Well, the time frame is up. I'd cover this here at $47.70 for 13% profit. The two predicted downgrades happened, they were very predictable and tanked it even after a pump attempt. Morons who stare at technicals miss opportunities like this, and think a 20% loss is better than 13% profit in three weeks, because they won't make a trade without technistrology gently cupping them.

This is the real stupidity of technical analysis like mrbaseball practices - you miss all the EV, which is non-technical analysis and prediction.
The clown above was crowing when the trade was 1% against me. ROKU is still a fantastic long term short however, probably for 50+% in a year, it's just that the thesis has played and short percent/covering can be so high that covering makes sense. Earnings could short squeeze it again too, there's too much room on their small revenue/profit to pump it.

I always enjoy reading your trading wisdom, this is good post. Probably doesn't work for rafiki's penny scalping, but good as a general rule on more stable things.

I wasn't crowning anything. It was a JOKE! ROKU is most likely a huge pos since I believe it is one of Lefts shorts and that is a guy I don't want to bet against. But I also don't ever want a longer than interday short on anything in an uptrend. ROKU is brand new last year and had a huge gap up so it doesn't really qualify as any kind of trend since it has no track record.

You gotta admit the NFLX call at 185 was real bad though. It may (or may not) crash but it has taken a lot of heat since you presented it. Bad trades happen all the time though. Its all about the risk management. Holding a short from 185 to 206 is real bad risk management. And I am not saying you did that. But if you did? Ewwwwww!

Thanks. I sometimes enjoy your thoughts as well except when you get into name calling, stupid stubborn behavior, and close mindedness on the value of TA since you have admitted to using it yourself even if you don't define it as that.

Nah, not at all. It's a long term call. I called it short at $200 in November for a year (along with TSLA (+15%) and AMZN (-20%)) and that was a continuation of it.

If you can't take 10% or even 40% heat on a long term short, especially in a ripping market, you shouldn't be shorting. When the stock is momo with medium term upcoming very negative catalyst, the fish move is to cover if it moves hard against you.
This is just leaving cash lying around. You place so much value in technicals that you miss EV far higher than technicals (if they worked) could ever give you. This is one reason I hate technicals so much, they focus you on ultra ultra ultra low EV (at best) trades which shifts your attention from the gems.

There was one guy here a while ago who loved Facebook fundamentally (I disagreed at $25 and was obviously very very wrong), but the moron wanted to trade it on technicals rather than play to his strengths. I made more out Facebook trading long on events than he did, hilariously, and he made nothing out of his strong fundamental analysis. That's the stupidity that technicals cause. It's like consulting the stars - if you're spending your day staring at stock astrology picks, you're going to miss a lot of alpha that you could get through pure reason and observation.

I guess I'm a little biased because I trade options and the very high EV low risk plays are on smart anticipation of, or fast reaction to, events before it moves substantially your way (when vol spikes and risk/reward sucks). It's a very different risk/reward structure to just long or short with a delta of 1.

Whatever you say.

The stocks you short (AMZN, TSLA, NFLX) are the kind of stocks that defy fundamentals. For years and years people have gone broke shorting this kind of stuff. AMZN in particular has chewed up people for over a decade because it "doesn't make sense?" NFLX and TSLA are sorta the same although TSLA a little different. AMZN and NFLX have become constants in almost everybody's lives and something that they can't or won't live without. TSLA I will be honest I don't understand at all but there is a cult belief that they will make huge inroads in battery tech and software and all sorts of things that they haven't done yet.

These are exactly the kinds of things built for TA Trying to time them fundamentally has proven to be almost impossible over the years. If they truly do turn the price action will tell you.

But his is the trading thread which is shorter term in nature than year long holds. If you shorted all that stuff a year ago (and I know you were negative on them then too) for a year long hold you would be outta bidness.

You seem to have some definition where timing something "fundamentally" means deciding it's overvalued and shorting it. Fundamentals are far more than that - they're upcoming or just broken news and catalysts mostly.

Take my ROKU short. I explicitly stated the fundamental catalyst and time frame - no negative analysts had come out, there was only one pumping it who'd fired two rounds, and they were sure to come out soon. Guess what? That's precisely what happened. The last two days have been negative analysts coming out and that was worth 13%. There was absolutely no way to capture this if you relied on technicals.

For Netflix, the catalyst is the upcoming substantial Disney competition in 2019. It's long term.
This view is silly. If "the price action told you" when to short or do anything, then everyone could get rich off price action. No such edge exists. If there is an edge in price action, it is necessarily small.

If the price action tells you anything it would be a tiny amount of EV. It's my claim there are spots in the market for large EV.

I asked you before, what are you claiming is the EV difference between "waiting for the price to turn" vs trading while ignoring that? You cant answer that, yet make categorical claims. The difference CANNOT be very large or there'd be stupendous amounts of free money out there purely on algos for institutions who don't have to pay retail spread + fees. It would be academically proven beyond all doubt, rather than the literature saying there is zero or slightly above zero at best in anything technical.

It's my claim that there is a large edge in fundamentals, and that "waiting for price to turn" according to whatever tea leaf reading you're doing is flushing that edge down the toilet, because the price turn edge must necessarily be small, and fundamental edges may not be.

That's without going into the the loss of noticing opportunities because you're running worthless stats and lines on charts and thinking about them all the time, rather than looking for real non-tiny alpha.
You'd be out of bidness on a 20-40% move against you? If this is your view or your bet sizing, then you shouldn't short.

I know you trade commodities so you live in a different world. Do you claim to have beaten the index on stocks? You bring a view here that's terrified of even small loss. I respect that and I'm sure it's very wise in many things, but it's not really relevant to fundamental or catalyst trading.

I agree wholeheartedly with letting winners run.

Are you guys saying:

a) You would close losers that still have a profitable risk/reward profile
b) You would hold winners that no longer have a profitable risk/reward profile
c) You think there is a signal for future performance based on performance since you entered the trade.

something else?

Yeah, that's 2 years away and Netflix aint going anywhere because of it. I remember when you said that the stupid Amazon monthly video option would be the death of Netflix and that had to be over 100 points ago.

If I were to short anything on the Disney news it would be the cable companies rather than Netflix. Plus there is always that outside chance that Netflix gets bought by someone blowing up any short.

But no, I don't short stocks other than the occasional put buy and usually just for protection.

Most "smart" traders for longer term bets often couple their fundamental read with technical indicators for timing purposes.

a) I am a short term momentum trader and if the price action tells me I am wrong I dump it.

b) I use a trailing stop type of trade exit. If it turns over my stop gets hit and I am out and as long as it stays untriggered I stay in.

c) Yes. As a momentum trader certain levels act as catalysts for what happens next. As certain levels get taken out stops get hit and a trade can pick up steam. These levels can also act as brick walls. The point is not to predetermine a "brick wall" and just get out. If it brick walls that price action gets you out on the trailer. But if it blows through it can take on a whole new life. In my experience the one that blow through the brick walls are the truly exceptional trades.

This is the most ridiculous thing you've said. Netflix is worth $90 billion dollars. To blow up a short you'd have to offer what, $130 billion? That's almost the market cap of Disney. Who, pray tell, would pay that for a money losing company? Disney can undercut them and force them out of business for a fraction of that. They're burning cash like crazy right now with zero competition, and for mostly second rate content with a short shelf life.

I would seriously love to hear from you who you think is paying $130 billion for Netflix?

1/3 of my HOS hit a stop today (+14%), 2/3 still live. Had originally set the whole thing to stop out and changed it thinking the volatility monster could get me to make a mistake. Seems like that was at least correct as I was able to avoid getting entirely whipsawed (and the stop was super generous). We're sitting at +17% at present. Trade peaked at 27% where I did not sell.

I come back to the ideas Tooth has touched on where I feel I'm willing to let the trade slip from me if it means that most of my confidence is still in a far larger trade on a far larger time frame. System I've decided on is to call +10% the worst I'll accept on the remaining 2/3's, and let it run otherwise. I suppose a gap down on a given open jeopardizes that so they'll be some fine tuning.

As an aside last 48 hours have been some of my worst in a few years. Not even results wise, but nearly every decision was born from emotion and not from analysis. I don't know why that still sneaks up on me sometimes. Well I know why, I just hate that I still have to quash that out of my trading. Guess an awareness of it is the first step. Anyway FOMO when it comes to trading is poison, and I vow to remove it from my behaviours this year.

It's a long shot for sure and I doubt it happens but it could. Disney was probably the most likely buyer But Apple, Google, Facebook, some cable or phone company etc. This industry is in major disruption and Netflix is THE leader. Where its all gonna settle is anybodys guess but networks are dead and streaming is the future.

As I said I am neither long or short Netflix and 100 points either way wouldn't surprise me.

Not me, no, if I was say waiting for a catalyst or the spreading/realization of news.
I think there are large error bars on the extent to which you can judge the latter when something is in a decent run (there are large error bars anyway). If you're judging it from price action, which is full of false signals, you're gonna fool yourself out of a big trade. If you're doing purely rational analysis, then no.

In reality much profit taking isn't a rational activity for most traders. It's based on fear of giving back a win and feeling like a total fool.
A thesis that's been partly validated is substantially stronger than a thesis that hasn't. We generate far more wrong theses than correct ones, so there's essentially a selection mechanism at play here. Think of the confidence bounds of distribution when they're overlapping with a correct thesis vs a wrong/null one. Now plug in different values for the ratio of wrong to correct theses. You'll come up with some starting results that show you that you should let winners run.

There's more to it but I won't get into that because that's giving away some stuff I find obvious and essential to trading that apparently most people don't get.

long SHOP and TTWO

Whelp that last move took care of the last of HOS. All out. Doesn't feel satisfying.

I exited but still think there’s solid value there. It was basically the only single stock transaction I’ve made in years. (I’m a 100% mutual fund noob)

Tough life making 10-20% in a few days.

Out at $5.50.

Bought 1/12 RIOT $28 puts at $4.60.

At this point I'm the heaviest I've ever been in this trade, and maybe it's just confirmation bias, but I think that if RIOT, with its volume falling every day, can barely hold a small gain in the midst of an amazing rally in bull**** alt-coins, I think this bull**** pump and dump is headed back to the teens.

Why are you so deep in the money on this one? You can pull the same return with 1/4 of the risk if your thesis is that it goes back to the teens. $22 puts for example are $1.20, 1/4 of the price for the almost same return (hitting the teens) or 1/3 of the price for better return.

To me, deep in the money only makes sense when move against risk is low and the chance of large move in your preferred direction is low.

If there's a decent chance it reverses and eats your intrinsic, and your thesis is 20+% move in a week, you can get much better odds further out that actually make sense.

On Dec 31st after the close it was reported the CEO sold 30K shares only leaving him with 12.5K which I think he is required to hold. Left said the fair value for the stock was about 9 bucks. Everyone is starting to realize its run up was pure BS but you always gotta be careful in the very short term as anything can and likely will happen.

Honestly, it's mostly gut. I have a thesis on the timing (see above) but my confidence in my ability to make smart bets on the timing is weak. My confidence in my judgement of the fundamental value of this is high. I think it's going to the teens, but I don't have much confidence in when, so I think of these in-the-money puts as a leveraged short for which I pay a hefty vig.

I also hold some $22.50 puts expiring next week.

Thanks for your feedback, it helps me refine my thinking.

Yeah, I loved that CEO's share sale. In the short term totally agree that anything can happen and there's a good chance my puts expire worthless or at a loss.

Appreciate you helping me think it through.

Yr timing was solid on the entry - great way to start 2018.

Rafiki, could you say more about how you identify entry points? I've just held it since $7 in my account, but I've admired seeing you enter it a number of times for big profits. How do you identify these breakout points?