Friday, August 19, 2011

Efficiency vs Frequency

11:00 am Lame. I entered FAZ at 69.35 and stopped myself out at 68.40. It's at 69.38 after hours. I've had some profitable trades in FAZ, but more and more, I just end up clipping myself out with break-evens or small losses. Today was a series of silly attempts to chase FAZ even though I had a specific price level (67.50) in mind. I was unwilling to buy AGQ below 229 and add DGP below 69. AGQ is now 242.52 and DGP is 69.22, both holding most of their gains and then some. So why chase FAZ? That's something I need to just avoid, period, by sticking to price points. It's the simplest, most efficient way for me. Technicals and trend lines are all great, but when I have stuck by targets, I've done far better overall by staying out rather than chasing.

What threw me off, in hindsight, was seeing FAZ drop all the way to 63.00. Had my doubts — emotion — after that even as it rose back to 67 and 68. Instead of a discounted price, I paid higher, logic losing out to emotion.

Long term, I'd be better served, in all probability, by not trying to trade in and out of these vehicles intraday. Example: The Fed could unveil some new form of QE on Sunday night and spark a bull run. FAZ could tank back to 55, even 45. But as we saw recently, every dead cat bounce is sold off. FAZ would eventually return to 70 and then 80, and then 100.

It might be time for me to adjust time frames and shoot for longer swings rather than quick putts. Or just limit quick momo trades to days when there is a major catalyst, like Euro bank destruction.

Adjusted game plan
I. Longer-term holds: physical PMs.
II. Short-term holds: gold and/or silver ETFs.
III. Quick trades: FAZ (on debt crisis headlines), FAS (if and when QE3 is announced), TVIX (on major riot headlines).

I've been 50% to 100% cash for most of this year.

I probably won't bother with FAS and TVIX since I'm asleep through a good portion of the session on most days.

As for today, it was good to be disciplined when the vehicles on my radar gapped up. Not good to avoid them as they dipped. I'm going to examine why I sometimes refuse to buy low and sometimes prefer to buy HIGH.

Phil Town is a master of that. He entered AAPL back in 2009 at 80 or so, precisely calling a bottom in what had been a devastating correction. AAPL has pulled back during the current pullback from 400+ to 356, but I'd say Town has done fairly well.

The only things I can see making a run similar to that are physical gold, physical silver, DGP, AGQ. Maybe FAZ. The AGQ/spot silver relationship is still on my mind. When silver went from 40 to 49+, AGQ went from 220 to 382. That's a 74% gain in AGQ and roughly 25% in spot silver.

Today, silver gained roughly 5.2%. AGQ is up 10.3%. There's reason to believe AGQ is worth trading to net more dollars and buy more physical — much more — even with spot price eventually at 50.

So that's FAZ which I am convinced will hit 100 (while bouncing all over like a pinball). There's AGQ which I have to say will bust through 300 and possibly 400 because spot silver at 50 is a high probability.

Of course, there's DGP. This is proof that ignorance can be costly. Just a year or two ago, I had no clue about real money, sound money, historical money. I viewed gold as a rich man's hoard, something heiresses and gold-digging hotties cared about. Something only a richass rapper could afford. Turns out they were all wiser than me. The instinctive attraction to gold is almost embedded in our DNA. It is internationally understood. Wave some bars of gold around wherever you are in the world, and 99.9% of people won't need to understand a word you say.

It'll be weird one day to see gold out of favor again, when the 30-year cycle turns over, as Mike Maloney points out in his book. If enough gold and silver can transform into farmland and a home, and provide ample resources completely independent of the grid, it's all anyone can ask for.

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