Less Trading Longer Time Frames

As a beginner, trading only stocks, I envisioned taking on long term investments and holding for several months to years.  That lasted about a month, as watching the market everyday and not trading is very hard to do.  I traded more and more until I basically became a daytrader. 

I didn't know what I was doing, but I had a sense that it was easier to catch one big move than to catch several small moves.  In trading, 5 > 1+1+1+1+1.  On the path to catch several small moves, you often get something like this:  1+1+1-10.  Unless you have great discipline, which many don't, the more you trade, the more you leave yourself room for making a big mistake.  We are fallible, emotional, and prone to be undisciplined. 

Unless you are super disciplined and great at taking losses, small wins will eventually kill you in this game.  The market is like a series of heat seeking missiles.  It eventually finds your weakness and keeps attacking until you either change or throw in the towel.   I got hit with enough of those missiles over the years and gave up on daytrading, which was getting harder as the algos took over from the humans and made intraday patterns much less reliable.  Thus, I have reduced my trading, reducing my exposure to short term market moves by trading smaller and holding longer.  You don't get hit with as many missiles when you are smaller and further away.  The closer you play to the present, and the bigger you are, the more you are exposed to heat seeking predatory algos.

Even with the reduced trading, still probably trade way more than I should.  I could probably get rid of almost all of my short term trading and it probably wouldn't hurt the P&L at all.  Its mainly because a lot of those short term trades that end up as losers would have been big winners if I just waited for a better entry.  When you wait for the really good entries, you will end up missing quite a few good, but not great opportunities.  But most of the time, those great opportunties were actually good opportunities that became great opportunities due to the market overshooting due to algos and liquidations.  

If you are selective about trades, you will miss moves, and feel FOMO, but that's the only way to reduce your exposure to adverse market moves.  Buying or selling in the middle of the range sets you up to get chopped up by the algos that test your pain threshold by going to the top and bottom of the range. 

Back to the current market, the current rally is a classic FOMO rush after a pullback from a very long up trend, similar to March 2007, October 2014, and August-September 2019.  Investors experienced almost a nonstop rally for several months and have memories of the market making V bottom after V bottom, with higher highs and higher lows along the way.  The greed factor is still deeply embedded in the psyche of today's investors, as I've mentioned before with the post about sticky bulls, and how tenacious they have been even in the face of a downtrend that went on for over a month.  In these environments, after a dip, there is almost a reflexive reaction to buy no matter what when they see any sign that the market has bottomed.  I should have done nothing this week, but I tried to micromanage my position, reducing my profits by selling some on Monday, looking to buy back lower.  Of course, that never happened.  

Still holding my core long in SPX, and letting it ride.  Learned my lesson from the last few years of selling too early after these flush out bottoms, once you have a good position, doing nothing and hanging on for the ride is the best choice.  

Treasuries are starting to get to interesting levels, as 10 yr yields get closer to the year's highs at 1.75%.  Still waiting for a bit more weakness before possibly taking a swing at the long side.  But I don't see much potential for an explosive up move in bonds until after the first rate hike, which is priced to happen on September 2022.  There are already 2 rate hikes priced in for 2022 in the Eurodollars futures curve, and that's quite aggressive, considering how firmly the Fed has stated that they wouldn't hike rates while tapering.  And I don't expect a fast taper, just because of how they operate with an abundance of caution, taking their time when removing accomodation, but rushing when easing.  

10 yr yields are probably range bound until the first hike, between 1.40% to 1.75%. The power flattening over the past month has made the belly of the curve very attractively priced and with the most positive carry.  In a range bound market, collecting carry makes the difference between breaking even and making a decent gain.  Long side in Treasuries is getting more and more favorable, not only from a potential price appreciation, but also from the more positive carry from the higher yields.