in those trades.
MORE AND MORE, I HAVE BECOME RESOLUTE IN MY CONVICTION THAT: IF YOU ARE NOT WILLING TO BUY BOTH SIDES, DO NOT DO THE TRADE.
During the past few months, I have been amazed at how well the recently adopted “1 & 1” approach has been working…both when the market has been moving for us, creating solid profits, AND, more importantly, when the market has been going the “wrong” way, in which case we were able to reposition with our original investment at better and better prices…repeatedly really…such that when several markets (Euro and Wheat) started taking off on the upside again, we generally owned totally new positions from dead on their lows.
The truth is, using the 1 & 1, I have NEVER been more comfortable with the markets moving against me…which is an unavoidable aspect of futures trading…than I am now…and quite honestly, I am still working out the nuances of how to use the strategy, but the basics are the same:
Rule 1 – If the market goes the wrong way, and reaches the point where you are able to recoup 100% of your total investment by selling both the put and the call, you do so automatically. You do not start thinking, “Let’s see if it will go further and I can make some money going the ‘wrong’ way”. You take the money and start over with totally new positions...at better price levels.
Rule 2 – Exactly the opposite of Rule 1. If the market does start going the right direction, you do everything you can to leave it alone…and let it RUN. Do NOT start thinking, “It’s gonna pull back. I’ll get out here and get back in at a better prices”.
In actual trading, however, when it comes to Rule 2, I have understood that there WILL be times when it DOES make sense to book profits by liquidating the position, taking, for example, half the money (profits) off the table, but you then immediately reposition with new strike prices centered around the new current market level. This accomplishes two things…One, you book profits. Two, you are still in the trade, but market moves against you are now once again well protected by the 1 & 1.
The recent action in the Euro presents a perfect real world example of how this can (and did) work out…
I didn’t insert that chart to demonstrate my trading “prowess”, but simply to demonstrate how the 1 & 1 can actually be utilized (and not every account had exactly those same options but the basics are the same)…The point is, I am COMMITTED to the long side of the Euro, looking for something like the 125 area, and using this approach, I really do not worry about the market moving against me, either initially or periodically, as when the market IS going the wrong way, I know I am likely being given the opportunity to own the trade at better and better levels….I’m NOT sitting here thinking, “Oh crap! We’re losing. Where will this stop? What do I do now?”. To the contrary, all I am doing is considering the math and figuring out what my next set of options will be…and truly HAPPY to know that I AM buying (or shorting) a market at better prices. Part of this business of trading is dealing with your own emotions, and all of us have certainly been in that losing position where we’ve thought/KNOWN, “I ought to be buying the sh*t out of this here, but I’m just too beat up already to do it”…And this stupidly named “1 & 1” has, for me, almost totally eliminated that sort of deer-in-the-headlights situation.
My own philosophy of trading does involve a fairly strong commitment to any market I enter, with my objective being to participate in what I expect to be a fairly large (but normal) percentage move in that market…and you therefore generally won’t find me buying a market at 100, and then turning bearish just because it goes to 90…There certainly are times when I decide my opinion has been wrong, and is going to stay wrong, and I walk away from an idea, but this is only infrequently the case…As in, specifically, my bullishness right now towards the Euro and the major row crops (Corn, Cotton, Soybeans and Wheat) when I clearly recognize that the whole trading world is OVERWHELMINGLY bearish them all, and with all of them being what I consider severely “in the hole”, the odds of me deciding, “I’m bearish”, are EXTREMELY low…to almost nonexistent. ALL of the markets go up AND down…and I “know” that a big UP phase is coming, sooner or later, in every single one of those markets.
I hate to sound like a preacher but I firmly believe this 1 & 1 thing has changed my life as a trader. Only time will tell but I firmly believe the approach dovetails perfectly with my “committed” perspective when it comes to taking positions…and I absolutely believe it dramatically lowers the odds of losing when I am wrong, while at the same time offering PLENTY of leverage when I am right...Obviously, I can’t sit here and tell you, “You can’t lose”, because that is definitely not the case---using this strategy, markets going sideways can lose you 100% of what you have invested---but I can say I am now feeling more confident about being able to consistently generate solid profits, as a trader…year after year…than I EVER have…But like I said, only time will tell.
ON TO THE MARKETS…
STILL BUYING THE EUROCURRENCY
I will only remind you that Short the Euro, a piece of paper in this worldwide trading GAME, has been the number one speculative position on the planet…and I maintain that all of those Short Euro Sheep are going to get it handed to them…Europe ain’t dying, WHATEVER happens with Greece has already been traded and discounted by the markets a 1000 times…in other words, GREECE DOESN”T MATTER…and I see nothing but upside for the Euro in coming months.
MY TARGET IS SOMEWHERE NEAR THE 125 AREA…AND I THINK IT COULD EASILY BE THERE BEFORE WE GET TO SUMMER’S END.
All option prices in this newsletter include all fees and commissions.
Again…just a reminder as to how HISTORICALLY SHORT the funds are…
Still LONG CORN, COTTON, SOYBEANS & WHEAT
As I keep writing, it has been decades, literally, since I have seen the trading crowd as bearish Corn, Cotton, Soybeans and Wheat as they are now…And this bearishness, based in VISIBLE supplies (totally KNOWN by the markets in other words), seems to be ignoring the fact that world demand is generally expanding in fairly large percentages year after year after year…not to mention how FUNKY the all important weather seems to be from Texas to New Delhi and beyond…And I honestly cannot count the number of times I have recently heard or read: The ONLY way these markets will go up is if we get weather…I mean, every analysis I see is just blindly, blindly assuming that none of these markets has the slightest chance of rallying without weather…EVEN THOUGH WORLD DEMAND CONTINUES TO PUSH RECORD LEVELS…I know there must be some bulls out there but I sure don’t see them.
I LOVE BEING LONG ALL FOUR OF THESE MARKETS, especially when my read is that they have all been forming significant bottoms for the past 6-9 months or so…And especially when I note, “they have been doing NOTHING for a long time” (and are therefore due to do SOMETHING big, SOON, I believe). And ESPECIALLY WHEN I CAN BUY THEM ALL USING THE 1 & 1.
I SAY, AT A MINIMUM, THEY ARE GOING SOMEWHERE…AND IF IT’S LOWER, I WILL HAPPILY JUST OWN THE MARKET LOWER…AS WHEN THEY DO GO UP, WHETHER IT’S RIGHT NOW OR LATER, IT’S USUALLY IN A BIG, BIG WAY…AND I OBVIOUSLY THINK THE STAGE IS SET FOR NOW, OR I WOULDN’T BE IN ANY OF THESE MARKETS.
Like the Euro, Spec Funds are LOADED on the short side in Wheat…
I’VE SEEN THIS TOO MANY TIMES…THE MARKETS IN THE HOLE AND EVERYBODY SHORT THESE PRODUCTS THE WORLD CANNOT LIVE WITHOUT…AND SEEMINGLY FORGETTING EVERY BUSHEL WE GROW HAS TO BE REPRODUCED EVERY YEAR…ALL OVER AGAIN.
To be clear, I often draw in potential moves on charts but this obviously does not mean the markets will move in the fashion I have imagined…But part of trading IS trying to envision what CAN happen, or what you think MIGHT happen in the markets, and how I do outline those potential moves is based on having studied maybe a million charts during the past 35 years…And nothing I draw is ever, I believe, comes even anything close to being what I would call beyond a normal expectation…
And due to the 1 &1, I would note that the last 50 cent dip in Wheat…which has now almost been totally reversed with the past 4 day rally…resulted in our repositioning in mostly the 490/500 calls and 480 puts…with all of those calls now being SOLIDLY in-the-money.
And here is KING SOYBEAN…I think there is monster leverage here…
Out of gas so I will cover Corn, Cotton and Cattle tomorrow..
I encourage you to give something here a try…I definitely think that having more than one market is mathematically advantageous…You never know which market is going to be the first to take off…and the thing about markets is you NEVER know when they are going to start jumping…when they are ready to shift from “going nowhere” to dynamically taking off in one direction…I think these all three of these have big, imminent potential…and all three are giving me indications that they are perhaps beginning to take off, but I DON’T know which (if any) is going to be the next commodity “newsmaker”…So I absolutely recommend trying to go with all three…USING THE 1 & 1.
Give me a call if you want to talk about them…or anything…You know I always like to hear what is going with you guys…
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Eurocurrency, Soybeans, Wheat, Cotton, Cattle