Friday, 3 December 2010

One of the Reasons I Day Trade Futures

I'm reading a great book by Michael Lewis - "The Big Short: Inside the Doomsday Machines". This is the author who wrote another great financial industry book: "Liars Poker". You can get it as a download (my favorite way of reading now) too.

The Big Short tells the story of the sub-prime meltdown that started in 2007 (that sounds like a long time ago writing this). He describes the activities and conversations with some of the players, both those who were the causes of the mess and those who woke up early enough, hugely profiting by finding a way to short.

It seems you have to be an expert at everything nowadays.

This book gives the insider's view of what was happening, and is not only a great story but has hilarious anecdotes. I was literally rolling on the floor laughing.

I learned a long time ago that it was the insiders that made the money in stocks, and that's why I trade futures and not individual stocks.

Things have got to make sense. When you read this book you will hear about a lot of people just accepting what they were told. The heroes in the book, who profited by the events, were independent thinkers who looked behind the accepted views. This is an important part of trading - thinking. As discretionary traders, our job is to access the available information, process it and then draw a conclusion. If we do this well, we make money. If we do this well consistently then we make money consistently. One of the ways to give yourself this ability is to create a structure for your trading so that you have a checklist of to do's and boundaries that alert you to things happening and not happening. Traders are made, not born.

Mrs EL was surprised today. I went short into the number. I felt that everyone had to be long after the ADT number on Wednesday and the band was playing "Happy Days Are Here Again". It was a risk v reward trade. If the number was good then I wouldn't get killed, as there were lots of longs already, and if it was bad the there were plenty of trapped longs. The thing that capped it for me was that there was no real new buying during the European morning. And of course the technicals backed this up. The highs were rejected as you can see on both the bar chart and the Profile. So I went short just before the number, 25% position.

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