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Trader Talk Kicks off the Year Right

Site Administrator | January 7, 2012

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Trader Talk 1.5.12

David Taggart

Michael Dever

Geof Smith

How did you get your start in the markets?

David – I’m 4th generation financial services in my family.  I am not doing much of what my grandfather and great grandfather did.  I became a broker back in 2000, I’m now a registered investment advisor.  I’ve been in the industry about 12 years now.  When I get into anything, I get really into it.  And this stuck.

Mike – I had $5,000 from a car I had sold that was burning a hole in my pocket, so I got into trading gold, and have been trading ever since.

Geof – My father wanted my brother and I to have some financial backing, no matter what field we went in.  He wouldn’t let us leave the house without reading something from the Wall Street Journal.  Tom Busby was my father’s stock broker, and he asked me to come down and help teach people how to trade the market.

What kind of market action do you think we will see in January and the rest of Q1?

Geof – Right now, the market hasn’t moved much in the last few days.  We haven’t gone anywhere in the S&P, I think tomorrow will be big news for the month, and looking at the sentiment of things, I think this month, we’ll end up positive.  It wouldn’t surprise me if we don’t but I think the month will be a little higher.  I think we’ll see a higher quarter 1.  Seven of the last 10 years, we’ve made new lows in March.  I think we’ll see better out of earnings and see more positive than negative.  Not a huge rally by any means.

Mike – In general, I think there are great trading opportunities this year.  We’ve already gotten some price action, and a number of stock indexes will have good trading opportunities.  I think over the next few years, I think you’ll have a hard time with equities and bonds because of the current interest rate level.

David – One of my biggest pet peeves, is that the whole idea of hyper-inflation and that the world is coming to an end.  I wouldn’t be surprised if we had slight inflation.  If inflation drops, I see the market going lower, or maybe staying flat.  I follow a lot of markets, as far as the S&P goes, my guess is for the next quarter, we see mostly flat.  In the meantime, the US is the best looking figure of the group.  The US is the least ugly right now.  We have a strong US dollar, and I think that means the market will stay pretty much where it is. For the next quarter, volatility will moderate a little bit, and then we’ll see.

What are your favorite strategies for the current market environment?

David – what we’re seeing right now, is some volatility from Europe and China.  With Europe, they need a full breakup of the Euro, or a partial breakup of the Euro, or a fiscal union.  My guess is that we’ll have a partial break up.  We’re short the Euro, and we’re staying short for now.  We’re short the Swiss Franc, short against the US dollar and short against the Euro. In general, the Swiss banking secrecy laws are weakening, and they’re losing the reputation as a safe haven.  We see China as slowing down, and that really affects the pacific and Asian region.  In Australia, we recently shorted the Australian dollar, because of their over-heated housing market and the slow-down in China.

Mike – We have a systematic process with trading. There are lots of opportunities in stock indexes and sentiment.  You get a rally on that following Monday and buy that, it’s a short term trade, it takes advantage of short term sentiment.

Geof – I’m in David’s camp on this.  I trade really futures, more than anything.  The uncertainty that we’ve seen in the past years, no telling what we may see.  Thank goodness for stops.  I whole heartedly agree, with the current economic situation, that gold will continue to push up.  It would not surprise me if gold went up to test the 2000 level.  Silver has been basing out right around the 27 or 27 half area.  Silver acts differently than gold, it’s more of an industrial metal than gold, even though gold is a better industrial metal, it’s so expensive, no one can use it.  With the strengthening dollar, I think a lot of the commodities will show good trading opportunities and there’s a positive spin on that market. Cotton is probably the best short of last year, in my opinion.  It was a nice sell coming down, still has some downside move to go.  There is no pretty currency out there, the US dollar seems to be the least ugly.  That will put some pressure on the commodities, I think most people remember when Russia didn’t ship out wheat, and that pushed the price of wheat way up, and it didn’t last very long, but it had a huge effect on the commodities market.  Gold is probably the strongest market, and there’s some upside potential this year.

What is the biggest struggle you have faced as a trader and how did you overcome it?

Geof – My biggest struggle is over trading.  I was born with a mouse in my hand and I can light one up and burn up the batteries in a second.  My biggest fall is that I like to be in a lot of markets at the same time.  A lot of traders have a need to be in the market, and as my age has increased, I’ve begun to slow down a bit.  I started putting weekly, monthly, daily limits on what I make and I’ll literally shut my trading platform down.  That way if I see a good opportunity, but I’ve already hit my limit, I would have to open my platform back up.

Mike – I think it’s similar to what Geof is saying.  Its following a trading plan and not over trading.  You have to look at why you’re trading, and if you’re not trading to make money, then you’re gambling.  You need to take a disciplined approach to trading.

David – If you don’t have a plan, you’re just gambling.  If all you want is excitement, then click away. My problem was that I wasn’t sure I was risking enough.  I’ve seen people run an account from $12K to a quarter of a million, then lose it all.  I’ve seen a lot of stories like that.  When I started trading, I was so selective, I wasn’t trading enough.  Some basic risk management that I use is risking from half a percent to 2 percent when I trade.  My gains were consistent, but they were not as big as they could be.  I was really born into risk management. I have a firm knowledge that anything can happen.

David: How do you balance an overall macro view with shorter term fluctuations in the market?

For me, global macro strategy is a continuous feedback loop from top down bottom up research.  You have different regions, and then you have short, medium, and long term, and main indicators.  We pay attention to what the market is doing.

Mike: What advice would you give a new trader in today’s markets?

If you’re not coming at it with a full approach, you’re going to lose money. I wrote a book on this called Jackass Investing.  For a complimentary e-copy, you can email eric@nightpublications.com, and you can read about it in more details.

Geof – What advice would you give someone losing to trade around news events like nonfarm Payroll? There are several different ways to look at trading around news events.  I think on a shorter term basis, news creates two different movements.  You have the people who react to the news and the report itself.  Every news report that comes out has an expected report, and the market honors them, and  the market moves depending upon what was expected and what the actual news was.  My advice is to step back a little bit, let the news happen, then find out what the trend is. See what the high and low is. They always pull things back after the news.

To view a copy of the Trader Talk Recording, please click the following link:  Trading Education

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Risk Disclaimer: Past performance is not indicative of future results. Futures trading involves substantial financial risk. Views of guest commentators do not represent those of TradingPub.com.  Article intended for educational purposes only and not meant in anyway as a solicitation to buy or sell certain securities.  Please consult your personal financial advisor before using this information for your own trading purposes.