Listen Up!

Derek Hernquist

Not to me, to the market.  Seth Godin is an expert in communication, not trading.  But his piece this morning shows his ability to listen to the marketplace, break it into digestible morsels, and game plan accordingly.  How is trading any different?  Our biggest successes come from those times when something speaks to us so clearly that we plunge confidently, and patiently manage the game awaiting the windfall.

Why can't we do this everyday? First of all, there's not always a bull market somewhere.  We can keep digging and digging, but usually the best hits are so obvious that we can't believe the setup is presenting itself.  The problem is we want that again, even when it's not there. I often think of George Soros asking Byron Wien "Why not go to work only when there's something to do?"  Shopping the marketplace of ideas doesn't conform to 9-5, Monday-Friday...our minds need to be open and rested when the really great opportunities appear.

I personally favor the study of market behavior for the pursuit of ideas and management of trades.  You may favor income statements or balance sheets or Fed data.  What matters is not the source of ideas but the execution.  John Paulson put himself on the Forbes 400 list by betting against the housing market.  The idea wasn't exceptional...what was exceptional were the tactics used to create a low risk high reward trade, and the patience demonstrated in letting it work.  Warren Buffett owes much of his wealth to his ability to weather the 1973-74 bear market and take advantage of opportunities in companies like Washington Post and GEICO.

Most of the commentary I've read recently has a cautious tone.  Not too much chest-thumping from bulls, not quite the cries from exasperated bears...much of the broader list has deteriorated and the short squeezes are explosive but narrower. Thoughtful technical analysis from Joe Fahmy, Leigh Drogen, WeeklyTA, and Thinkingtrades shows them with mixed feelings...count me among the confused. Big moves don't emerge from confusion as much as from groupthink.  I remain open to the market's message but groupthink will come either when everyone believes the market won't go down again(at which point it will), OR when everyone believes the market will never break up or down from its trading range(at which point it will). We'd need either a meltup or prolonged range for either of those, so I expect continued frustration for big picture players. When will the answers reveal themselves? When they do. In the meantime it makes sense to trade short time frames to keep your muscles loose.

We may all have different styles and time frames. Who cares? The Holy Grail lies in accepting information that actually matters, and developing a blueprint that allows us to exploit our best ideas to the fullest. No one achieves success without a ton of luck, so spend your work on the blueprint and wait for your lucky day to arrive. If you've saved your precious energy and capital, you'll see it when others are weighed down with baggage.


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