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.

A Wise Sloper Writes

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Prompted by my post about my worst trading day ever a year ago, one Slope of Hope reader wrote to me the email below. I found it thoughtful and helpful, and the writer gave his kind permission to publish it here. Thank you.

I enjoy reading your commentaries. More importantly, I admire your commercial success. To begin, expand, and ultimately sell a business reflects enormous skill and talent. And a willingness to take chances at every step.

I am a semi-retired Wall St. pro. With a 40 year history of retail broker, analyst, institutional desk manager, etc. I am most proud of the fact that I left the street financially and intellectually intact. And still earn my living today as a trader. For myself.

Having set the table, here is my observation: I read your post regarding last year being the worst day of your trading life. With follow on comment(s) about Bernanke this and that. All well and fine, except for one thing. Something I learned a long time ago: January 1980 to be precise. I had a client, a brilliant economist, writer, analyst. Who was long gold. Very long. For all the "right" reasons (yeah, you know: the weakening dollar, trade deficit, blah, blah). And when the market started to sell off, he did not budge. You see, he was long gold for all the "right" reasons. He had acted precisely as his strategy dictated.

Problem was, Gold did not care. It continued to go down, and my client was sold out (actually, he was taken away from me. In the old day's, you were not allowed to keep clients who were in margin trouble).

Anyway, know what I learned? It was my first – and best- lesson ever: When it comes to trading, there is no right or wrong. Only profit and loss. You want to maximize the former, and minimize the latter. Rest of the time, enjoy your family and friends. If you want to play at being right and wrong, become a contestant on a game show.

You are a very clever analyst, and a far cleverer (is that a word?) observer of market dynamics. I am not saying anything you don't instinctively understand. Merely commenting on what the market taught me. Repeatedly over many years, as with a 2 x 4 over the forehead. But that first lesson stood me in good graces with the trading god's.

Whatever is said this week, by whoever says it, the market will react. It always does. Our duty is to spot the opportunity, and profit from it. Not debate it.

I hope you accept this letter in the spirit it was written. I greatly admire what you have achieved. But I do have a few years head start over you in trading.

Principle Of Maximum Adversity (by Market Sniper)

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I was introduced to this principle a long time ago. Maximum adversity is the market's first and foremost rule. It goes like this: the market will do whatever it has to to disappoint the most traders. This is in no way a reference to contrarian thinking! The markets will do whatever it takes to throw the most roadblocks, obstacles and disappointment in the path of your journey to profitability and success as a trader. Maximum Adversity will do its very BEST to make trading, a relatively simple procedure, as hard as possible. It will make you doubt every trade you take and your very thought process.

Maximum Adversity refers to the discipline the market imposes on market participants. This is part and parcel of the market's mechanism that makes certain that the funds of the many flow to the few. Think about it. Money flows from weak hands to strong hands. From the majority to the minority. Also consider that if making money trading was easy, everybody would be doing it and coining money, right? The trader who does not recognize, comprehend, internalize and respect this principle is doomed to trading failure.

What does this mean to you? What is should mean is to develop healthy skepticism. Like the old saying, if it sounds to be too good to be true, it is too good to be true. If a particular trade sounds too good to be true, it most likely is too good to be true and you will lose money.If a simulated equity curve looks too smooth to be true, it is too good to be true (Madoff). If a new charting program (red and green arrows type) makes trading look too easy to be true, most likely it is too good to be true. It is only through experience that you will find in all these "too good to be true" scenarios, Maximum Adversity at work.

Maximum Adversity also has another component: PAIN. Lots of pain! From the new trader to the most advanced trader there IS pain. To deny it is not only wrong, it will hinder your development as a trader. In a way, it can be very much like a perpetual Marine Corp boot camp. Life of the trader is NOT that image of sitting at the beach, a drink with a small umbrella in it in one hand, pecking away at a lap top computer, entering winning trade after winning trade with the other. Maximum Adversity will do its absolute best to make your trading life as uncomfortable and painful as possible. It will attempt to fill your trading world with pain. It will attempt to make your trading hard, harder still and then even harder. When you lose money, it will hurt.  When you make money, you will think about how much more you could have made, the money "left on the table" and that will hurt. When you spend time, energy and maybe even money to develop trades on a plausible theory and it does not work, that will hurt. When you do develop a methodology that works and you lose money using it, that will hurt. When you finally develop working trading edges and you spend time and energy making them sharper and lose money doing that, that will hurt. When your out of the market, waiting for the next trading opportunity and miss it, that will hurt. While your waiting, Maximum Adversity will heighten your anxiety about "missing" the next move and that too will hurt! As you can see, Maximum Adversity will seek to ensure that your trading life is full of pain and hurt!

Maximum Adversity does then make certain demands on us. It demands we each take total responsibility for our trading decisions. It demands that we always expect to get bushwhacked and ambushed at every turn. It demands that we expect the unexpected and most of all, it demands that we actually have to determine IF we are each up for the challenge. IF we have the intestinal fortitude for the task in front of us. Do we accept the higher probability that our lives as traders will be miserable in spite of the potential financial rewards? IF your answer is yes, ALWAYS keep this first market principle, the Principle of Maximum Adversity, in the back of your mind.

Good hunting out there, predators! Yours in the ever elusive search for the trading edge, The Market Sniper

Sotheby’s and Bull Markets

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I read a very interesting article this week illustrating how bull manias were closely correlated with Sotheby's stock price (ticker symbol BID). The article quite convincingly illustrated that the late 80s takeover mania, the dot-com boom/bust, and the real estate/credit collapse all lined up nicely with auction insanity and record-high art prices.

The thrust of the article was that the present mania is located in China, where vases and paintings are fetching unheard-of bids. The implication, naturally, is that China is heading for a cliff. And, as past examples of have, Sotheby's can lose about a third of its value in one session when speculation in art ceases.

Below are the charts of the S&P (blue) and Sotheby's (black).

0407-bid