Beating Buy and Hold (thru disciplined speculation)

[Pixel8r]

"Face up to it MF Global may not be the only fraud that gets uncovered as these bankrupt banks get ever more desperate."

You have exaggerated the risk, and stoked up fear. What is your motivation in doing that?

 

I suggest we move the discussion about risk factors to another thread. I do not want to continue contaminating this Options and Timing oriented thread with such irrelevancies.

There has been continually accounts of fraud in this banking crisis, MF Global is not an isolated case. Just look at all the fines that Goldman, BoA etc. have paid to keep themselves out of court. The banking system is bankrupt and corrupt, why do you continue to ignore this fact and put your faith in their paper instruments? The whole point that the metals are going up the way they are is this financial crisis and the amount of money that is requiring to be printed to bailout these bankrupt bankers.

[drbubb]

This doesn't belong on the Beating B&H thread - it is irrelevant to the strategies I using.

It is rude of you to keep posting this sort of comment here against my repeated requests !

Kindly, discuss it, if you must, on the other thread:

http://www.greenenergyinvestors.com/index.php?showtopic=15550

 

There has been continually accounts of fraud in this banking crisis, MF Global is not an isolated case. Just look at all the fines that Goldman, BoA etc. have paid to keep themselves out of court. The banking system is bankrupt and corrupt, why do you continue to ignore this fact and put your faith in their paper instruments? The whole point that the metals are going up the way they are is this financial crisis and the amount of money that is requiring to be printed to bailout these bankrupt bankers.

[Manual labourer]

Yes.

But that came only in reaction to a rather nasty remark:

 

I have to agree and add in that by calling the thread "Beating Buy and Hold(with options and TAsignals)" wasn't the brightest of moves!

 

Maybe " Gambling with a portion of your wealth/ core position to enhance growth", would of been better.

 

The sentences ( in italics ) is what inspired my comment.

 

He calls my activity here "gambling". Why?

Buying futures and options where each side of the trade wins or loses is a gamble, hedging a position with a form of gambling is gambling!

 

Huh?

What does that mean:

"Buying futures and options where each side of the trade wins or loses is a gamble"

 

I think he is saying that any use of Futures or Options is a gamble.

Well, let's discuss that on the other thread.

 

Do you want to start it, or shall I ?

=== === ===

 

(The new thread):

Is Trading the same thing as "Gambling" ?

How should Trading be regulated? How Taxed?

 

http://www.greenenergyinvestors.com/index.php?showtopic=15550

 

I am happy to change the title, if it evolves in a different way.

 

ML, please join the discussion too.

 

Right let’s get this clear there was no intention to be nasty and if we had been sat across a table or in a bar you would be able to grasp that! The fact we are on an internet forum means things can be perceived to be stated in a way they are unintended!

 

I have often commented what a great place this used to be for an exchange of news investment ideas with some very very bright people contributing all sorts of view points and positions.

 

I feel rightly or wrongly it has gone downhill ON HERE since you pinned the antagonistic title of;

 

Beating Buy and Hold...........

 

Right that to one side.

 

Would you change the title of this thread to:-

 

Trading/Gambling with a portion of your wealth/core position to enhance accelerated growth!

 

Now let’s move on, in respect of your wishes, I will reply to whether trading is gambling on your new thread.

 

Regards

 

ML

[drbubb]

Would you change the title of this thread to:-

 

Trading/Gambling with a portion of your wealth/core position to enhance accelerated growth!

 

Now let’s move on, in respect of your wishes, I will reply to whether trading is gambling on your new thread.

 

Regards ML

Okay.

I will accept you are sincere.

But I don't see it as "gambling" - where you are simply taking a chance on random luck.

 

For me, this is employing a useful risk management tool (options) in a sensible way

to limit price risk. The results show that the volatility of the two Alternative Portfolios is LESS than the volatility of the Buy&Hold portfolio. That confirms that I am reducing the price risk through my operations - At least so far I am. And given the conservative way I trade, I expect that to continue.

 

You will soon see another trade, where I will see 1,000 or 2,000 ounces or SLV shares, and replace it with: Cash plus calls. The calls will give me a continued Upside in silver, but I will have less exposure in the event Silver falls.

 

I want to do the trade today, because Silver/SLV has rallied on light volume to a resistance level, and it looks very tired, underperforming Gold. And I think we may be set for another pullback before long.

 

It is in the nature of what I am doing here, that I make small adjustments like this from time to time. They are not done randomly, as a gambler will do. They are done only when the price action is right, and the price levels are right. I am employing some skill to determine these windows, and that takes my activity beyond the realm of pure gambling.

[Manual labourer]

Hi DB,

 

I am really pleased you accept my sincerity! If we ever meet up in a Pub in London I will be the first to buy you a drink.

 

 

"It is in the nature of what I am doing here, that I make small adjustments like this from time to time. They are not done randomly, as a gambler will do. They are done only when the price action is right, and the price levels are right. I am employing some skill to determine these windows, and that takes my activity beyond the realm of pure gambling. "

 

That sentence sums up the discretion within you after years of studying markets charts and sentiment it is what makes you special as a trader. The same way a very top professional poker player is special in comparison to the average Joe. They consider odds and money management and risk etc

 

Regards

ML

[drbubb]

You will soon see another trade, where I will see 1,000 or 2,000 ounces or SLV shares, and replace it with: Cash plus calls. The calls will give me a continued Upside in silver, but I will have less exposure in the event Silver falls.

 

I want to do the trade today, because Silver/SLV has rallied on light volume to a resistance level, and it looks very tired, underperforming Gold. And I think we may be set for another pullback before long.

I gave the Technical Reasons that I expect a pullback

Here are the prices I am observing now:

+ SLV is at $34.30 (and looks like it might rally to resistance at/near $34.50 or less)

+ SLV April.$30 call is priced at: $6.60 - $6.70

 

If you check the portfolio at: http://tinyurl.com/BeatingBH

I have 2,000 SLV shares in AP#2, and right now:

 

I SELL SLV-etf at $34.30 x 1,000 shares = (+$34,300 : +AP#2)

...and also...

I BUY SLV-Apr.$30calls at $6.70 x 1,000 = (- $6,700 : -AP#2)

 

If SLV rallies to $34.50 on light volume, I may consider add another

1,000 shares and options to the trade.

 

If SLV continues to shoot upwards, and volume comes into the stock,

then I might find the price soon at $40 or $45 or higher.

If it stays above $30 all the way out to April, then I might find

myself wanting to exercise the Call, and that would mean paying $30 per share:

 

Option Price: $6,700 + Option Exercise: $30,000 = $36,700

 

That would put me back into owning 1,000 SLV shares, that I sold for $34,300,

and so I would be $2,400 WORSE OFF. This is the "worst case loss" for me on

trade. That is how much I am risking (in terms of price risk.)

 

But meantime, I have in the bank: $34,300 - $6,700 = $27,600

 

And if prices fall somewhat, I have flexibility, and plenty of time to improve my position.

 

Have I increased or reduced risk with these two trade ?

(Please answer with some details, so others will understand your thinking.

[Manual labourer]

I gave the Technical Reasons that I expect a pullback

Here are the prices I am observing now:

 

SLV is at $34.30 (and looks like it might rally to resistance at/near $34.50 or less)

 

SLV April.$30 call is priced at: $6.60 - $6.70

 

If you check the portfolio at: http://tinyurl.com/BeatingBH

I have 2,000 SLV shares in AP#2, and right now:

 

I SELL SLV-etf at $34.30 x 1,000 shares = (+$34,300 : +AP#2)

...and also...

I BUY SLV-Apr.$30calls at $6.70 x 1,000 = (- $6,700 : -AP#2)

 

If SLV rallies to $34.50 on light volume, I may consider add another

1,000 shares and options to the trade.

 

All very interesting but what key factor motivates the action?

 

Also are you going to change the thread title?

 

Regards

 

ML

[drbubb]

All very interesting but what key factor motivates the action?

Also are you going to change the thread title?

Regards ML

My Motivation is : Risk reduction.

 

SLV looks vulnerable, and I am willing to risk: $6,700 + $30,000 - $34,300 = $2,400

To insure that I will have more cash, and more flexibility, in event that SLV prices fall below $30.

 

I have LESS PRICE RISK - because if prices fall back anytime before mid-April, I will hold more cash.

 

This isn't gambling, it is managing a core price risk in my portfolio.

[Manual labourer]

Could you define your opinion of Resitance area and what qualifies it to be one, 5min, hourly, daily monthly what?

 

So would you change the thread title to

 

Using risk management strategies to enhance your financial position in markets!

 

Regards

 

ML

[drbubb]

Could you define your opinion of Resitance area and what qualifies it to be one, 5min, hourly, daily monthly what?

 

So would you change the thread title to

Using risk management strategies to enhance your financial position in markets!

 

Regards ML

Look at the charts... Here's one of them *

I usually post one, but my point was to describe my decision process, not to show the chart.

 

I see no need to change the title. My main objective here is to outstrip the performance of the B&H Portfolio. So even if I lose money for week or a month, I won't feel bad about my portfolios if they are beating buy& hold.

 

That's a very different exercise than in my usual trading, and so it leads to different trades and different strategies, which is the very interesting part of the thread for me - I am learning from this different approach, and maybe becoming a better trader from it.

 

One result is, I may recreate one of the Alternative portfolios in a real account at some stage. I never had that intention when I started this.

=== === ===

 

*SLV was at $34.30 when I did the trade, where is it on/near the close?

 

Last [Tick] $34.00 $-0.08

% Change -0.23%

Bid $34.01 - Ask $34.05

Day High $34.39 / Day Low $33.68

Previous Close $34.08

 

That's not much lower, but at least it is moving in a profitable direction. Still, it might have been nice to get the other 1,000 shares done too.

[drbubb]

PUZZLED about people's motivations - from the Gambling thread:

This attitude still puzzles me...

"...if you feel non traders are not welcome to take pot shots at your strategies, then we will get lost."

 

Do people really think I set up and run this website so people can "take pot shots at my strategies"?

 

Perhaps he did not mean it quite the way it sounds, but it does make me think: Life is short. Why bother with this?

 

I appreciate the posts and sense spoke here by many, but still wonder why we have this large handful here who seem to have move beyond constructive discussion and debate, to a posting style that seems destructive.

 

The idea I have for this website is MUTUAL PROBLEM SOLVING:

By working together we can develop a better understanding of the markets (and the world too!) and develop some effective coping strategies which may be better than those pushed in the mainstream.

 

Building wealth through precious metals is now an important part of that, but managing the inherent price risk can make this even better.

 

If you are here for some other reason, like taking potshots at people who have done better, and are trying to freely share their expertise, then maybe you are on the wrong website. There are plenty of websites (HPC comes to mind), where taking potshots at successful folk are an ingrained part of the culture. But not here, if you please.

[drbubb]

Have to say, you're continuing to compare apples and oranges here. Trading gold and investing in gold [or disinvesting] are two very distinct activities. It's not a competition. Don't let the few anti-trading purists color your view of "B&H". Live and let live.

You are on potentially dangerous ground here.

 

You are taking for granted that New Higher Highs on Gold are ahead, and so it is safe to be an "investor" rather than a "Trader." I believe so too, but I take NOTHING for granted - long experience has taught me so.

 

For this reason, I am happy to replace some of my longs with: Cash-plus-in-the-money-Calls.

 

This is not because I am a "Trader", but rather because I want some protection from Price Risk at such times. In fact, this policy allows me to stay with the long term trend, and remain safe, if it surprises me and breaks down.

 

Instead of knocking it, try understanding the strategy. It may save your wealth someday.

[drbubb]

I gave the Technical Reasons that I expect a pullback

Here are the prices I am observing now:

+ SLV is at $34.30 (and looks like it might rally to resistance at/near $34.50 or less)

+ SLV April.$30 call is priced at: $6.60 - $6.70

 

If you check the portfolio at: http://tinyurl.com/BeatingBH

I have 2,000 SLV shares in AP#2, and right now:

 

I SELL SLV-etf at $34.30 x 1,000 shares = (+$34,300 : +AP#2)

...and also...

I BUY SLV-Apr.$30calls at $6.70 x 1,000 = (- $6,700 : -AP#2)

 

If SLV rallies to $34.50 on light volume, I may consider add another

1,000 shares and options to the trade.

 

More Puts = More flexibility

 

I am buying 1,000 of these: (with SLV at $33.45, near day's low)

 

SLV APR 21 2012 30.00 CALL Last: 6.15 -0.20 (-3.15%)

Bid: 6.05 x 644 / Ask6.20 x 581

Vol: 26 OI: 1,916

 

I BUY SLV-Apr.$30calls at $6.15 x 1,000 = (- $6,150 : -AP#2)

 

If GLD is high enough tomorrow, I shall unload some more GLD/HK2840

 

== ==

(in edit):

I was a bit too early. Now prices are:

Bid 5.75 x 557 - Ask 5.85 x 500 (SLV-$32.92)

[drbubb]

SPECULATION - A Definition

 

In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is commonly used to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is technically not investment, but speculation.

 

Speculators may rely on an asset appreciating in price due to any of a number of factors that cannot be well enough understood by the speculator to make an investment-quality decision. Some such factors are shifting consumer tastes, fluctuating economic conditions, buyers' changing perceptions of the worth of a stock security, economic factors associated with market timing, the factors associated with solely chart-based analysis, and the many influences over the short-term movement of securities.

 

There are also some financial vehicles that are, by definition, speculation. For instance, trading commodity futures contracts, such as for oil and gold, is, by definition, speculation. Short selling is also, by definition, speculative.

 

/source: http://en.wikipedia.org/wiki/Speculation

 

 

As I said previously:

You can have a precious metals investment at the Core, and then speculate around that core,

using the profits of speculation to boost core investment.

[drbubb]

ARE YOU A BAHAI ?

 

To repeat, why not use that distiguishing term..."all in" rather than simply paint all "buy and holders" with the same brush. It starts to look a bit silly when you criticize, without distinctions, those who have bought and held gold when obviously that has shown to be, on the face of it, a good option. I mean, you wouldn't want to discourage the average Joe from buying a bit of gold would you?

Well, I think we are in basic agreement.

 

My main point is:

+ Buy & Hold is (probably) Dead in the stock market

+ Buy & Hold is alive and well in the Gold market, because must who B&H think it is GUARANTEED that gold is going up in the long run.

 

My view is: that is very possible, even likely, but NOT guaranteed gold will go on rising for sometime more... for a long list of reasons.

 

If you wanted to call yourself a Buy-And-Hold-And-Hedge-Sometimes (BAHAHS) investor in Gold, I would agree that is a smarter way to play it, if you have some useful timing tools, than pure Buy-And-Hold-Only (BAHO)* which I reckon will someday "run off a cliff", but maybe not until Gold-$3000, Gold-$5000, or some higher figure.

 

 

BAHO's will go Boo-Hoo someday IMHO.

Road Runners like me hedge and trade around a core Long position, and we are not doctrinaire: "Mee-Beep !".

 

*alternatively: Buy-And-Hold-All-In (BAHAI), not to be confused with Bob Hoye ("Ba-Hoi" in chinese)

[drbubb]

Here's one reason I have been trying to swap Cash-plus-Calls for SLV

 

SILVER is looking distinctly weak

 

 

It could go either way, with :

 

Resistance: $ 35.00

Support at : $ 33.70 and $33.00

 

But I reckon a downside break is more likely right now.

And if it falls below $33.00, the drop could be rapid.

 

This apparent weekaness is surprising given the troubles in Europe and how that threatens to push Gold and Silevr higher.

[romans holiday]

Here's one reason I have been trying to swap Cash-plus-Calls for SLV

 

 

 

This apparent weekaness is surprising given the troubles in Europe and how that threatens to push Gold and Silevr higher.

Yes, I'm watching silver with some interest. I think it may go into the 20s, where I'll be a heavy buyer. This could be my one large hedging trade of the century.

[drbubb]

Yes, I'm watching silver with some interest. I think it may go into the 20s, where I'll be a heavy buyer. This could be my one large hedging trade of the century.

Yeah.

It is looking weak to me too.

But it could just be a retracement of the upmove.

A break below AG-$33 and SLV-$31.50, should be a sign something deeper is coming

[stunlee]

A couple of hours ago I would have agreed with you but it has made a very nice bounce off the 25 day MA since then, tomorrow will likely be a very important day. I too would back up the proverbial truck if it fell back to 30 dollars again.

[Pixel8r]

I too would back up the proverbial truck if it fell back to 30 dollars again.

I find it funny the talk about backing up trucks, we have only recently been at $26 which was the time to buy, which is when I did as noted on here at the time. The best time to buy is when the most fear and deflation risk is displayed on this board. Another thing to watch out for is margin hikes, they always hike in a falling market for maximum effect, the days following are usually good.

 

 

[Perishabull]

I find it funny the talk about backing up trucks, we have only recently been at $26 which was the time to buy, which is when I did as noted on here at the time. The best time to buy is when the most fear and deflation risk is displayed on this board. Another thing to watch out for is margin hikes, they always hike in a falling market for maximum effect, the days following are usually good.

 

 

 

[Originally posted on 4th May 2011 with silver at $44.8 - emphasis added]

Pix, your hubris tells me you should be thinking more about what you are doing and what you might do to protect your net worth if silver crashes, rather than laugh at someone else's investment decisions. Hubris comes before a fall pix. Are you setting yourself up to be mocked in the future for not having sold at $48, $40, $35, $30, $25....?

 

Dollar sentiment is extremely low (as silver sentiment has been extremely high). IMO there is a huge risk of a sizeable correction, particularly in PMs because no market goes one way forever, and the dollar will rally at some stage.

 

 

Dollar Index futures - updated chart

[Perishabull]

From the silver thread;

 

Silver futures divided by the Dollar Index - 1 year

 

 

Does anyone notice anything interesting about this chart? (This is not a MENSA question)

[drbubb]

Good comments. thanks everyone. Great charts, PD.

This may just be a correction to the recent upmove, or something more sinister.

 

Pixel, I am glad you are still with us. I am sure you are a useful contributor here.

 

I just watching SLV-$31.50, as a key support point. Prices may not even fall that far, if the uptrend is strong.

=== === ===

 

Here's more about Disciplined Intelligent Speculation from the Trading/Gambling thread: Post#62

 

As I said gambler, or speculator whats the difference?

 

Answer = None = same thought process = same exposure to market movement = different execution platform = same result!

 

Regards ML

It is NOT the same process.

 

+ When you "Gamble", you are just betting, ie testing your luck.

 

+ When you make an "Intelligent Speculation", you have done your homework first, analyzing things like: a company's fundamentals, the technical position of its stock price, and volume flowing in, or out of its stock. And you intend to manage the position (using stops, or other disciplines) once the trade is in place.

 

+ "Intelligent hedging", is yet another thing, where you aim to hold onto an investment position or longer term trade, but reduce the inherent price risk, through options structures, or arbitrage trades. (These "hedges" can be simple or complicated.)

 

Sadly, I think some here do not understand what work is needed to make an intelligent speculation, and so they disrespect it, and consider it akin to gambling. Here's a key point: Just because an outcome is not certain, and you are taking some probability risk on the outcome, it does not mean you are gambling.

 

Perhaps this analogy with help:

+ If you go to Vegas and bet on a slot machine, you are gambling,

+ If you are the house and own the slot machines, you are taking a calculated risk spread over many slot machines, where you have a high expectation of making a positive return after a large number of your customers gambling transactions

 

If the odds are in you favor, and you are relying on the rules of the game (and your homework to improve youyr probability of gaining a profit), you have moved beyond a mere Gamble which relies upon pure chance.

 

In other words, a net positive return over a large number of transactions is an indication you have moved beyond gambling. I hope the following statement "rings true" to many here and shows more clearly what I mean:

 

"I thought I was making Intelligent Speculations, but after a dozen transactions I realised I was Just Gambling."

 

For someone who makes a statement like that, they need to rethink their trading methods and improve their technique in selecting trades, doing a better form of "homework" before trading, and/or managing the trades better once they are in place. One of the important missions of GEI is to help in this learning and refining process. (As it says in the logo, GEI's core mission is to help people: "Chat, trade, and invest your way to a Brighter and Greener Future.")

[stunlee]

I find it funny the talk about backing up trucks, we have only recently been at $26 which was the time to buy, which is when I did as noted on here at the time. The best time to buy is when the most fear and deflation risk is displayed on this board. Another thing to watch out for is margin hikes, they always hike in a falling market for maximum effect, the days following are usually good.

 

You are right of course but I was on holiday at the time and had no opportunity. Also, it was only down that low for a very short amount of time, around an hour, the day afterwards it was back up in the 30's. Now of course maybe I should have had a buy limit placed but that is a different question.

[drbubb]

Trades This Week:

SOLD HK-2840 (HK's version of GLD) at HK$1308 x 200 (+$33,668 : +AP#1) at $7.77

(a few days sold another 50 at hk$1331):

SOLD HK-2840 (HK's version of GLD) at HK$1331 x 050 (+$8,565 : +AP#1) at $7.77

==========

Cash: start.Wk / EndofWk== / Core-start / End / ==Chg.Cash

AP1: $295,180 / $337,413 // 5,000 / 5,000 / ==: +$33,668 + $8,565 = +$42,233

AP2: $219,435 / $219,435 // 8,000 / 8,000 / ==: +$0

Remaining 150 shares sold today:

 

SOLD HK-2840 (HK's version of GLD) at HK$1338 x 150 (+$25,830 : +AP#1) at $7.77

 

Gold-chart : looks "toppy" at $1,767