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.

Coping

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What's a Tim to do?

What does a bearish swing trader do in an environment that feels about as hostile to him as a panel of Harvard Law School constitution professors would be against Christine O'Donnell? How does one cope when the environment is utterly different than one's style?

The pat answer, of course, is "adapt", and I'm certainly doing that as best I can. But let me be clear about this mutation.

What I Am Doing

+ Paying far more attention to the Euro than I ever have in my life;

+ Balancing my shorts with long positions (I have about 25% of my portfolio in longs);

+ Staying relatively "light" and away from margin (I'm about 75% committed right now);

+ Keeping my stops fresh;

+ Making good use of GLD and GDX as day-trading or overnight trade tools (funny enough, I'm short GDX and long GLD at the moment);

+ Keeping my ears tuned to the Slope comment section for ideas, insight, and information

What I Am Not Doing

+ Buying momentum stocks simply because they are going higher (PCLN, AAPL, BIDU, CMG, and so forth); it's tempting to want to buy, for instance, PCLN, since it seems to go up very day, but no, I refuse. I'm not going to get sucked into a March 2000 environment. No, thank you.

What I Have Ceased Doing

+ Paying attention to mass media Elliott Wave predictions. Absolutely worthless.

I am in "get through this" mode, and I will remain so until the coast is clear. This has not been an easy time for me – far from me – but I'm still very much in the battle, and I am managing my risk and – – on the whole! – – my emotions so they do not get the better of me.

I'd be interested in hearing how everyone else is doing, both good and bad.

The Dreadful Quandary

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Unless you're hiding in a cave with Osama bin Laden, you know that tomorrow morning's jobs report is supposed to be a real market-mover.

I'm feeling horribly conflicted. At the moment, I've got some nice profits from today's modest downdraft, and after September, believe me, I could really, really, really use those profits. So the nightmare scenario is for me to hang tight and have the market explode higher tomorrow, instantly turning these profits into losses. So the "bird in the hand is worth two in a bush" notion is throbbing inside my head.

Yet these are good charts, and good positions. And how foolish I would feel to cover everything, just for the sake of enjoying some modest, feel-good profits, only to see the full potential of these shorts blossom in a sell-off tomorrow. I've worked way too hard to accept some small profits as consolidation for all this labor.

But that's the nature of risk, isn't it?

A lot of folks in this position might say something like, "Well, I just know if I cover all these shorts, tomorrow the market will plunge." I'm inclined to say that sometimes too, as if the market gods secretly have it in for me. But that's just stupid, isn't it? There are no market gods; there's just the market. And it will do what it wants to do (Shalom notwithstanding).

Some others might say, "well, cover half the position." I guess that reduces risk, but it dodges the essential question: does one stick with charts until such time as they are stopped-out, following the rules I've mentioned many times, or does one play it safe, simply for the sake of playing it safe?

I have no conclusion from this. I'm just typing out loud. I'll continue looking at charts and figuring out what the logical next step is. But – as STU pointed out last night – the talking heads in financial media see the jobs report as a Can't Lose situation: if the report is bad, the mother-f*cking QE2 is forced into reality, and if the report is good, then the economy is good, thus high prices are justified.

Maybe the mere fact the bulls are convinced there's no way they can lose tomorrow is enough reason to know that they'll probably lose.

Your input and thoughts in the comments section, as always, are appreciated.

1007-indecision

Trimming Here and There

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I have spent most of the day (a) tightening stops or, where appropriate (b) covering shorts. I have reduced my holdings from 275 positions to 224, and my portfolio exposure has been reduced from 180% to 143%. My largest short position is TLT, which is doing pretty well so far. I’m probably going to scout around for an ETF or two to round the portfolio out before the weekend is upon us. As I am typing this, my completely-short portfolio is up 0.84% versus the QQQQs which are actually up a little bit, so I am very pleased with my relative performance today.

0820-barber

How to Compute a Hedge (by mmTesla)

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This post will be dedicated to calculating your hedge using
the S&P 500 emini futures.

First order of business is to know how many dollars you are
up for the DAY. Let’s say for the sake of the example on Friday when the ES was
hovering on support around 1106 you were up an arbitrary number of $3,400
alright so from the close on Thursday which was 1124.5 and the current ES price
of 1106, is 18.5pts ES. $50 per point per contract so $925.

So we take 3,400/925=
3.67 contracts. When we used to hedge we liked to round down, and it is more of
a personal preference whether you would like to be slightly over or under
hedged. So if you chose to round up and used 4 contracts in this example and
decided due to how close we were to support, increasing delta, market internals
etc that you wanted to protect your gains. You would buy 4 contracts at lets
say 1106, and by the end of the day your hedge would have made
1119.5-1106=13.5, 13.5×50=675, 675×4=2,700. So instead of having 3,400 become
$700 in gains, you have locked in your $3,400.

As a general rule of thumb in this example IF you decided to
hold your hedge overnight due to fluctuating beta you would drop the 4th
contract and be holding 3. You can always drop your hedge pre-market, overnight
or during regular trading hours. So on one hand you are muting your gains but
that is a small price to pay for protecting profits, lowering risk and peace of
mind against gaps. When you hold overnight your hedge can be losing you money
but generally when the market opens your other positions will make up the loss.
But understand the risks of holding overnight!! Worst scenario would be you
held too much overnight and got a margin call because of some news that
happened while you were sleeping! So unless you know what you are doing don’t
hold overnight.

The other beauty about this technique in hedging is that it
allows you to practice day trading the futures for free. If the trade goes
against you, your other positions should make up the loss. So if you are net
short, then hedge by going long and taking every high probability signal to go
long. Worst that can happen in that scenario is the market continues down and
your other positions make up the loss. Although if for the flash crash for
example some stocks did not react very strongly to it so being hedged on the ES
could have hurt you. That however is an outlier event, that should be prepared
for.

NOW for the other side of this sword, some people will hedge
by chasing the market. That is a mistake because that will most likely lead to
you losing on your hedge and locking in muted gains. IF you plan on using this
technique I would recommend learning some day trading set-ups and studying the
flow of the futures market, and if it resonates with you practice hedging in
paper.

Anyways I hope this helps. I think Tim’s disclaimer also
covers his guest posters but if not, you are responsible for your own actions.