Chapter 10 speculates on the three most important characteristics: discipline, discipline and discipline.
On March 23rd, Wednesday, 1983, I didn't sleep well the night before, got up earlier than usual, arrived at the office before 8: 30, and took a good seat. There were various charts and research reports on the price screen in front of me. There are still two hours before the Chicago grain market opens, but I can't stand the excitement for a long time. After receiving a phone call that temporarily distracted me, I re-examined the trend of soybean market and the strategy I will adopt in the morning.
The day before, soybeans closed at 6. 1 1 in May. The market analysis I drew ducks on the card showed: "In May, soybeans can stand firm at 6.23 at the closing or jump above 6.23 at the opening, and the soybean market trend will turn upward. When the closing or opening gap is above this level, I buy. I expect the price to soar after this powerful breakthrough. "
The trend of these days told me that the long-awaited bull market breakthrough was just around the corner. I immediately called my people at the Chicago business site and confirmed that the opening price of the business hall was expected to rise sharply. I must take action! I hung in the opening bill, lay back, took a deep breath, and waited for the green screen in front of me to jump out of the first line. (see figure 10- 1).
Figure 10- 1 1983 may soybean (text: opening gap)
(In the early morning of March 23rd, the opening price rose sharply, and the gap broke through the resistance point of 6.23. After the breakthrough, the price was adjusted back within three months, and it was once back to about 50% of the previous rising period. Facts have proved that a short retreat is the last chance for bears; The market then launched an amazing rebound. Three months later, the bullish trend of 1983 became the biggest news in Chicago. The market price rose by 3.75 on average, about 18000 per bite. Dude, that's not a small score! )
I put all my eggs in one basket at the opening-opening an obvious gap to open positions or overweight operations-is my preferred tactic for many years. This step is risky, but it has potential value for radical operators. I support this practice and only use it when the opening gap will form a general trend. The second set of tactics is to make an obvious breakthrough in the wide horizontal consolidation plate, and to establish that when the main trend reverses, or leaves the horizontal area to continue the previous sustained trend, it will operate at the opening gap. If the opening gaps are obviously contrary to the main trend in progress, I will be very cautious when buying or selling, because these gaps are often deliberately created by operators at the business site to "lure investors into the market" and induce investors in securities firms to establish positions that they can't do at all. This mindless contrarian jumping operation seems tempting, but they are best left to experienced professional operators, because if the operation starts to go bad, they have the ability to run out.
In May, the soybean opened at 6.265, and the miserable bear was crushed to death. While waiting for the report to reach my eyes, my thoughts can't help drifting back to the past ten years ago, remembering the first time I played this opening game. The teacher who taught me the art of breaking position is Green, who is a very smart, bold and active operator in the commodity exchange. At that time, I was a new member of the commodity exchange in the early 1970 s, and I often went to the exchange to study the movement of the pit. I always stare big eyes and watch Green squeeze into the crowd of brass futures. His body and voice are twisted to the extreme. I once bought ... 50 pieces ... 100 ... opening 150 lots. This is a bull market, and Green knows it very well. He looks like a master, waiting patiently for his long-honed intuition to tell him that every time he runs out of gas, the basic bullish trend will reappear. At this time, and only at this time, he will jump up-"buy 50 ... buy 100 ... buy 150."
Knowing when not to operate and waiting patiently for the right time is one of the biggest challenges faced by operators. But if you want to stand in the winning camp with your head held high, this is absolutely indispensable. It has been countless days, and my inner impulse is so strong that I have to do more, so that I have to make some ideas, so I won't order. My method is as follows:
Stick Li Fomo's golden advice on the phone dedicated to ordering food: "Money is earned by sitting, not by operation."
Put a shipping magazine on my desk (usually this is enough to distract me from unnecessary operations).
When you can't stand it, you have to leave the office for a while, take a walk outside, or compete with Lan Yu or someone else in Mahathir Bay.
Many times, I dare not admit that I have prematurely closed all or part of my profitable positions. Sometimes, I completely miss a certain fluctuation, so I have to watch others play outside and wait for the next time I come in. I once spent more than a month secretly observing the trend of copper and silver. I didn't do anything (at work) because I gained eight pounds by eating snacks. Finally, it re-entered the market in a small trend reversal. Nevertheless, it is a simple fact that a successful operator will always strictly abide by discipline and keep an objective attitude off the field until he can enter the field in the direction of major trends. Even then, you should be careful not to jump into the unorganized market, because some inexperienced speculators who don't play by the rules may have placed large orders for no reason. Even if you operate in the trend direction, you should be more self-disciplined and patient during the inevitable price reversal period (caused by on-site operators and commercial companies, in order to wash away those holders who are not determined to create more wealth for themselves).
It is a great pity that futures trading always leads to the tragic fate of most speculators. Generally speaking, the operator's performance should be better than that shown in the book. Their performance is not satisfactory, mainly due to the lack of discipline, which will inevitably lead to a lack of confidence. Speaking of which, I remember talking to Dr. F in San Diego on the phone. Dr. F said that he had established a long bond position and asked me what to do next. I know that he started long at a very low price a few weeks ago, so that position has made a high book profit. I asked him, "Hey, why should I tell you what to do with your position?" ? Your brother is smart enough, otherwise how could he get on the bus at the beginning of this bull market, and he hasn't put it down yet. As long as you follow your original intuition or the same skills, it should be no problem. What's more, I missed this bull market. After the breakthrough, I have been waiting to pull back 40% to 50%, but I haven't waited, and I haven't got on the bus since. "
In fact, Dr. F has been troubled by contradictory news in financial newspapers for several weeks. I diagnosed his current "illness" as ALOSC (acute lack of self-confidence). After a while, I gave him a prescription, told him to leave for a few days, and then returned to the drawing table to make an objective analysis of the market. I must strictly observe discipline and follow the operation strategy of taking advantage of the trend.
Because of the lack of discipline, it is not only speculators and professional operators of securities firms who make profits. For about 30 years, I have observed a very abnormal phenomenon, that is, the market judgment of commodity manufacturers is always inconsistent with the final price trend of commodities. Manufacturers are always more optimistic than the market allows. In the summer of 1983, I talked to many corn farmers in the midwest. The harvest prospect of these farmers is very miserable ―― the planting area is reduced, the harvest rate is reduced, and the crops can't develop normally. Who knows the harvest better than these real corn growers? Isn't this all Italian news? Obviously, we speculators have seized a great opportunity to make a fortune from the coming crop disaster. However, a very interesting thing happened, that is, the market fell by 60 cents, not only speculators, but also farmers in the central and western regions fell below their glasses. Many speculators who have been "killed" for doing more corn markets are farmers in the central and western regions.
In fact, it seems to be a common problem for commodity producers, especially crop producers, to be overly optimistic about their own markets. The reason lies in the crop growth or climate conditions in the areas where they grow up, and the local politicians' view that tomorrow will be better, or their wishful thinking, which is too optimistic. Unfortunately, at the last moment of crop harvest, when serious hedging selling pressure appears, these bullish expectations tend to deteriorate and prices will fall all the way.
Sometimes, the general long-term expectation will fascinate the whole producer: if the expected price increase does not actually appear, but falls, the producer will face a disastrous blow. Speaking of this, we think of the potato market in Maine in the mid-1970' s 1970' s. From this, we have learned an objective lesson: whether it is speculative operation or hedging operation, we must strictly observe discipline when entering or leaving any market. At that time, the New York Mercantile Exchange's Maine potato speculation was almost lawless and unrestrained. The margin is very low (it can be operated as low as 200 yuan or even at a lower cost), and even the membership fee of the exchange is very low (I bought the membership of the New York Mercantile Exchange at a price of about $65,438+$0,800). In this environment, experienced farmers, bankers and brokers created a very surprising strategy and gave it a special name, called "Texas Hedge".
College students majoring in finance know that banks will require all crops or at least a large part of crops to take hedging measures to prevent losses before providing financing to farmers. That's what farmers in Maine did-they bought a lot of potato futures in April and May on the exchange to offset the risks of their crops. "Buy" futures? Wait, that doesn't sound right. If it is a crop in many fields, shouldn't we "sell" futures to avoid risks? By the way, of course they should sell it. (finished! )
Think about it, so many potato farmers "buy" futures to hedge. This is called hedging! Of course, the experts of securities firms also buy and add positions in the bulls, hoping to make a big profit in the expected bull market and make a big fortune. Then, since everyone who should sell futures has bought futures, who is stupid enough to sell and sell a lot? They are experienced trading companies and professional operators. These people.
The result is self-evident. We might as well imagine that a small boat is crowded with too many people, which is very unstable at first. When all the passengers jump to the other side ("sell"), the ship will naturally capsize. This is the situation in the potato market. After listening to the "plop", those people are still wet by the sea, but they have a deficit on their backs! Neither commercial banks nor large farmers have forgotten this lesson. Since then, they have understood that hedging operations must abide by strict and objective discipline.
If the operator has two positions, but in order to defend the position of contrarian loss, the result is self-evident But I want to say a little more here. Not long ago, K called me and asked me what I thought of the log. I replied: "wood is a good building material, which can be used to build houses, build ships, make furniture ... and even cut into beautiful small toys and animal images."
This is certainly not what K needs to know. What do I think of the log market? What should he do if his huge long position loses $90,000 (yes, he is long, of course, against the trend)? I told him that whenever I wanted to make logs, I would find a comfortable place to lie down until I felt better. The popularity of this market is too weak, not the kind I like. Its trend always seems unreliable, easily distorted and fluctuating too fiercely. In short, I don't think it is necessary to make a log market. In fact, my attitude towards logs should not surprise him. I gave him the same advice, but he turned a deaf ear and ended up losing money against the trend. Speaking of this, K deeply regrets and admits that he just sold 1 1 month soybeans: 1 1 month soybeans were operated according to the situation and made good profits, but he had to sell them in order to defend the lost log contract (pay the deposit). My advice to K is simple ―― flatten logs and buy back soybeans.
His reaction is not surprising ―― the loss of logs is too great now, and he won't clear them until they rebound strongly. "How can I press plain wood at this price now?" He repeated it over and over again. "Very simple," I replied. "You just pick up the phone, call your broker and tell him to sell all the log positions at the market price. That's it. "
Unfortunately, K didn't listen to my advice and clung to the wooden box. My suggestion is not based on any great market insight, but on the time-tested golden rule of investment-seize the profitable and level the losses. Within three months after the phone call, the log fell by $27.00, and the soybean leveled by him rose by $65,438+$0.60. If K exits the journal and buys back soybeans, the original loss can be recovered, and there is no need to make more losses on the original loss of $90,000.
Human nature and our general business instinct may be the most difficult enemies in the commodity operation game. Why do speculators always sell when they see a rebound in the upward trend market and buy when they see a decline in the downward trend, regardless of the fact that this practice has caused them to lose money again and again? Shortly after the phone call mentioned above, I noticed that after a period of soaring prices, 1 1 month, soybeans showed an amazing trend that I had never seen before. At the opening, it was quoted at a daily limit of 9.35. Within a few hours, it dropped by about 55 cents, equivalent to an average of 2750 per bite, and the price fell to an average of 8.80. In fact, during the whole trading day, the market price fluctuated back and forth by 40 to 60 cents, causing tens of millions of dollars in losses to speculators. How can the price oscillate so strangely? After the analysis, it is found that there are an extraordinary number of speculators who play the game of "grabbing the head" and want to short at the exact time before the market crash. In fact, in the history of futures trading, there are many "smart" operators who plunged into the wrong head and plunged into the wrong bottom, leaving no bones. They sell when the price is high and buy when the price is low. The reason is very simple, because they have no patience, lack of haircuts when doing analysis, and the market rises and falls too much and too fast. There are also some operators who plunged into the trend of fast moving against the trend because he closed his position prematurely. Now he doesn't want to see the OTC market continue its original trend. He wants to make some money through reverse operation and find a step for himself.
Unfortunately, I am also an "expert" in this field. In my unforgivable operation, finding the head of soybean futures is the most prominent. Because, every time I hear someone looking for various reasons to defend their established position, they say, "How much will I lose?" My answer is: "find a number and write a big number, and you will lose so much."
In fact, this game took place in the early 1970s, but I still remember it vividly. That is one of the mistakes made by ordinary speculators. At 1972, when the market was crazy, I "seized" the soybean market twice-first, I bought soybean oil near 10.30 and sold it at110.30 a few weeks later. I thought to myself, well, the profit is good. After the sale, the market price continued to rise "slightly" to 17.00 ... but I didn't take me with me. Remember an old movie called "The postman always rings the bell twice"? Obviously, how easy I am to operate, because not long after, I bought May soybeans on 3. 19, with a price increase of 3.22 and 3.24, and cleared all the positions on 3.36-just before the record bull rebound of soybeans began.
3.36 After the sale, I watched the market continue to rise to 8.59 crazily, which was unheard of and "unsustainable". I just "knew" that the time was ripe and I could vent it well. The price exceeded my "calculated" upper limit, and all the technical indicators (except one, which we will talk about soon) shouted "overbought". The bull market before soybeans changed dramatically in May and June. So, I set up a short soybean position in July near 8.58, and decided never to overweight before the initial position made a good profit (at least I did something right). I also decided that if the market goes bad, I will never stay in the market for too long. If the short position proves to be an external error, I will close the short position. This is exactly what happened next, and what I did was just as mentioned above. Just two weeks later, believe it or not, just before the market reversed its head at 13.00, I made up my position and lost 15930 USD per hand.
The next time you are impulsive, want to break away from the strict discipline operation strategy and turn to your wishful dream, or want to find the head or bottom of contrarian operation in the dynamic trend market, you must remember this painful (and a little embarrassing) lesson. Oh, yes, as I said before, all the technical indicators except one support my bearish analysis and my decision to short soybeans. What is that? That is "the trend is still upward!"
Speaking of the need for strict discipline for successful operation, so far, I have expounded my views based on my own experience, including four years as a customer liaison at Merrill Lynch, three years as a market analyst, many years as the president and operation director of a settlement company, and several years as a fund manager. However, apart from being a member of several exchanges for seven years, my only experience in front of the stage was (a) going to the business hall to observe the trading situation in person, and (b) trying to fill out a simple 50-sheet copper deposit in the exchange, but without success. Therefore, I think some readers may be interested to hear some successful and capable business hall brokers in Chicago talk about the strict discipline of futures trading.