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

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

 

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.

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August 23rd, 2020

Posted In: Rick's Picks

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