Monday, April 28, 2008

Where's the Beef?

Whoa, how'd I miss the recent rally in live cattle? It make so much sense fundamentally - Asia eating more meat, high grain prices putting the squeeze on meet production, etc...I just fell asleep at the wheel a bit here.
Here's an article I found on BarChart regarding the livestock markets.

I also read over the weekend that Doug Casey has been buying up some meat contracts, on the logic that high grain prices will eventually equate to high grain prices. Is it time for us to pull the trigger as well here?


pharmer said...

Well, now it comes to this. Reading back to your historical blog posts, a while ago you almost went out and the blog went dormant for a while. Just a personal question I guess, but how did you get the confidence to come back. I only ask because with another limit down in rice today that went past my stops too quickly to sell and I can't get out, I'm looking at SERIOUS pain, the kind that makes you question why you're doing this and just cash out what you have left and run. Any advice? I've faced 20-40% down weeks before, and they hurt bad, but this is different. Thanks man -

SugarHigh said...

Sorry to hear it man - you are correct, I've definitely been there before. Let me share with you my near-bust experiences - I'm not really proud of them, if it wasn't a complete bull market, I would have busted for sure - but here they are as I remember:

1. Back in '06 when corn was making it's run, I was highly leveraged. The FDA issued a bogus report about a bumper corn crop - and it crashed for like 3 days in a row. My account dropped from $20K to $6.5K in 72 hours, and I was faced with a margin call.

I sold what I had to, stuck in, and luckily rebounded.

2. Last August, I dropped from $50K to $33K on the Thursday when the entire markets tanked. Next day Ben lowered the rates, and liquidity returned, and I was alright. But for a few days, I was thinking how stupid I was to piss everything I had away in a few days span.

3. Not to be outdone and actually learn anything, I rocketed the account up to $100K by late November, only to put on a crazy # of Aussie $ contracts (8 in total). I lost $30K one morning, and $50K from top to bottom there. I was so despondent after that I did stop posting for a period of time.

In my depression, I finally realized I had to change something, or I was going to bust at some point. I picked up and read "Trade Your Way to Financial Freedom" by Van Tharp - it's a cheesy cliche, but that book did change my life.

Prior to it:
- I used no stops
- I used very heavy amounts of leverage
- I would average down on losing positions, and sell winning ones

Of course I was reading the book when I had the 50% drawdown - that's when it really got my attention. I was so damn stubborn and overconfident reading the first part of the book that I didn't really want to listen, for fear of "screwing up my magic" A 50% draw down really got my dumbass attention.

I'm not sure I can offer specific advice since I'm not in your shoes, but here's what I did when in the same situation:

- I got out of every position
- Sat back a few weeks and just watched
- Inched back into positions that were going up, but using almost no leverage
- You'll be surprised how well you can do just picking winning positions - it's easy to make 1-2% a week using not much leverage
- I extrapolated what 1-2%/wk would mean long-term - it's damn good
- And like any good junkie, I overleveraged again during the recent rally back in Feb/early Mar and have been taking it on the chin

The book did, though, really open my eyes to the amount of leverage I was using - pure gunslinger mentality doomed to fail if the perfect storm hit.

What's different for me now is that when things turn bad, I just get out.

FYI - I had the same problem getting out of rice. I had my stop at 23.50 - Farr told me it went through yesterday. When I logged in today, I had the damn positions again - no idea what happened. So I just sold and luckily got out before limit down.

Another rec'd reading if you haven't already - Reminences of a Stock Operator. Of course he busts 5-6 times in the book, so not something you totally want to emulate. But good advice and one thing that always sticks in my head "When you want to get out, just get out"

pharmer said...

Hey, I can't thank you enough. Classy advice. It's funny, your trading life is so similar to almost everything in the world, it's scary. You can watch a thousand people get burned and you're number 1001 right behind them in line expecting that everything will be different for you. Not that I was naive or crazy, but perhaps I'll call it foolishly over optimistic, especially after the runs in corn and rice this past 6 months.

Again, I appreciate the advice. I'm not giving up because deep down, I know that I know this stuff, and I can be good, I just need to stop being a dumbass.

Heem said...

I'm big fan of both your blogs. Congrats sugar high on your previous performance. I read Jim Rogers work around the same time as you in college (UC DAVIS) and started trading commodities. I went about it the wrong way (concentrated on very short term trading), and blew out an account or two. In the last year I have gone back to basing trades on fundamentals and taking a longer term view. My record has been much better, nothing compared to the monster account that you have created though.

Keep up the great work. Pharmer, I know how it feels to get bitch slapped by the market. I shorted gold in 05 and blew up. Whatever you do, just don't revenge trade. Take time off and wait for a sure thing. All it takes is one epic trade to make up your losses.

bearbee said...

Fairly new in reading your blog.

I recently read something to the effect: amateurs think gains, professionals think risk.

I'm still trying to think like a professional and have gotten a smidge better.

Thanks for that detailed post.

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