August 23, 2020 | Why Surfing the Big Moves Is So Difficult

The E-Mini S&Ps ended the week a millimeter shy of a well-advertised rally target at 3402.75, poised to achieve it when index futures start trading again Sunday evening. If we were so confident the target would be reached, why, you might ask, didn’t we simply buy a dozen contracts weeks ago and avert our eyes as the futures made their way toward an all-but-inevitable rendezvous with 3402.75? The chart shows why such a strategy — why nearly ALL buy-and-hold strategies — are so diabolically difficult to employ. For although there may have been little doubt about whether 3402.75 would be reached, simply holding a few contracts for an “easy” ride would have subjected a trader to enormous strain, waves of excruciating doubt and many sleepless nights.

Notice how the E-Minis’ incremental gains from one green peak to the next were punctuated by losses several times as large with each downdraft to a red-numbered low. That is Mr Market’s way of denying easy money to traders and investors who see “obvious” trends, and who think the path to riches entails simply sticking with those trends no matter what. It turns out that the ‘no matter what’ aspect of trading the big swings can be so harrowing that few of us have the balls or the discipline to ride out the inevitable wailing. shrieking days and nights.

How to Die Rich

We’ve all heard stories about some commodity trader who made a killing riding a monster move all the way to the top. A cursory look at the chart would seem to suggest this was easy — just up, up, up and aw-a-a-y, like AAPL and TSLA have been doing lately. On closer inspection, however, the steep uptrend is revealed to be a deception: the magnifying lens reveals how even parabolic rallies are fraught with heart-stopping dives, diabolical feints and spasms, each capable of producing as a by-product heart attacks, strokes and trader lives shortened by stress. Keep in mind as well that not all big-time traders die rich. They tend to increase the size of their bets with each new  success, and it is only the ones who are smart enough to quit while they’re ahead who retire on easy street. For most who attempt to trade, it can be a matter of quitting before you are too far behind.

Rick Ackerman August 23rd, 2020

Posted In: Rick's Picks

Next: Resistance is Fertile! »