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.

Sleeper Plays 101

Sleeper Plays. 

Or in a more popular term,
"Bodega Plays"

Before we start, please click that lovely link below
and observe the stock allocation of the Mage Class

http://zeefreaks.blogspot.com/p/zf-portfolio-class.html

During my adventures, I have met some traders who are 
in this category big time. I was wondering how some people have
 the strength to 'love' just a few stocks for months without rest. 

You know, those who post relentlessly on threads of their 
favorite stucks, sometimes just talking to themselves 
or worse, creating multiple accounts just so these accounts 
could talk to each other. 

All just so others would take notice - maybe to hype, to 
have the thread on the top pages, or some reason who 
knows what. It's pretty damn funny sometimes.

I'm sure you guys and gals have met a bunch.

Just a tip in dealing with these types: 

Even if we're in the internet,

Never make eye contact.

Never

But the best part about these guys, is when the stock begins a
 monster rally. And then they start acting like a know it all guru
 and "telling you so." And those who oppose this new guru gets to
be ganged up by the crazy followers - Such magnificent 
display of ignorance. But who cares? 

I'm actually guilty on some of these during my ignoramus days.

Moving on....

When dealing with sleepers, you should first ask 
yourself these fundamental technical questions:

"Has the downtrend come to a stop 
and is now on sideways?"

"Are there signs of bullishness or 
higher low (HL) patterns?"

If you answered yes. The next questions you should 
consider if you plan on buying the sleeper are:

"Am I willing to wait for at least 3 months?"

"Will I not be tempted if I see other stocks 
flying and my sleeper continues to sleep?"

If you answer Yes to these, then you're 
another step to making that trade.

Because most traders fail to prepare their minds. 
And so these things happen:

Having the right mindset for the right kind of play and to 
the right kind of trader is key to a successful trade.

Which means, if you're a trader who loves 
quick plays, don't go 'investing'

Or if you're buying to invest, don't get excited 
every friggin' time your stock goes up.

That's not being multi-dimensional.
That's simply being moronic.

Search the crevices of your soul and see if 
you're a trader or an investor.

Now for the last step.

Buying a sleeper means buying at a low range. And buying at 
this particular range isn't very easy. For one, it's probably in 
an illiquid state. Not a lot of transactions happening.

It can desecrate supports or even give wild upswings 
if some trader suddenly loses his mind. 

Couldn't get my earlier records. And it doesn't look the 
same now because of those stock divs.

So you would have to adjust not just your expected timeframe, 
but your exposure and cut points as well - because trust me, 
you don't want to be in a "coma" when things go bad.

But If everything goes well and momentum picks up, volume 
and liquidity will gradually improve. And all those days and 
stress of hoarding for those shares will finally pay off. 
And from here, you get to sweetly decide if you're 
going to transition your play to TF or Momentum.

"But Zee, how will I know if it's game time?"

Simple. Once it breaks a major resistance.
Most prolly the 3 or 6 months resitance.

Keep this simple pyramid in mind.

It doesn't always look like that. But oh well. 

You get to say some things when you're ZF.

And as to the upside once momentum kicks in?

 Here's an idea:

http://zeefreaks.blogspot.com/2014/11/just-for-records-mrc.html

Here's another one courtesy of a legendary trading buddy:

(Snapshot as of 7.1.2015)

And just for this case study:

(Thanks in advance sa mga hypers and gurung ulols) 

Just make sure to put the necessary trail stops. 

You don't want your gains to be eaten up.

Happy sleep-hunting!

Here's a cat in a painting for no reason.

Update 6.26.2015 
(market closing)

So uhh. Yeah. Sleeper Plays.
Problem now is.. Where to sell?
I wish all my problems are like this.

Contrary to popular belief, you don't need to trade every winning
 stock to be highly profitable in the markets. You just need to trade
 the few stocks that matter.

Study more so you'll trade less.

TGIF.

Happy weekend everyone.