Beating Buy and Hold (thru disciplined speculation)

[drbubb]

(Posted 04 May 2011 - 08:00 AM / DrB's Diary)

I like the guy's thinking often, but I am going to pick on him, because I find he and Chris Walzek just a little "too sure of themselves", and I think they are going to "led their listeners down the garden path" once again - as they did in 2008.

Chris has set up his FX trading signal system on the Zulu Trader, and attracted a number of followers using the system with real money.

 

He has mentioned a high number of profitable trades, and a high percentage:

 

Trading Robot : 63 wins in 70 : 91%!

 

... but what does the actual success look like ?:

======

Broker Country Name Pips

FXCM417278F 90 (only 1 making big money)

GAIN384868F 7

FXDD440962F 3

GAIN385183F 2

FXDD426898F 2 (only 5 are making money)

AAA422266F -3

AAA433029F -4

FXDD397561F -34

AAA411483F -34

FXCM429255F -66 (similar order of magnitude as big winner)

GAIN419809F -77

GAIN412146F -78

FXCM422196F -278 (4 huge losers)

FXCM385996F -649

FXCM411984F -741

FXCM411798F -794

 

/source: http://www.zulutrade.com/TradeHistoryIndividual.aspx?pid=36930

 

In fact, if you look at the day-to-day track record, it ran along with mostly profits, building an upwards trend, and then suddenly "blew up" a few days ago- the main problem was: he was long the Euro when it suddenly collapsed - and the stop was too far away:

 

EUR/USD BUY 0.2 2011/05/06 07:42:00 1.458 1.4257 1.4612 1.43119 -268.1

 

I believe that CW was just too bearish on the USD, and found it impossible to think it could rally. This "blow-up" problem is not unique to Chris Walzek, it happens to many systematic traders, and shows how difficult it can be to make money with a system like this.

 

I wish him well, and genuinely hope he gets the system back on track. The early results were intriguing - and so I did keep an eye on it. Perhaps if he drops his CERTAINTY that the dollar will fall, he will do better.

[drbubb]

Are you saying that you now think silver is in a bear market? I think it is in a bull market and will be for some time.

Depending on how one defines Bear market, it may fit the definition

 

I am not worried whether bull or bear, I am just trying to trade it profitably

[Pixel8r]

Maybe you should concentrate on switched, Pixel, since you seem very comfortable with that style of trading. Options could add another dimension to it.

I was listening to the very interesting FSN interview with Gabe Velazquez about the opportunities and pitfalls of trading futures this morning. He mentioned the statistic that 90% of futures traders lose their money within 6 months and went to explain the concentration, discipline and dedication that it requires. Though I feel I could maybe turn my hand to this type of trading, I don't feel that I could while running my photographic business. My business requires a lot of concentration at times which does distract me from the markets.

Maybe trading is something that I could just carry on learning about with a view to doing it full time at some point when I stop running my business.

Here's the interview which is worth a listen for anyone considering trading using leveraged instruments;

http://www.netcastdaily.com/broadcast/fsn2011-0507-2.mp3

[drbubb]

I was listening to the very interesting FSN interview with Gabe Velazquez about the opportunities and pitfalls of trading futures this morning. He mentioned the statistic that 90% of futures traders lose their money within 6 months ...

My advice:

 

When you start out:

+ Trade in very small size,

+ Use very modest gearing

 

Make sure you get through that first 3-6 months with your account intact, and making money - before you move up to larger size trading

[drbubb]

TARGETTING my next buy level...

 

This chart shows the IN-BETWEEN support line at about $31-31.50:

 

 

If it hits that level, I plan to to buy Call options to cover 50,000 for Portfolio #2.

 

If that is the final low in this move, I may wind up buying another 50,000 options in a RISING market.

But I would hope to have a chance to buy at $26 or so.

[frizzers]

I think trying to trade a bull market is very risky strategy indeed. Yeah, you can catch a top but it's too easy to lose a position.

 

If you a full-time trader then an argument can be found for it, but not if you are not. Overtrading is a dangerous enemy.

 

Occasionally a market becomes very over-extended - like silver - but the gains from buy and hold can be so amazing. If you have a winning stock like GORO which would have been a 30-bagger for those that held from when they first raised money at $1.

 

By all means go for it with a portion of your portfolio, but you need to have a LARGE CORE POSITION in gold at all times at the moment.

[drbubb]

I think trying to trade a bull market is very risky strategy indeed. Yeah, you can catch a top but it's too easy to lose a position.

 

If you a full-time trader then an argument can be found for it, but not if you are not. Overtrading is a dangerous enemy.

 

Occasionally a market becomes very over-extended - like silver - but the gains from buy and hold can be so amazing. If you have a winning stock like GORO which would have been a 30-bagger for those that held from when they first raised money at $1.

Sure.

But many other stocks proved duds, even a company (US Gold) previously run by the same management.

 

It is not so easy to pick winners. And the fact that I knew the Reeds from their prior company always left me a be sceptical.

[Pixel8r]

Sure.

But many other stocks proved duds, even a company (US Gold) previously run by the same management.

 

It is not so easy to pick winners. And the fact that I knew the Reeds from their prior company always left me a be sceptical.

I bought 7 stocks at the end of '08 beginning of '09. 2 have been 10 baggers, 2 are at 7 bag, 1 at 3 bag, 1 at 2 bag & 1 at +35%. I am no expert in stock picking, but I do think it is important to time the purchases correctly.

 

Nice one on GORO CC.

[JIMBOWEN27]

I bought 7 stocks at the end of '08 beginning of '09. 2 have been 10 baggers, 2 are at 7 bag, 1 at 3 bag, 1 at 2 bag & 1 at +35%. I am no expert in stock picking, but I do think it is important to time the purchases correctly.

 

Nice one on GORO CC.

 

I held three stocks in Jan 09 but diversified throughout last year and now hold ten (7 golds, 1 silver and 2 rare earths). Since Jan 09 my portfolio is up over 400%, although it's been harder the first four months of this year.

I have had some dogs in the past but there are signs to look for with PM stocks just like ordinary stocks. Quality of management, directors ownership, institutional holdings etc. For miners, grade, potential size of deposit etc, production costs, valuation, location etc all need to be factored in. This can help avoid the turkeys

[Perishabull]

Since Jan 09 my portfolio is up over 400%, although it's been harder the first four months of this year.

 

Well done, that's an impressive return. That was a very good time to start a portfolio, during the credit crisis, lots of bargains around. I would have thought to achieve similar returns again in the future would be more difficult, unless you look at the more risky junior sector. Personally I would like to spend more time looking at silver miner.

[JIMBOWEN27]

Well done, that's an impressive return. That was a very good time to start a portfolio, during the credit crisis, lots of bargains around. I would have thought to achieve similar returns again in the future would be more difficult, unless you look at the more risky junior sector. Personally I would like to spend more time looking at silver miner.

 

Thanks. I have been investing for several years before this and luckily held some cash in 2008 so could take advantage of bargain prices. My main point is that I am building a long term portfolio. Due to work and family commitments, it's very hard to trade although I could be a little more active and tactical. In fact I have not dealt once this year - yet! I still believe some of my holdings will increase 3-4 times from current levels, over say a 5 year horizon. However, there is likely to be a fair bit of volatility in between. I'm also interested in silver stocks on pullbacks. Have been lookimg at First Majestic, Alexco, Impact, Avino and Silver Bear for starters

[Errol]

Jim Rogers didn’t buy or sell anything during last week’s commodity sell-off.

 

Rogers tells the Economic Times:

 

"5% correction in gold is meaningless. These things correct 10-15-20-30% every year. Nothing unusual about that. That is the way the markets work. I do not see anything unusual. I expect there would be more correction during the course of the bull market. I hope that the bull market goes up, consolidates, goes up, consolidates, goes up and consolidates for years to come. That is my expectation for all commodities.

 

http://jsmineset.com/2011/05/08/in-the-news-today-861/

[drbubb]

Jim Rogers didn’t buy or sell anything during last week’s commodity sell-off.

 

Rogers tells the Economic Times:

 

"5% correction in gold is meaningless. These things correct 10-15-20-30% every year. Nothing unusual about that. That is the way the markets work. I do not see anything unusual. I expect there would be more correction during the course of the bull market. I hope that the bull market goes up, consolidates, goes up, consolidates, goes up and consolidates for years to come. That is my expectation for all commodities.

 

http://jsmineset.com/2011/05/08/in-the-news-today-861/

This is from a man who claims to be "the world's worst trader."

But no one believes him, of course.

[drbubb]

AG, AU, and CU all moving up... on a modest drop in the Dollar

 

I expect some resistance at around SLV-$38, and may look at May or June SLV puts - for Port.#1

[carbon junkie]

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.

 

Jesse Livermore.

 

 

 

Livermore would have had some harsh words to say to some of these posters here who are crowing about being right for a week - only some of us have been right for considerably longer than a week.

 

Had the paper shufflers been wrong I am sure you would be just as forthcoming and this thread be quite so long. LOL

[carbon junkie]

I see we are now termed as Mafia.

 

Another inflamatory title Bubb and you wonder why people get annoyed with you.

[Schaublin]

I see we are now termed as Mafia.

 

Another inflamatory title Bubb and you wonder why people get annoyed with you.

 

Yes, there has been:

 

Pied piper

 

Gold bugs clawing at the sky

 

Buy and hold Mafia - the most absurd one so far. Someone has to be in the possession of gold and if they wisely choose to continue to own it and see no merit in buying rapidly deteriorating fiat currencies with it, they must be classed as organised criminals!

[drbubb]

“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.”

Jesse Livermore.

Here's another Wall Street legend, speaking sense about trading volatile markets.

 

He's not a Perma-bear, but a smart trader whose comments make far more sense than many other who seem to be revered by some of the GEI Bulls,

 

 

Rick Rule / 2011/5/7 :

MP3: http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/7_Rick_Rule_files/MP3%20Icon.jpg

 

Rick Rule: Founder of Global Resource Investments LP (GRIL) - Rick is known as one of the most “street-smart” people in the natural resource sector and gold world with nearly 40 years of experience. Global is involved in securities brokerage investment management, corporate finance focussed on natural resources and basic industries.

 

RR trades his own money, and does not have to "sit in Gold" through up and down markets as some professional fund managers feel they must.

[drbubb]

Yes, there has been:

 

Pied piper

 

Gold bugs clawing at the sky

 

Buy and hold Mafia - the most absurd one so far. Someone has to be in the possession of gold and if they wisely choose to continue to own it and see no merit in buying rapidly deteriorating fiat currencies with it, they must be classed as organised criminals!

Do you prefer another phrase?

 

B&H Permabulls like Bob Chapman have given up half their profits, while smart traders like Rick Rule and Tom Obrien,

celebrate the volatility - and took some nice profits home.

[Pixel8r]

Do you prefer another phrase?

 

B&H Permabulls like Bob Chapman have given up half their profits, while smart traders like Rick Rule and Tom Obrien,

celebrate the volatility - and took some nice profits home.

There was nothing smart about Tom O'brien calling the top in gold at somewhere around $1200 and then watching as gold carried on higher. Has he now bought back in at a higher price, where is the smartness in that?

[carbon junkie]

Here's another Wall Street legend

Compared to Livermoore thats a joke!

 

Its still pennies in front of the steam roller.

 

"Paper money returns to its intrinsic value - zero" Voltair

 

and as you seem so intent on ignoring the past

 

“Those who fail to learn from history are doomed to repeat it.” Sir Winston Churchill

[G0ldfinger]

There was nothing smart about Tom O'brien calling the top in gold at somewhere around $1200 and then watching as gold carried on higher. Has he now bought back in at a higher price, where is the smartness in that?

Smartness in losing trading fees and on the bid-ask spread perhaps?

[Pixel8r]

I see we are now termed as Mafia.

 

Another inflamatory title Bubb and you wonder why people get annoyed with you.

Amazing really isn't it, traders are the biggest crooks out there just look at what has gone on over the last couple of years. Traders think everything is about profit and that is the problem with the world today, we need to get back to production rather than everyone trying to screw each other for a profit.

 

For each trade there is a winner and a loser, the elite claim to be the best traders because they control the game which in turn makes the common man their loser.

[carbon junkie]

Amazing really isn't it, traders are the biggest crooks out there just look at what has gone on over the last couple of years. Traders think everything is about profit and that is the problem with the world today, we need to get back to production rather than everyone trying to screw each other for a profit.

 

For each trade there is a winner and a loser, the elite claim to be the best traders because they control the game which in turn makes the common man their loser.

We never hear about the losses in such graphic detail.

 

A lucky one week win and we have it endlessly shoved in our faces.

 

I think they just want someone to tell them how great they are. any volunteers?

[Perishabull]

I've bought my original physical silver position back now.

 

Silver futures 2 year

 

Difficult to say what's going to happen from here but long term I am not a fan of GBP and James Dines is back in, someone who I have a great amount of respect for. Even if there were no currency problems I would maintain a long term position in silver since it's a highly versatile industrial metal, and there is a limit to how much is in the ground.

 

 

I'm not so sure about the situation with Tom O'Brien, on the surface it looks like he made a bad call, but does he not own a precious metals business buying scrap gold? If potential customers think the price is going to go down, they are more likely to be selling theirs (ie to him), rather than holding onto it. There may be more to that call than meets the eye.

 

Others have mentioned a strategy of keeping a core, maybe 75% and selling the rest at market top areas, looking to get back in at a lower price.

 

A quote from Jim Sinclair;

 

"Gold is the easiest market to trade for the aggressive investor. Sell 1/3 when the market looks like a Rhino Horn which you will see with your French Curves at the point of the rollover. Buy 1/3 back when the price of gold looks like a fishing line hanging off a fishing rod. Your maximum power down trend line will give you this."

 

It looks like we have just seen a classic Rhino horn to fishing line type move.