Friday, April 1, 2016

Bodega and The Law of Equivalent Exchange


Post Finished : 2:00AM 3.17.2016
Scheduled Post to Avoid Hype : 4.01.2016





"Bodega"

Also known as "Warehousing." This is quite a popular term in FB and other social media. And I have taken a liking to it. The popular belief on this system goes like this : "If you believe in the company, Buy it. Buy it slowly until you have amassed a lovely position that will bear you good gains somewhere in the future." 

I believe this method can be effective if used in the right way, by the right person - Be it a fundamentalist or a technician. But one should also be aware of the element of time when warehousing. You wouldn't want to be accumulating something while losing golden opportunities right? So today, we are going to talk about two groups of fictional characters, The Technicians and the Funnymentalists, for us to visualize and understand more about the bodega system. 

(The things you are about to see are of pure fiction)

Let's start with the Funnymentalist. These group of people believe in many truths, which oftentimes results to a non-truth. The most common practice they employ is the combining of the three Truths in the markets : Fundamentals, Technicals, and Speculation.

Observe.




This is an example of a funnymentalist's port snapshot with a little taste of his wisdom. There has been no full disclosure of where he made his bodegas but we can only assume the following :




"Why don't they buy when the uptrend is confirmed? Isn't it easier that way?" 

Good question. I'm confused as well. But the thing is, Funnymentalists have Vision like no other. They see things in different dimensions and will buy in every season. They see the market's downtrend as golden opportunities to add to their positions. But why not? They are Millionaires! If not Billionaires!

They could have bought on the shifting of the trend. But no. They like to have an underdog's story of breaking even while others are profiting. Who knows how their minds operate? Sometimes they practice cutting their losses and sometimes they don't. Sometimes they have legal wives and sometimes they don't. 

Funnymentalists don't mind holding for a long time because eventually, the universe will align to their favor. This is their truth and their minds will forever remain a mystery.



"A 6-8 Figure Loss? That's nothing to me. BACAT (Buy Cut) 'Till you get it right! Do not think! Be one with the Market."


How about the Technicians? 

They are people bound by strict rules and discipline. Raw data is their Truth. Trends are what they follow. And if a trade goes against them, they immediately cut their losses.

Observe.





When the market shows signs of a favorable trend, Technicians do not hesitate to execute the bodega system. For why fear a trend that is for you? I made a post before on Trend following and Money Management, You might want to read it by Clicking Here. 


Now to understand these signs, one must look for several ingredients :

(1.) A clear continuous and brutal downtrend for at least 6 months - the longer the downtrend, the better. (2.) Next is a rally, a mini ZS or a ZS, that breaks the downtrend with considerable volume. (Click here to know more about the ZS) And (3.)  A time of consolidation from the initial rally, followed by a sequence of breakouts that confirms the shift in trend.

Below is an example of how a Technican would probably do things if given similar amount of money as the Funnymentalist.





Before I proceed, I'd like to make a shameless plug.


"Humankind cannot gain anything without first giving something in return. To obtain, something of equal value must be lost. That is Alchemy's First Law of Equivalent Exchange."





"Alchemy: the science of understanding the structure of matter, breaking it down, then reconstructing it as something else. It can even make gold from lead. But alchemy is a science so it must follow the natural laws: to create, something of equal value must be lost. This is the principal of equivalent exchange. But I learned that night that some things cannot be measured on a simple scale. My brother and I knew the laws of science, of equivalent exchange. The game required sacrifice, that something had to be taken from us, but we thought there was nothing more we could loose....We were wrong."

~Edward Elric (Fullmetal Alchemist)


It's one of the best Animes out there. 
You should watch it if you still haven't.

---------------------------

Now, where was I?

When we tread the markets, it is of utmost importance that we understand our place. While we are part of the market, we are not the market. If the market decides you are wrong, then you are wrong! Your opinion and positions worth millions or billions are irrelevant. For what we speak and what we have is not necessarily truth. Only the Market speaks truth. And when the Market speaks, we listen. 



(Snapshot as of 3.16.2016)

By the time this is published, either BHI is no more or probably still there. Who knows? Oh what a lovely case of Schrodinger's Cat.


10 comments:

  1. Below was my post earlier in that FB group:

    "I was wondering about this myself. Isn't it smarter to cut loss when it's in a clear downtrend, than doing "bodega"?

    If I bought FNI shares worth P1M @P2.90/share and decided to cut loss when it went to P2.65/share level, wouldn't I be in a much better position to buy it back with my P930k++ @P0.60/share instead of doing bodega?

    Honestly, I have a hard time thinking of 10 stocks that did worse than FNI price wise.

    My two cents..."

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  2. Thanks Boss Zee, Bodega pa more.. The right way ;)

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  3. the port snap has a stock that you're still Holding....another great read bossZ

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  4. thanks for sharing bossing ZF, worth reading!

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  5. i hate to admit that ive been a fan of Tunying in fb group since Nov2014. Finally ive found this blog and never looked back.

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  6. Boss Zee. question.

    What made you buy on the mini ZS cross on 20dayMA at .041 other than it made a mini ZS? Must have been a conviction trade. Parang na anticipate mo na it will transition to a ZS eventually. For sure kasi alam mo na from .041, the 50day MA is just merely 3 percent and might encounter resistance. possibility is maliit ang risk reward ratio. seeing sa RSI, it crossed RSI50 during the breakout. Hmmmm...

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  7. eToro is the #1 forex broker for beginning and advanced traders.

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  8. Na miss ko ulit tuloy panoorin FAM. I watched that anime a couple of times; one of the best for me for me after Nickelodeon's avatar. Peace!

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  9. Thank you Boss Zee! I love you! All Love you!

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