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    Wednesday, September 3, 2008

    What's the next move?

    The case for my long side trade in commodities stems from my belief that trends re-exert their forces at some point. This article was originally posted on April 26 of this year, but is particularly applicable in the current environment.

    This observation has nothing to do with economic models or secret formulas. It is entirely irrelevant if we are eventually correct, if we lose most of our capital before the move. I find most traders take position sizes that cloud their decision making. I am confident of my risk control at all times, in any environment, even if I'm wrong. It is not whether the trade worked out or not, but how much we lost vs. how much we gain when we're correct, that determines our level of success.

    I continue to wait for entry signals to short stocks, get long commodities, and short bonds. Signals typically work much better when the various asset classes confirm each others moves. This is not the case right now, as both stocks and bonds are "due" for a pullback. I still take signals as they present, but it's more difficult to take big positions (through adding to winners). Perhaps the markets will tip their hand in the next few days? Until then, I just hold a little PGH and Gold, as seen here.

    Some excellent observations from Mish, regarding bonds and interest rates. Perhaps this is the reason I can't seem to make huge gains shorting the 30 yr bond futures!

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