Preparation "H"

Obviously, the title is only meant to get your attention----For the past week or so, the attention of the whole nation has been on the NorthEast. The HUGELY destructive storm Sandy that struck New Jersey, New York, and other States has been the top story in the news. It continues to captivate our attention even with the Presidential Election only a day away (today is Nov 5). The Total Interruption of millions of families, of city and state governments, and even of our national resources is paramount in the thoughts of our populace. The Hurricane named Sandy (now called the “SuperStorm”) will forever be remembered in history and is one of the most-costly natural disasters to ever strike our shores. The wreckage and destruction to infrastructure was HUGE----but---I think the DEVASTATION TO INDIVIDUALS was of even Greater Consequence ! To his point (in particular) I write about Preparation “H”------Hurricane !!!

 I live in Louisiana---part of the South bordering the Gulf Of Mexico. Along with several other states, we are very familiar with Hurricanes----you might remember a recent storm that we suffered named Katrina. I can assure you that we are sincerely mindful of every hurricane and we realize the potential threat that each one imposes. Most of the people living along the southern Gulf Coast have learned about Preparation Hurricane from first-hand experience. We know that it is PRUDENT to be prepared!! We have independent home generators with reserve fuel---we can each testify as to prolonged utility outages----we have water containers, candles, flashlights and batteries, ready-to-eat food supplies, extra medicines, a couple of changes of clothes, and always topped-off fuel tanks in our vehicles. Most of us have evacuation plans should it be necessary and we have a willingness to help our extended family and neighbors when needed.

As stated before, most of these things come naturally to us because we have experienced the frequent hurricanes first-hand in our part of the nation. I can and do sympathize with the residents of the NorthEast who, for the most part, were unprepared for Sandy and its consequences simply because hurricanes do not and have not affected that area very often. On the other hand----Preparation “H” DOES NOT have to stand for just “hurricane” !!!

Other things that Preparation “H” could stand for are---High Winds, Heavy Snow, High Water, Heightened Earthquake Activity, Hazardous Meteors, Hyper-Volcanic Eruptions, Harmful Radiation, or Homeland Security Threats-----you get the picture-----any HAZARD that could befall us. When I witness anything that causes great loss anywhere in the world, I have to reflect on the fact that people everywhere suffer to a greater extent when they are not prepared and they lack the ability to help their own families and others. So-----I urge everyone to PREPARE in some measure and as much as possible for any one of the “H” factors because, no matter where you live, the possibility of one of these hazards exists----your preparation could not only make your situation more bearable but could possibly Save Your Life !!!

I try to always say something about Trading in relation to the title and here it is----Preparation “H” in this case is HAVE A PLAN. Doing so could be the only thing that thwarts catastrophic losses and avoids the disaster of a non-monitored trade gone wrong. If you question what things should be included in your Plan, a visit to the CFRN website, or a call to one of the CFRN Team Leaders would be prudent.

OH---------one more thing----------wait for it---------IF IT IS PRUDENT to Prepare---I will mention but not preach one more “H” to prepare for-------HEAVEN !!!

Good Trading,

Powderhorn

Exposure

Thursday, Oct.25.

My last Blog was in reference to my much-anticipated Elk Hunting Trip to Colorado which is now over. The trip was fun and awe-inspiring as it has always been but did not result in stocking the freezer. I declined the invitation to write a Blog while on my trip as this was my “break” from market watching and I was intent on having some fun and just enjoying the “great outdoors”. BUT----in truth, a topic was formed in my head on the opening day of the season and it may have relevance to some.                                                                                

Upon arriving in Colorado, we were met with very mild temperatures ranging from the mid 30’s at night to daytime temps of nearly 60 degrees. Everyone hoped for colder temps and SNOW (enables hunters to track the Elk). We camped at 9800 ft. elevation where the weather can change in a matter of minutes. We arrived early for scouting purposes and had only “slight” hopes for the weather to change. However, the evening before Opening Day, clouds rolled in and the chances for precipitation improved considerably.                                                                                                

I awoke opening day well before daylight and was pleasantly surprised to see a lite dusting of snow on the ground and more falling from the cloud filled sky above. Change of Plans !!!---insulated pants, waterproof boots, a medium-weight coat, and a broadbrimmed hat were donned----don’t forget your gloves, backpack, snacks, and GPS---and, of course, your gun !! WOW, this turn of climatological events was encouraging!                                                                                    

After a short truck ride and a slippery pre-daylight hike to a mountain meadow, I settled down in a predetermined spot behind a rather large lodgepole pine just inside the treeline surrounding the meadow. I had great confidence in being able to see anything that might enter the meadow and now just had to WAIT.                                                                                        

Here it comes!!-----Noooo, Not an elk----another Change in the weather. The WIND started to blow (Hard) right out of the North (probably 30 plus mph and considerably Colder). The SNOW became pelletized and took on the form of miniature missiles propelled by the intense wind and increased in volume. Visibility declined from the volume of snow but also from the full-frontal assault against my glasses. Brrrr—the snow pellets were now raining down my collar---the broad brimmed hat did little to stop the horizontal snow; the Wind was biting my face; the intensified Cold was driving through my insulated pants and medium-weight coat; my hands were freezing;----and I KNEW that the inevitable Body Chill was on its way. EXPOSURE was my predicament now and must be dealt with !!!          

After 35 years or so of visiting mountainous areas, one learns to prepare for the unexpected and hopefully realizes the danger of being exposed to the elements. Dozens of people die each year going into these areas unprepared and unknowing. For example, one should never wear cotton undergarments and insulation in cold mountain climates----cotton absorbs moisture from your body and the elements and when temperature drops, it robs heat from your body’s core. You can much more readily die from Hypothermia having fabric made of cotton instead of wool or the new synthetic materials.                                                                                                        

With the sudden change for the worse in the weather and my Exposure dilemma, I knew I had some changes to make. First, get to a bigger tree that would offer more wind blockage and with lots of green foliage to keep me dryer. Then, into my backpack !! Ahhhh---a wool scarf for my neck !---gloves for my hands !---AND—a full head, face, and neck covering knit cap ! These items immediately increased my comfort level tremendously and enabled me to stay with the hunt over the meadow for the next six hours. It also helped that I was able to heat some body-warming and nutritional soup on a light weight alcohol stove that I had seen on the internet and built for this trip and packed away in my backpack. All of these things allowed me to stay in the game and OFFSET my Exposure problem.                              

Now for the relevance of my hunt to Trading. Most of us have experienced the fickle nature of the markets---much like weather can be. Any one day can be Totally different from the last or it can be astonishingly similar. We witness Price creep along or consolidate for periods of time, or move rhythmically with earnings declarations and Hedge Funds entries and exits, or with just “normal” supply and demand. We see Fundamental News sometimes “spike “ Price in either direction, Political incidents causing glitches in normal patterns, and been affected by Crowd Mentality suddenly manipulating Price movement. Sometimes NOTHING AT ALL (that we know of) boosts Volatility and Price reacts !  But Price and its movement is what we have to work with---and that movement has a REWARD (Profit) potential and it has a RISK (Loss) potential.      

Since our Goal as traders is to make money and NOT to lose it, we should do EVERYTHING WE CAN to Limit our EXPOSURE to the Risk side of the equation (we should also do all we can to increase the Reward side but will address that at another time). Note that ANY decrease in your overall Losses is an AUTOMATIC Increase in your NET !!                                                                            

Limiting our Exposure to Risk can basically be done for the most part in One Major Step and almost all at once. The Trading Plan that assigns a certain Methodology with set rules to a particular Commodity is the most useful tool. Within that plan is the Market, hopeful gains, sustainable losses, when to enter, automatic exits for both profit and loss through bracket orders, and reliable visual accounting of where you stand. One should choose to trade something that has Volume (# of contracts) and a decent amount of Volatility (Price range) but also has a proven trading strategy. One should also educate himself about the Commodity he wants to trade so that you are familiar with $ values as to tick increments, daily Price range levels, what kind of news affects that market, and the best times of day to trade it.  

               

 Another IMPORTANT tool is Michael’s use of Aggressive Risk Management---that is the movement of the Stop-Loss Order to a lesser amount or to break-even once the Trade is underway. Or, if conditions merit, just EXITING the Trade before a full bracket loss occurs.                                  

The CFRN Team Leaders are willing at any time to discuss the Markets and each individuals’ own Trading Plan to reduce your Risk----don’t wait for Exposure to happen, then “dig in your backpack” of knowledge for a remedy----dress up your PLAN now for the EXPOSURE that is Sure to Come !!!                                                                                                                                                                                

Good Trading,                                                                                            

Powderhorn

GIMME A BREAK !!

As happens every year at this time, my ANTICIPATION is High—Hunting Season is Approaching and Very Near ! This year, as planned every 2 years, I will be going on an extended Elk-Hunting trip to Colorado on Monday October 8. I will accompany my 2 sons and 4 friends from Louisiana, drive 22 straight hours, and meet up with about 20 other guys to camp out and hunt (and LIE). This week I am making my final preparations and packing.                                            

My destination lies in the Gunnison Mountain National Forest (elevation 10-12,000 feet) in the beautiful Rocky Mountains. For almost 2 weeks, I will TAX my 66 year old body with brutal rocky terrain, bitter temperatures, severe and exhausting lack of oxygen, interrupted sleep from snoring like you have never heard, and the ever present prospect of a bear encounter.

HOWEVER, I will get to renew aquaintances, bond with my sons, eat delicious outdoor cooking, perhaps harvest an elk, and get to view some of the Most Spectacular Scenery that GOD has made ! I CAN’T HARDLY WAIT!!                            

I Know---you are asking “What does this have to do with Trading?” Well, since you asked, I will give 2 comments:

(1) When you have ANTICIPATION, good or bad, about an event, family conflicts, health concerns, emergencies of most kinds, etc---Anything that causes your mind to Lose Focus of your Trading Plan, it will BENEFIT  you to Stop Trading and “go take care of Business” rather than making mistakes and incurring losses. Then go back to Trading after dealing with Anticipation.

(2) Regardless of your dedication to Trading, your enthusiasm with watching the Markets, and your pure fortitude to stick to the same Plan day after day, AT SOME POINT, your Inner Soul will say “GIMMEE A BREAK” !!!                      

Ssoooo,taking my own advice, this week I am only taking a Casual Interest in the Markets and preparing for my trip---next week I will park my butt on a rock overlooking a Beautiful Vista in Colorado and quietly take Assessment of My Soul and exhale a deeply-felt Aaahhh !!                                                                                                      

Good Trading and Regards,                                                                              

Powder Horn

Random Walk Down Main Street

CFRN Interview with Burton Malkiel-author, “Random Walk Down Wall Street          

Today is Thursday, September 27 and during the Morning Trading Session, DeWayne mentioned having not received any comments from me regarding the August 16 public radio interview with Burton Malkiel who is the author of “Random Walk Down Wall Street” and who espouses his theory that market Price cannot be predicted.

Also engaged in the discussion was David Williams, the developer of Pagetrader, who has demonstrated hundreds of times that the Market does have predictability both in Price and Time components. I listened to the complete broadcast intently because my personal view is in contrast with Mr. Malkiel and I have been a friend and student of David Williams for well over a decade.

I note that I listened to the interview again today.                                                      

It is particularly hard for me to express my thoughts in writing with the same “gusto” as when speaking where inflection of tone denotes emphasis or importance and thereby conveys a certain sense of what one is trying to say. That said, I therefore use capitalization or other print medium to “inflect” my tone —please excuse me for doing so.                                                                  

As stated above, the book purports the idea and the author reiterated the “unpredictability” of the markets. Mr. Malkiel did, however, acknowledge that He did not think it was Impossible and stated that there was not enough predictability for “the average investor”. He also affirmed that the markets “may not be” as “pure random” as once thought but He had not changed his mind—and, in fact if there were a system or methodology of prediction, “it would be short-lived”.

Maybe it is just me, but it seemed very DISMISSIVE towards Mr. Williams and all others that have or use any Technical Methodology to “predict” future actions and Price levels in the markets as they trade.                          

My belief that the Markets have some predictability has already been stated. My Question is WHO is an “Average Investor”?  I certainly do not consider myself as AVERAGE in anything and I do not aspire to be AVERAGE—indeed, I strive to be the Best that I can in ALL I can.

Perhaps, because of the lack of investment education in our schools and the general public, the average investor is one with little or no knowledge. In that light, I can agree with the author that investors in low-cost indexes will probably fair better than the managed funds (depending upon WHO the manager is) and I will agree that Price Action SEEMS random. However, if anyone looks at charts enough, even the uneducated can “SEE” patterns and repetition of patterns thereby giving Some Indication of Predictability.

It is also my belief that Anyone who strives to “educate” himself about the Markets automatically challenges “average” and instead becomes an EXPLORER with a Desire to Better Himself. We all know what Explorers do and have done and where all of us are because of them. Those who posess the EXPLORER SPIRIT ARE FAR FROM AVERAGE ! I think that everyone who Calculates Anything that MAY give them an Advantage in trading the markets has that Explorer Spirit—whether using simple moving averages or trend lines or algorithums on a room-size computer.

I know there ARE methodologies that have the ability to PREDICT future Price levels, Times of Price redirection, and Periods of trends in either direction—these have been proven in the DOING by many as far back as W.D. Gann and currently by David Williams and others.

I have no Academia certification worth mentioning, and I cannot change the “Non-Predictability” mindset of the author---He must do that Himself, but I will say that it cannot be done without the re-kindling of His own Explorer Spirit and a true Willingness to change His opinion.

I sincerely HOPE that the EXPLORER SPIRIT within me NEVER DIMINISHES and that I ALWAYS have the COURAGE to SEEK the TRUTH and the STRENGTH to CHANGE for my own BETTERMENT and the BENEFIT of OTHERS.                                                                                                                                              

Powderhorn