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 July 17,
2005 Commentary (weekend edition)-
Well, today
several thoughts are at the front of my mind. I thought that it might be a good
time to post one of my now infrequent 'chartless' commentaries, where I just
cover some topics I think are worth discussing.
It's really tough for me to decide
what to put in this commentary. Not specifically today, but in general. The
purpose of this column is to introduce people to my work, to help them see if
it looks like something that may help them in their quest to create their own
unique 'Trading Plan'. There are so many commentaries in the archive, though,
one can just look through that and find more than enough material to make a
decision. It's nice to show some current material, but it's not necessary to
evaluate what I do, and to evaluate the value of my services.
I am
mentioning this because I am pondering the future direction of this commentary,
and of the website in general. Perhaps I won't change anything. I'm just at the
stage of mulling things around. I may just move to selling the books as a set,
since almost every purchase is now a full set, and a high percentage of people
refer to the books as a 'course' and not as books. The intent of the books is
to show pretty much all of what I do in the formation of my ever-evolving
'Trading Plan'. In a sense it is more like a course.
My focus is
heavily on my own personal trading, as I have said many times. If I didn't feel
like my work was really helping people in working on their own 'Trading Plans'
I wouldn't do it. I surely don't like doing all this 'extra' work. I have
really become 'devoted' to the members, and I do a lot more
in there than could ever be justified by the money I receive for it. As that
has developed I have really refined not only what I do in terms of my own
trading, but also my ability to show it. I feel it has become an invaluable
service for the members, so I'm reluctant to not continue it, despite the time
commitment.
This leaves me as committed as ever. I can still keep up with my
own personal trading, but the rest of my time is occupied. I have to wonder if,
despite how much I love the market and doing all this with regards to the
website, this is what I want to do with my 'off market' hours. I have mulled
many ideas, from stopping all commentary and just selling the books as a set
and doing the occasional mentorship, to just doing
mentorships, which would require the book set, and hence the books would become
available only with a mentorship. I have even mulled ending the entire
project.
I probably won't make a lot of changes, and what I do likely won't
be too radical, but I want to throw out there the idea that this may not last
forever, or may not stay the same as it is now. I am a trader at heart, not a
'vendor', as I have said many times. I only do this because I feel I am really
making a contribution to other traders who are trying to learn and develop
their own plan. If I didn't feel I was doing that, I would stop immediately. As
a former teacher who likes to teach, I get a lot of personal satisfaction from
this, especially when doing one-on-one
work.
I can see now that this is going to be more of a ramble that I
expected it was going to be, but I think it's good to lay out my thoughts from
time to time, and I'm always happy to receive feedback on my various musings.
If you have any thoughts on all this feel free to let me know what they are. Let me
move on to a few more ideas and thoughts.
It hit me that I don't keep up very
well any more with the popup 'Jim's Quote of the Week' on the home page. If you
don't follow that, or don't even know what that is, go to the home page and look near the upper left. I
have this cool little coalescing text that if you mouse over it comes together
and says 'click text above'. If you haven't seen that, hold your mouse just
below the 'Jim's Quote of the Week' text and see what happens.
Anyway, I
don't update that too often any more, simply due to how much I am already doing
with the website. I was thinking I might try an experiment, and change that to
'Jim's Chart of the Week'. This would pop up a chart setup that I am watching.
It would be a before the fact chart, since it would be something I am watching.
The chart would change every week, and I wouldn't archive them. If anything of
interest happened with that setup I might cover it in the commentary.
One of the
things I worry about is that it must be absolutely clear this would in no way
be a 'recommendation'. This is one of the issues with how I do things in my
'Trading Plan'. Many pattern style traders love to make 'recs'. They say buy
here, sell here, and set the stop here. My plan is far too detailed for an
approach like that. I have entry triggers that must come together. I watch
price action, and must see things behave certain ways. The price action from
when I lay out the setup and when it 'hits' may totally nullify any interest I
have in the setup.
I need to see it unfold in an acceptable manner. I watch
the sectors and indices at the time a setup is hit and evaluate that. I do a
lot of inter-market analysis, including currencies, bonds, energy, and so on,
and weigh that in. I reassess the 'context', and see if my initial stop plan
can still be invoked. As I say many times, the potential trade area (the PTA,
or 'setup') is only 10%-20% of my plan, not the 'usual' 90%-95% it is for most
pattern traders (and all traders, in my opinion).
Many of my setups don't complete,
and many don't trigger. Many trigger and for various reasons I opt to stand
aside, or even fade the setup (go the opposite way). Once in, I have a detailed
management plan, usually with various scaled exits, and as you know I don't use
'profit targets'. I am forever discussing and explaining these concepts in the
members' section. The point is that I feel a chart with a setup is of limited
use without understanding the entire process, and can lead to a 'skewed' view
of the value and precision of the methodology.
Many times a chart doesn't produce
the expected reaction, and yet I found a trade premise base on how it unfolded,
and used the 'action spot' it showed to find a winning trade. This simply can't
be seen from just a chart with a PTA on it. The methodology points out 'action
spots' to me, not necessarily areas I will simply trade 'straight up'. I am a
very discretionary trader. My mentor students, and other serious students,
understand what I am saying here.
I just wanted to explain all this as a
supplement to trying this out. It goes without saying that I am not planning to
just trade the setups if they are hit. The setup is 10%-20% of the process.
Nonetheless, I am going to experiment with this and see if it appears to be of
any use. I may change it back, or change it to something else if I don't feel
it is useful or working out as I had hoped.
You can start
clicking on that soon and see if I have it up and running yet. I will attempt
to update it once per week (unless the chart is still active and I want it to
still be the chart of the week), probably on the weekend, with the free
commentary. I am always trying to find ways to increase reader interest, so
that I can sneak some teaching in while I have everyone's attention.
I want to
look at one more topic before my hands cramp up completely. It seems to me that
almost all traders have left the market to chase real estate. Maybe this isn't
true, but it seems like it. Real estate, in my humble opinion, has now reached
a level that I feel exceeds the level of the NASDAQ in the late 90's. I am
hearing all the same things, word for word, that I heard in the late 90's from
all the plumbers, doctors, attorneys, and others that I knew that quit their
jobs and became 'full-time' traders. I can't find a single difference
now.
Everyone I know is now doing real estate. I know regular real
estate brokers, selling single family homes in the low end of the range, well
below the median home price, making a million dollars a year on commissions. I
know of regular loan officers working for these regular brokers making
$350-$400K a year. Then there are the speculators.
My 'pizza
guy' now owns 15 houses, and can't find enough to buy. My plumber, who quit
plumbing to be a full-time trader, then went back to plumbing when the bubble
burst, has now quit plumbing again and is flipping real estate full-time. Many
markets are up 30% or more in the last year. And not just the few 'hot'
markets. It is becoming common for a house to close two times in one day! There
are now online 'flipping' sites where one can buy and sell sight unseen. One
has a tag line so insane I can't believe it. Do some searching and you'll
likely find it. You'll know it when you see it.
For fun I did a quick calculation
for the commissions and average speculation profit for homes in the U.S. Keep
in mind this is based on some average figures I have seen, and in no way is a
'rigorous' or perhaps even accurate calculation. I did it just for fun. It
turns out that just the money made from commissions and speculation this past
year could employ about 85 million Americans at the rate of $50K a
year.
Now, if my figures of say 150-160 million working Americans is
about right, then more half of all the jobs could just be people making money
on real estate at a decent salary of $50K a year. Subtract out the government
jobs and such and nearly two-thirds of the entire private sector job market for
the entire U.S. could just be in real estate! This only takes into account
broker's commissions and speculation, not homebuilders, land sales, peripheral
things like title searches, etc. Understand that this is just a fun little game
here, and I used very approximate figures.
Remember when they said everyone in
the U.S. might soon be a trader? Some wondered who would do the actual work to
get things done. Now real estate is getting like that. My point is, this is
insane, it's a bubble, and doesn't reflect reality. I feel it will end badly,
like the stock market bubble. But like the stock market, it may go for a long
time. On the other hand, it may get popped by interest rate hikes, just like
the stock market bubble did.
And just like the stock market bubble, I keep hearing
all the reasons why it is different this time, why this is a 'real' asset and
makes it different than stocks, and why this surely will go forever. And just
like what I saw in the late 90's with traders, I see major lifestyle changes in
all the people I know involved with real estate. They don't say it can't last
and they are saving up the massive money they are making now.
They are
making a lot, and spending a lot. They are setting themselves up such that they
must keep making this kind of money. If it stops, they will be in a lot of
trouble. They are living like free-spending millionaires. This is not a good
sign. And I estimate the financial channel I watch now spends some 60%-70% of
its time, or more, on real estate. I thought it was a stock market channel, but
in reality it's a 'whatever is hot' channel.
So, why mention all this here? With
program trading at 76.3%, individual home-based trading is not 'popular' any
more. I check out various paid chat rooms, many quite good, and see three
people in there, or five. Don't tell me about the few free ones that have 500
or 1,000, or more, people in there. I mean paid services that are making a
decent effort to help serious traders who understand that for the most part
when something is free you get what you pay for.
I'm saying, three people in a chat
room? I remember in the late 90's when decent paid chat rooms had hundreds and
sometimes thousands of people following along. Now, it's a couple of people.
Trading is not where it's at any more, with the lure of real estate. I feel the
trading conditions have been simply awesome lately, and I'm as excited about
trading now as I have ever been. But I love trading. I'm not chasing the latest
hot asset class, so to speak.
I wanted to discuss this because I feel it's
not only not a good sign for the market when the traders all start to leave
(recall how that happens as longer-term bear markets advance, for example), it
is also discouraging for traders trying to make it. They are struggling, and
all they hear is the zillions all their friends are making in real estate. Many
just can't keep working on their plan, and they follow the siren song. In a way
I feel like trading is almost 'dead', from a home-based trader participation
standpoint.
This may be a sign about impending trouble in real estate, I don't
know, since the pool is about full now. Everyone is now in real estate. It's
like when every last person is bullish in the stock market, what happens? My
purpose here is not to be an alarmist about real estate, only to try to explain
some potential things to my trading readers. What you are seeing and
experiencing may have some of its explanation in this relationship we are
looking at.
All I can say is that if you want to be a trader, keep working at
it. I find this market to be quite good for my methodology. Nothing like real
estate, but I do this because I love it, not because I can make more than
flipping condos. I did this before the stock market bubble burst, and I plan to
be doing it long after the real estate bubble bursts.
I know this
has been a long ramble, and not necessarily one with a beginning, middle, and
end. I just felt like discussing some thoughts today, so I went with it. I've
gotten some comments lately about how well received my stories in the archive
are, and how I don't do too many stories lately. That was what got me thinking
about a ramble today. I'll get back to some charts next week, and check that
popup to see if I have a chart posted.
The next commentary will be next weekend's
edition, posted by Sunday evening, July 24, 2005.
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