UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next
Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Strong Hands/ Weak Hands Date: 11/29/2002 8:18 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
Db,

Two explanations suggest themselves if you didn't understand the point I was making about strong hands/weak hands: the piece was badly written, or the piece was badly thought.

I wouldn't claim that I write like an angel plays a harp, but I strum a good enough linguistic guitar to belt out the literary equivalent a campfire melody. So I don't think any difficulties you had were due to failures of rhetorical structuring, which I'm generally careful about to the point of heavy-handedness, but rather to a possible logic fault in my middle paragraph, that serves as a summarizing transition.

My claim in that paragraph was that at each price point there are some people who are buying or selling correctly and some who are not, which is a tautology and therefore trivially true, but I assumed those acting correctly were the strong hands and their counterparts were the weak hands. But some reflections on this morning's trading –occasioned by this afternoon's walk-- cloud the issue. Let's take a look. I did four trades on SPY:

B94.42 9:54:51
S94.55 9:59:19

B94.30 10:07:37
S94.304 10:15:56

B94.19 10:32:34
B94.11 10:33:43
S94.204 10:37:15

S94.51 10:51:41
B94.35 10:54:00

The arithmetic says three wins and a scratch. Plot them on a 1-minute chart and you'll see I was trading counter-trend in a choppy market (which is what I prefer). Take a look at the fourth trade, which was actually a high risk move. The smart play, had I recognized soon enough that the character of the market had changed from a downward channel to an upward one marked by the 10:30 reversal, would have been to enter long after the reversal, ride through the bull flag and then exit at the move measured out by the distance from the reversal to the flag. Instead I shorted the flag. But my entry and exit were crisp and I got way with it. And the bottom line is that on all trades I took money out of someone else's pocket. I was the stronger hand.

But look at my earlier trades. I went long, but I just as easily have gone short as you'll see from looking at a chart of the opening hour. In other words, I could have taken the other side of my own trades and still made money if my exits had been proper, which raises this paradox: How can I be both be the strong hand and the weak hand at the same time? I can't be, of course, for the trivial reason that I can't be both long and short the same time IN THE SAME ACCOUNT. The persistence of my identity as a trader doesn't matter. But the separateness of the accounts does matter. That's the crucial difference. In buying or selling to myself, simultaneously reversing, one account would have gained money and the other one would have lost. The trade Account “A” did would have been correct and strong, and Account “B” would have been wrong and weak UNLESS third parties become involved, which they do. To go short I have to borrow the shares. I'm not borrowing from myself, but from someone else, and it is their money I pocket, whether I'm doing my trades one leg at a time and exiting to cash before initiating a new position or Stop-and-Reverse (so that I'm in the market continuously).

The distinction that has to be made is between mark-to-market value and cash-in-hand value. Both can fluctuate, waxing and waning like the moon, ebbing and flowing like the tides. Each has their own purposes and realities, but they aren't the same thing. So, $8 trillion didn't just disappear when the market declined from its highs. Some of it did seem vanish like the morning dew, but is really part of the hydrologic recycle, and was recycled from weak hands to strong hands. Other parts of that estimated $8 were just accounting fictions and ledger-sheet ghosts, good for nonce bragging rights at the water cooler, but little else.

Charlie

PS You're right about teaching being a path to learning. (Pity the poor genie pigs!) I never learned so much about writing as when I taught the lower division rhetoric series at OIT (though I still don't speel too good.)
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement