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Ten Mistakes by BP a Trader Should Never Make

May 30th, 2010 | By Bella | Category: General Comments, Mike Bellafiore's (Bella's) Blogs

1. No Exit Plan. There was no exit plan for if the rig (RIG?) exploded. Before every trade we must decide where and how we will exit BEFORE entering the trade.

2. Live to Play Another Day. It is not definitive that BP is a viable company going forward even with 6.08 Billion in quarterly profits. 1) When will the spill stop? 2) They have a larger rig whose safety was questioned on 60 minutes. 3) What will be the economic penalties imposed on them by the surrounding states whose ecology and local economy they have ruined? Will they pay tens of billions in economic penalties under federal law? The workers who lost their jobs? The future illnesses they have created? This is two decades of lawsuits ahead. 4) Why would anyone buy a BP product after the ruination they caused through their incompetence and greed? Will we all really forget this spill? I know I wake up with a touch more stress first wondering if BP has minimized the spill. 5) Will the spill find Florida? A new round of political invective will hit if this occurs.

3. Attention to detail. Now there are reports that 12,000 barrels a day are leaking from the blow out and not the 5,000 first reported. Do you think a trader would be out of the money in a position and not know how many shares he needed to dump?

4. A lack of assistance from the oil community. Why the (insert very angry expletive deletive here) (and repeat this very angry expletive deletive as many times as you wish while discussing BP, the oil industry as a whole and the spill) isn’t EVERY expert from EVERY oil company, EVERY useful piece of equipment to clean the spill down in the Gulf RIGHT NOW?

This is a national emergency. This spill is a war on North America. The spill is destroying our ecosystem. Just today there is a new article with evidence from a local professor finding patches of oil beneath the surface yet to inflict harm but certain to with the next hurricane. As traders we form alliances, mentor/mentee relationships, friendships with like-minded individuals, and partnerships so we are all stronger. The oil community is just one big solo trader on an island with only one set of ideas.

5. Where is the hedging? So the top kill didn’t work. That was an all-in strategy. Why aren’t there supertankers in the Gulf trying to suck out some of the oil right now as a hedge?

6. Transparency and Risk Control. At your trading firm could you have hidden positions 10 times the risk known to your firm. Today there are reports there is a second leak that is spewing 120,000 barrels a day into the Gulf.

7. Overanxious. The drillers moved too quickly. This created the spill. As traders we wait for our set ups where our risk is one and reward is five. We never enter a trader too early.

8. Lack of backtesting. Drilling so deep underwater needed more backtesting. Back testing is required for all new trades.

9. Responsibility. After you make a horrible trade you must accept responsibility. When the hacks from RIG BP and HAL went before Congress they fell all over themselves placing blame on the other. President Obama scolded: “I have to say, though, I did not appreciate what I considered to be a ridiculous spectacle during the congressional hearings into this matter. You had executives of BP and Transocean and Halliburton falling over each other to point the finger of blame at somebody else.”

As traders we look in the mirror identify our mistakes, journal about them, discuss them with our peers, visualize a better approach, and improve. Blaming the market makers, algos, trading platform, firm, the guy who sits next to you, does not make us better traders. If we engage in this lowest common denominator behavior the market will eliminate us.

10. Purpose. BP (and too many other companies) have decided like soulless, amoral, selfish, irresponsible, incompetent, small, insecure, greedy, unintelligent, visionless hacks that their only purpose is to make money for their shareholders (corporate executives?). Today I read this quote from an energy CEO: “What I worry about as an energy CEO is what effect this will have on energy policy,” he said, noting it may lead people to look more seriously at electric cars, or complicate plans to pump carbon underground. “This BP thing has tentacles.”

They still do not understand. How about if an energy company’s purpose was to provide clean energy so as to preserve the planet entrusted to us, mainly through technological advancements driven by a revolutionary company, at a low cost improving the economic purchasing power of most citizens, and for the benefit of their shareholders. Now that would be a company everyone would want to work for and would dominate the energy sector.

As traders our job is not to make money. It is to become an elite performer, which then leads to profitable trades. As traders we seek to maximize our moments as the best of ourselves improving the quality of our lives. This is our purpose for trading.

Swiss Franc (2010-05-30 USDCHF analysis)

Below is 4-hour chart for USDCHF.



Trading range now is 1.1479 - 1.1586. Support area is 1.1444-1.1479. As the price broke the uptrend line, and a head-and-shoulders is probably showing up, I would predict a surge in Franc and therefore plunge in USDCHF. We could more aggressively enter short positions when it breaks the support area, and target would be at 1.12 (by the head-and-shoulders pattern).

Good luck.

Flag Breakout (2010-05-29 GBP analysis)

Going on exchange to London next semester, I have been keeping an eye on GBP to find a good price to get myself some pounds for the next few months. My bias would be at around 1.40, which is at around 10.89 HKD. The breakout of flag yesterday further enhanced my prediction.



Sterling has been keeping at the uptrend line well these days, however, there was a breakout yesterday. It is now on the 23.6%-line, but I would expect a further plunge next week due to the cut of ratings of Spain by Fitch and a worry that UK would be the next. Although the two day-offs would be kind of relaxing for this worry, there might be more rating cut by other rating companies and the worry would remain.

Don't be over optimistic (2010-05-27 HSI analysis)

After the final examination on Derivatives this morning, the only subject left is Econometrics on next Monday. Finally I got some time to trace back what I have missed these weeks.

Today Hang Seng Index closed up, and good news kept coming out. Global markets started having a relaxed atmospher and VIX dropped. Fears are gone as time passes. But would this remain afterwards?



HSI is actually resisted by that very strong red trend line and the horizontal by the last low. This appears to be a very strong resistance. If HSI breaks this strong interception, I would start turning my view back to bullish. Otherwise, I still keep on my bearish anticiaption.

Good luck (and subscribe)

China's Banks (2010-05-24 3988.HK analysis)

Today HSI "unexpectedly" surged 122 points to 19667.76, but we could never forget that the index is still under the upeer down-trend line (red line I drew in last post). The only reverse signal would be the breakthrough of this line. So my bearish view has not changed.

One of my friends asked my opinion on his stock 3988.HK again (yes he is still holding it). Interestingly, I found that most of the China Banks did not fall severely these days. Instead, they were running horizontally. We may say that this is due to an expectation on rise in profits after PBC announced a third increase in reserve rate. However, as I predict, they would then plunge in great extent together with HSI.



We can see that price of BOC is well supported by the red line and the fibs projection. This might be a reason for the horizontal move. If it breaks the zone (3.88-3.92), the next support would be at 3.75.



The above are the movements of HSI and 3988.HK. We can notice that when the two converges, they would move together at same extent in a short period of time. As I have predicted that HSI would continue its tumble, and BOC is going to move with HSI, then 3988.HK is more likely to fall severely. We should keep an eye on the movements and once they break the support line, we could gain some profits by getting into short positions.

Bearish (2010-05-20 HSI analysis)

Euro is just as like dropping under free fall without air resistance. Though it is surging these few hours and broke the down-trend channel, last high at around 1.2439 gave a great block to the increase of the price. Given the current situations, speculators are probably not happy with this little profit. Euro could only be stable after the financial crisis in Europe be eased. This might take a few years and Euro might be trading low for these years. It seems like I could take a cheap trip to Europe.

Next would be the movements of stock markets. HSI broke the previous low today but regained and closed at a higher point 19545.83. Would it be a great support to HSI and push the index upwards? Probably not. We can see that the index is moving with the lower Bollinger for few days. It is resisted by the red strong trend line.



The support area would be 18800 - 19500. Break of 19400 is only the start. If HSI breaks the area, we could even be more pessimistic and 17000 might be the next one to try to hold the falling index.

Safe Haven (2010-05-17 Gold analysis)

HSI plunged by 2.14% again today and DJI is dropping 1.35% currently. Hoping to find something good to invest on? Here might be a good choice!



This gold safe haven might be a heat among investors as everyone is seeking somewhere safe to put their money in. I have drawn a fibonacci projections to predict the next high, which should be at between 1271 and 1300.

Equity markets are almost confirmed to be in bearish. My suggestion is: Sell most of your long positions and run into Gold.