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    Wednesday, September 10, 2008

    Stops got hit, and so did our computers!

    For those that didn't hear yet, I've had a couple eventful days. Besides having nearly every position go against, and many stopping out, our computers got jammed so bad they couldn't even reboot. Not sure what happened (I'm a trader, not a tech), but I recently started using Google Chrome. I really like how smoothly it operates, so I hope that wasn't the problem. Some further research shows it was more probably Microsoft Windows "auto update" feature. In any case, not being one to procrastinate, I had new hardware delivered this morning. So far, so good, and the positions and P+L are up to date.

    Trading has been very challenging. I wrote a week or two ago, that when long term trends start to change, my results are their worst. This time has been no different, as I'm experiencing the worst streak of 2008 for me. The bottom line is that stops must be honored, and traders must work through periods like this. When you hit a bad patch, ask yourself what you've done correctly, and where have you failed. Drawdowns are never welcome, but I've been lucky enough to move on and hit new highs repeatedly in the past. I cannot promise when I start to crank up again, but I can guarantee I will hit new highs. On some level, I believe these tests are necessary. They keep you humble, focused, and hungry. After hitting new highs in equity on 8/28/08, accounts here suffered close to a 6% decline.

    Regardless of what the $USD does the next few days, the mood has changed. It will most likely not continue to rally from here, but the sharp decline will probably not resume again, either. As such, I will consider buying stocks on dips, versus only looking to short rallies. Likewise, commodities have changed their tune. They are not good short candidates, but the shine is off on the long side. Bonds will become the most excellent short of a lifetime, but for now they march higher.

    If you encounter a rough patch, there are only two options for consideration. The first is to examine your role in the results, be sure you acted appropriately, and then move on patiently. The other option is to quit for awhile (or permanently). Since I've been been here many times before, I'll choose to fine tune a great system, and come back tomorrow. I won't be trading any larger size (or smaller) to "get back" the gains I made earlier in the year, but instead will focus on proper execution of my system. Naturally, I'll take into account the above observations related to potential trend changes, looking for signals in both directions. Also, average hold times will necessarily be shortened, as most trades don't follow through as far (resulting from the lack of strong trends).

    I know many readers will say they saw the commodity plunge coming. So did I, but we only know a trend has changed well after the initial moves. I thought the world's economies were headed into the tank last January, but so what? If you shorted oil in January (as many did), you'd be down a lot more than 6%, not to mention how much $$$ passed up by not getting long. Investors concern themselves with the trend in economic numbers, but traders should not care about any of those things, as it's too difficult to measure (quantify) the variables. For example, I didn't lose a dime shorting oil all the way up, but have now given back 6%. I continue to bet what has worked, until things change, as they appear to have now. Keep perspective, and I'll do the same.

    I'm hoping all is set with the technology over here, so I can get back to regular posts. The upside of me getting smacked around (while new trends emerge), is that I'll be able to spend more time writing for this site! Good luck, and I hope readers have been doing well.

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