Email of the day (4)
"Well you were certainly right about the commodities being overextended!
"I managed to short silver on the very day it turned, at 48.2, having been forewarned by you to watch the charts even on Easter Monday. But unfortunately I didn't have the nerve to sit out the subsequent gyrations, otherwise I would have been quite rich by now. In general it seems that when playing a bursting bubble on the downside, one should always wait for the high to be retested, or nearly so, before going in, which in my haste I forgot.
"Another question.
"Having been stopped out of nearly everything, like many others I have fallen for the temptation to put some of my idle cash into a high yield fund, just to get SOME yield. But I've noticed a few commentators warn that this market is also being flooded and may correct soon.
"Do you have any views on this subject?"
David Fuller's view That was a gutsy trade and justified
by the price action. However,
it is so difficult to hold one's nerve in those situations, when the market
is churning wildly. A young colleague who sits nearby in the office had an identical
experience with his silver short. And I did not hold on to my cotton
short about six weeks ago, for similar reasons.
You
make a good point about waiting for the high to be nearly tested but we are
talking about high-stress trading, in which one can be technically right but
so easily tactically wrong. And of course there is no guarantee that one will
be technically right in the short term because one might have only identified
the penultimate peak.
For the
record, here are daily charts of silver's earlier accelerated peaks shown on
semi-log scales: March
2004, April/May
2006 and March 2008.
If one
wants to trade these because of the high-probability shakeout to follow, perhaps
one should do so incrementally. In other words, a small initial short which
is increased on subsequent churning rallies, which I agree will occur far more
often than not. However, one needs to trade well within one's capital and be
emotionally prepared for a rollercoaster ride before the anticipated downward
break occurs.
Regarding
your move into high yield, my policy for many decades has been to skim off profits
from the trading account on a regular basis, for investment in less risky assets
such as collectibles, equities or bonds. Therefore I agree with what you have
done in principal, although I would have preferred a high-yielding equity fund.
You did not specify but your subsequent qualification suggests to me that you
have opted for bonds.