Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

I <3 Math (by Nathaniel Goodwin)

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At 5-8PM Monday through Friday, my landlord shuts off power and water to the building. He tells me it's the "green" thing to do, and it also helps keep my rent down so I should be thankful. I don't mind doing my part to save the environment, but it makes me rush home from work to get my Ramen noodles cooked or I'm screwed for dinner.


Yesterday I took my noodles outside and it wasn't long before neighborhood street dwellers Willy Jaundice and "Stun Gun" Jones came over to ask for help. I offered them my noodles, and they repaid me with a swig of MD 20/20. We were shooting the breeze and Stun Gun started mouthing off about how he made millions on Wall Street. Willy started heckling him, but I started taking notes. Stun Gun rambled off a bunch of numbers and how he predicted the market movements, then he puked up Mad Dog all over my shoes. It looked like I was standing in a puddle of transmission fluid. He ran off screaming that the GS assassins were after him for saying too much, so I went upstairs to change.

 

When my power came back I took my notes out and here is what I could come up with from his ramblings.


SPX 

 

I just looked outside, and Stun Gun is yelling at some pigeons right now. It doesn't look like the assassins got him yet.

Leadership (by Retracement Levels)

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Group members believe group leaders more than they believe themselves.

It is well known in military circles that the best way to predict an individual effectiveness in combat is his relationship with his sergeant. A soldier who trusts his sergeant/leader will literally follow him to his death.

A trader who believes he is following a 'leader' (i.e. a Secular Bear Market trend in equities) may insist trading that trend, until his account is wiped out.

Let us introduce a friend of us, his name is Joe.

Joe is a nice guy and he's convinced that, at the moment, short-selling is the best thing to do in the Stock Market.

Joe is a bearish trader. He loves to short. In fact, he likes to call himself a 'short-seller'.

Joe
What is Joe's problem?

Well, Joe is convinced that equities in the Stock Market are in a Secular Bear Market (although there is absolutely no scientific way to prove that, but a lot of blogs say we are in a Bear Market Rally,  and many experts says the economy is going bad, and we know the USD is in the shambles, and what about Elliott Waves? Didn't they say we are in a Grand Secular Bear Market Cycle? So, Joe thinks we must be in a Bear Market… or sort of).

Truth is, no matter what the reality is, Joe will always trust his sergeant/leader, the Bear Market trend.

People has been joining groups since the beginning of time. Especially at the origins of the human species, thousands of years ago, a group of hunters with a good leader was  more likely to survive than a lone hunter. That is still true for many animal species, like wolves, lions, etc., but not necessarily for humans, in certain situations, at least.

In fact, the problem with the leader+crowd approach is this: what if the leader is wrong? What if there is no Bear Market? What if we are not in a Grand Bear Market Cycle, but in a Grand Bull Market Cycle?

Boy, that would hurt

Actually it did already… since March 2009.

When we join a group, we act like a child following a parent. But to be successful in trading we must become adults and take our own way. Successful traders are independent thinkers.They are leaders to themselves.

What successful traders have in common are 3 things:

1) a good trading system

2) sound money management rules embedded in the trading system

3) mastership of his/her own psychology (i.e. no fear, no bias, etc.)

Some may want to add this one:

4) they are cheaters

and yes, that is true as well, very often the most successful traders are actually cheaters, using insider information or all sort of tricks to make great gains (just ask some pit trader in Chicago…or shall we mention Goldman Sachs 'sniffing algos'? Don't even get us started…).

Unfortunately trading is basically like trying to rob other people while they are trying to rob you, it's hard business, so we have to accept the cheaters as a part of the game.

Concluding this post, we'd like to borrow the name of a notorious NY hardcore punk band of the 90s, to give a suggestion to all the Joes in the world:

"Kill Your Idols, Kill Your Sergeant, Kill Your Leader".

It will greatly benefit you, as a trader, to decide that you can be alone, out there, into the wild.

The Intriguing SCO/SPY Relationship

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Earlier today, I bought the ultra-bearish-on-crude-oil ETF symbol SCO. A little while later, I assumed it had gotten smacked down hard, since the stock market was so strong, and I was surprised to see it was up about 1% from where I bought it, in spite of the market's overall strength.

I did a comparison of SCO to SPY and saw the interesting relationship these two have had recently. SCO has been channeling nicely between about $12.25 and $16.70 for half a year now. It appears that whenever SCO is at the bottom of its channel, the SPY is at a intermediate peak, and whenever SCO is at the top of its channel, the SPY is at an intermediate low.

0317-sco

The Bulls’ Own February 5th

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I've spent a huge amount of time over the past week or so discussing, thinking about, and agonizing over the whole "February 5th" topic (e.g. "why didn't I cover?") I've learned a tremendous amount from discussions with Slopers, as well as email exchanges, and I'm confident I'm much, much less likely to go through something like that in the future.

In retrospect, so many of these graphs I'm newly aware of were screaming "get out!!!" on that fateful day. In retrospect, it seems so obvious (doesn't it always?)

I would submit to you that the bulls are in a similar state at this point. Many of these graphs are at extremes, and while people seem to have already thrown the bears a funeral until 2012 (which seems to be the year constantly cited as the only real opportunity for a bear market to occur again), I would suggest the bulls' certitude of unending gains may be cause for regret a month from now.

0309-nyhl 

I will mention that I have tempered my bearishness in two major ways: (1) taking on more bullish positions than I believe I've had in a very long time, which should be obvious given the plethora of long ideas lately; (2) keeping the size of my bearish bets far more modest than before.

Should things ever kick in again to the downside for a meaningful amount of time, I shall be watching graphs like the one above (and a series of others I have bookmarked) for clearer signals about trend changes. I appreciate everyone's help in helping me learn about these helpful charts.