"Know When To Walk Away - Know When To Run"

August 22, 2016 | Taylor Letterman

I have learned a few things and established a few rules for myself over a 37-year trading career. One of those rules is, “Do not lose your A$$ on a Friday.” The other rule is do not allow Mr. Market to financially and psychologically take you down in August.

If you recall last August, we saw the E-mini S&P (ES) trade sideways for two and a half weeks and then on September 19, 20, 21 and 24th, ES broke from 2100.00 down to 1831.00. If you were the wrong way, you could have easily given back a whole year’s worth of hard work in four trading days. I happened to be the right way trading 1/10 the amount of contracts I normally trade and made a lot of money.

The point of my story…I was trading 1/10 the amount of contracts I normally trade. WHY? Over a 37-year trading career I traded with a big EGO more times than not in August. And what happens when you think you know it all trading with EGO? Mr. Market humbles you. He takes your money and you sit there scratching your head thinking, “Why the hell was I trading big numbers in August.”

These days I do what the professionals do. They go to the Hamptons and enjoy the psychological break from trading. I am sitting in Marshfield, Massachusetts about 75 yards from the beach.

I had two lobster tails for dinner last night for $19. It was delicious. I woke up to an ES market trading at 2177.00. I did my homework to find that eight of the past ten trading days saw ES trading between 2176.00 and 2179.25 when Wall Street opened.

I have not traded today and I wrote to all my clients in my Early Morning Thoughts this:

IT’S AUGUST. Thinking you are going to hit home runs in August will cost you dearly. Do not allow Mr. Market to psychologically and financially destroy you in August. That is not the way this game is played. Or shall I say…that is not the way I play this game.

I’ve learned. I have the August battle scars. Obey the rules and at the end of the year you will look at your statements and be pleased. Let your addiction to trading get the best of you and you will be checking to see if anyone got the license plate number of that 2016 truck that just ran you over.

This is what I think and there is no way in hell I am trading today. Below 2177.00 has been a buy for two weeks. Above 2180.00 has been a sell. The day you buy it, you just know it’s going down to 2165.00. Or maybe that coin you flipped said sell it? Then you can watch it go to 2195.00.


Posted below are two ES charts. One is a 5-minute chart and the other is a 30-minute chart. You can see we’ve been in range-bound trade since August 4. If you are trading these markets good luck. You are obviously a better trade than I am.