Trading With Tony Robbins

I am reading "Awaken the Gian Within" By Tony Robbins.  These types of books have become more helpful to my trading than actual trading books lately.  I've now reached the point where success and failure is determined by my discipline (or lack there of).

"It is in your moments of decision that your destiny is shaped"

  

Mastery of 5 areas of life

1. Emotional Mastery
2. Physical Mastery
3. Relationship Mastery
4. Financial Mastery
5. Time Mastery. 

Interest in something is not Power,  It's a weak prayer without the faith to launch it.

Path to Power

1. Decide what you want
2. Take action
3. Notice what is working and what is not working
4. Change your approach until you achieve what you want.

Making a true decisions means committing to achieving a result, and then cutting yourself off from any other possibility. 

Repetition is the mother of skill. 

Design our lives. 

neuro-linguistic programming 

Pain: associate pain with negative behavior to make lasting and immediate change.

Application to trading. 

Actions I've been putting off

• Putting together a comprehensive trading plan
• Reasons why Tedious,
• it's work
• mire away in mediocrity. Stray from the things that work.
• Do not have fully developed rules that will carry me forward when trading is not easy. 
• STATUS: Work in progress.  I have created comprehensive guides for several of my setups.  But I still need to cover all of them and money management and broad market signals. 
• 
  
• Trading out of only my setups.
• Missing the profitable $quick money trade
• lead astray and take trades that 
• Not taking trades out of boredom
• I've attached an emotional factor to trading and I must be seeking excitement
• result, I take lower quality setups and stocks sometimes.
• Status: Improved but I'm still prone to chasing stocks. 
• 
  
• Record keeping
• Why not
• takes time
• Might not like what I see
• Problems: I miss trends in my behavior and what the market is telling me.  I miss opportunities to get feed back beyond my most recent trade. 
• Risks: If  I don't change all of these actions, I will never become a constantly profitable trader.   I will keep engaging in the boom and bust cycle and I will never become an independent full time trader. 
• Reason for change: y taking these actions, I will gain pleasure in knowing that I will become more profitable, I will be on my way to becoming a champion trader.

Status:  A damn Good Start.  Journal posted here.

Market Reflections

I'm having a great year trading and I went into vacation having my best week of the year.  Thank you TWLO, TPIC, AIRG.

It is important to reflect on where we are and our goals.   It's amazing how a few northwood sunrises can recharge us.

At the cabin there is no internet (outside of what you can get on a cellphone),  this forces us to avoid that noise that creeps into our daily lives.  I do a lot of reading and contemplating.

I keep coming back tot the thought that our actions in the market are a reflection of ourselves. Trading is emotional,  We are not robots and the market will amplify any weakness we have. I think our success or failures is ultimately  a reflection of ourselves.  If we  are undisciplined in our daily lives, things usually turn out fine.  The markets, however, will punish you.  Maybe not today, maybe not tomorrow but at some point it will. Practice discipline daily.Let's be champions.  Play like a champion today.

This year I've focused on developing my  market philosophies, mindsets and discipline. I'm having a great year trading. I'm presently up about 140% since February.  This  happens to coincide with the time I began taking martial arts lessons with my son. The constant reinforcement of discipline and respect  of  the process that martial arts teaches has helped all aspects of my life.

In my trading, I've worked backwards from my philosophical beliefs about the markets. Markets are comprised of people who are emotional and not rational. Stocks reflect the emotions of the people that hold them.  etc...  For me, these concepts are nicely reflected in the concept of "Stage Analysis"  which I've built, tweaked, and execute my strategies around.

 I've developed the discipline to let a trade work within my framework and more importantly avoid trades that do not fit into this frame work. When a stock goes into the advancing phase, I've held positions longer and do not have the constant need to "ring the register" that is so satisfying in the short term, but so destructive long term. I took the daily P and L tab off my screen.   This has let me stay in the quick 10% winners and let them develop into the 50 or even 100% winners.

I am reading a Tony Robbins book which introduced  me to the word "Kaizen" which is a Japanese term for the philosophy of continuous improvement.  The concept is that by making small improvements everyday, we can have drastic improvements. The market will be my measuring stick and the possibilities are endless.

Pilsung (certain victory)!

VXX DRIP

When the market sells off quickly, traders get excited and rush into VXX, UVXY, and other volatility instruments. I'm holding XIV as a long term trade.  I have to make a confession.  I'm getting crushed on this trade. 

 Despite getting crushed in the short term, I have little concern that this will be a tremendously profitable trade. History shows long volatility to be a losing proposition long term.

(Chart per P.O.P. Stephen Stewart's public chart list)

The reason I  have absolute confidence in this trade despite the instant surrounding is that I did it in 2011.  I shorted VXX on Aug 9, 2011 at 32,  I shorted again on 8/19/11 at 42.

Ignore the VXX split adjustments.  My 2011 trade looked liked this:  Short term pain, long term gain.

The risk I take in doing this trade is not so much financial, it is the risk that my violations of every trading rule I have becomes a habit.

Trading without a plan

Here's what emotional trading  looks like. 

You Can't Time the Market.

We've heard forever from the that you can't time the market. I used to think that was nonsense. After all, isn't that what successful traders are doing every day. But I've been doing some contemplation. I now agree-- we can't time the market.  But that's not to say we can't make money from attempting timing the market.  

I'm sure that sounds like an inconsistent statement.  It's not. 

We can identify asymmetrical risk / reward opportunities and exploit them. Being focused on the R/R and thinking in terms of probabilities has been game changing philosophically for me. These realization has helped me overcome the need to be right. I lost on over 53% of my trades last month yet still achieved over an 8% gain. That wouldn't have happened if I had "confidence" in a trade. I would have held on and suffered a devastating loss as I have at some points in my trading. I guess I came to the realization that, I don't really care if my next trade is a winner so long as I've managed risk. I'm sure that realization is not novel systems traders don't care a bit about one particular trade so long as it fits in their models.  But as discretionary traders, we tend to placed too much importance on being right.   I now see how much that has cost me.  

How many trades would I have executed differently (position sizing, stop levels).  Would I have added to a losing trade, if I went into the trade with the view that it was just as likely to be a loser as a winner. Over the years my worst losses have been in the trades where I've had conviction in the fundamental view or the story behind the stock. ... no more.

Discipline in Action

I came into this month with my main goal to be disciplined.  I wanted to be hyper focused on cutting my losses.  I swore that I would not let any position become a big loss.  I would not have any losses greater than 1% of my equity.

So how did I do?  I'll take it.

This was not an easy month. Gains did not come rapidly or in big chunks.  I actually lost money on 53% of my trades (I had over 90 of them).  But I saw that I had a small edge and my average winners were larger than the average losers.  I didn't have many big winners.  I did have a single loser over 1% --1.12% to be exact. Biggest winner was 2.34% of equity.  By trading small, being nimble, booking gains and cutting losses. I was able to post a respectable month.  Rinse wash repeat.

Mistakes

Trading mistakes happen. There are lapses of discipline where we chase, put on too much size or fail to take a loss where we should.  But the great thing about trading is that you can alway change your position.

despite my focus on discipline this month. Here's a mistake I made just yesterday

Entry1: 9.57 

I broke a rule jumped in pre-market  figuring this would push a big move. Should have realized that it had not cleared resistance. 

Entry 2. 8.53

I should have been out of the position by the time it got here. But rather than getting out I  made another mistake and doubled down after it went against me, which put me on more size than I would want to take buying into a loser.  After doubling the position, I had a 2% risk on the position, which is more than I would want to take on this type of set up. 

Remedy:

 I woke up early with a clear head.  There would be no chasing losses.  I needed to right size the position. There was a a .30 gap in the am and used that gap to unload 1/2 my position and get back to an appropriate size.    I avoid an over size risk.  The stock held its bounce and went higher all is right in the world. 

Cut losses and ride winners... If only it were that easy

How many times have we been told to sell our losers and let our winners ride.  And that losing traders sell winners too quickly.

Those conclusions are even backed up by research.  And, as academics tend to do it's given a fancy name-- the disposition effect. 

Per wikipedia:

"The disposition effect is an anomaly discovered in behavioral finance. It relates to the tendency of investors to sell shares whose price has increased, while keeping assets that have dropped in value"

The study also concluded that  Investors are more likely to take a small gain than a small loss.

Gosh, is that all there is to it? We just need to sell our losses quickly and let our winners become bigger winners.   

Here's the problem with academia and mantras.  When we enter a trade, we  don't what is going to become a winner, a big winner, or a loser.  If we did, we  wouldn't have entered the trade.  Rarely  does a trade go straight up and become a big winner. --   They go up, then down then down some more then up and so forth. 

Many times I've had a small winner reverse to a loser. I've had big winners reverse to a small winners.  I've had big winners become bigger winners.  We can't control what the stock does once our position is on we control only what we do. 

 One thing you can control is whether a small losses becomes a big loss. Small losses keep you in the game.  Learn to love them. Also, don't fear small gains. I take small gains all the time. I can make the argument, that by taking a small gains I'm avoiding a loss (big or small) altogether.  I came to that conclusion after finding myself embarrassed to take a small gain because it was small.-- I know I'm not the only one as Mark Douglas talked about his own issues with taking small gains in Trading with Discipline-- only to see those small gains become small losses.  If the trade isn't working get out with profit if you can. Small gains are better than small losses. 

Plan your exits.  I know where my stop losses are where I will get out for a small loss that's the easy party.-- and the most critical.   The harder part is where to take profits. When I take a trade, I know how I want it to act or behave. If it doesn't do what I thought it would, a small gain can be the right decision. For example, If I take a breakout and I expect it to get through a certain level and if it struggles I'll sell a portion.  Or, If the market presents an opportunity for a profit-- take some of it. The stock may still be a winner, or even a big winner, for someone else but it wasn't my trade. 

The point is its impossible to know what is going to be big winner. But we can prevent big losers. My conclusion is cut the losers quickly and the winners will take care of themselves. 

A fish story- The monster gain that got away.

Since I've deemed this psychology month.  I thought it was appropriate to discuss the "one that got away"  I just narrowly missed a monster... and that's okay 

I bought EYEG yesterday.   It had a nice price pop on news that I thought was a big deal as it had signed a deal with $VRX.

Here were my entry notes from yesterday.

I took the position long at 6.70.  It then got more news as it treated its first patient or something like that and ran to $8.00.  With a 7.80 bid. That bid gave way and the spread was 7.25 @ 8.00 then @ 7.55 I hit the bid. It had only traded 10k on the day.  I had a decent gain on a thin stock and I did not want to get trapped.  Here's what happened next:

BOOM!  a monster move.

So how do I feel.  Surprisingly, not that bad.  For every EYEG there are probably 50-60 that pop and drop.  I still believe I made the right decision in terms of probability. Although I was wrong to sell on this stock, Most stocks don't run 130% in a day. This one did. On most trades, a stock that's bid falls away is a sign of trouble so I got out with a decent profit. 

It takes just one trader.

Once upon a time (not too long ago), a prominent floor trader decided that the wanted to get off the floor and start trading on screen.  In the pits, he had no need for technical analysis as he was trading order flow and doing it very successfully.   He realized that he would need to learn something about technical analysis. So he got put in contact with the young hot shot technician.

The young technician was eager to show off his knowledge and the two men started watching the soybean market together.  The technician was calling out support and resistance points and the market gradually drifted to a support point and the technician proudly boasted this will be the low for the day.  T

he floor trader looked over and asked "are you sure?"

The young technician responded "absolutely"

"Bull shit" said the floor trader with a knowing  look on his face.

The floor trader then got on his phone dialed his broker and said "sell 2 million soybeans"

 The market then then ripped through the "support" proceeding to drop lower and lower as stops were triggered.

The point is that no matter what your conviction in a trade or how many times the pattern or trade has worked in the past, it takes just a single trader who disagrees with you to destroy your chance of a successful trade.  For that reason we must plan for the downside of a trade, understand the real risk we are taking,and accept that risk when we put the trade on because there are no sure trades.

Trading in the Zone: Full survey response.

Here's my full response to the attitude survey

1. To make money as a trader you have to know what the market is going to do next. 

Disagree  -- you just have to prepare for a probabilities of risk v reward. 

2. Sometimes I find myself thinking that there must be a way to trade without having to take a loss. Disagree

3. Making money as a trader is primarily a function of analysis. 

Agree to an extent as the analysis allows you to take a position to make money from a trade if the analysis is correct.

4. Losses are an unavoidable component of trading. Agree 

5. My risk is always defined before I enter a trade. Disagree  (see previous post)

6. In my mind there is always a cost associated with finding out what the market may do next. 

Agree Disagree.  I think to some degree there's a price to admission. There is either a real cost or an opportunity cost. 

7. I wouldn't even bother putting on the next trade if I wasn't sure that it was going to be a winner. Disagree,  I don't know if any of my trades will be winners. 

8. The more a trader learns about the markets and how they behave, the easier it will be for him to execute his trades.
Agree Disagree   knowing the market structure and what is in the realm of probable, and possible makes it easier. 

9. My methodology tells me exactly under what market conditions to either enter or exit a trade. Agree   (but do I always follow it)

10. Even when I have a clear signal to reverse my position, I find it extremely difficult to do. 

Agree . Taking profits on a "clear" signals  is sometimes harder.  A position that goes against me is easy.  

11. I have sustained periods of consistent success usually followed by some fairly drastic draw-downs in my equity.
Agree : see previous post

12. When I first started trading I would describe my trading methodology as haphazard, meaning some success in between a lot of pain.

Agree.  I'm sure I, like a lot of other traders jumped around a lot. I followed others and attempted to rationalize trades.  

13. I often find myself feeling that the markets are against me personally.

Disagree.  I don't often get that feeling.  But even though I know better, I've had moments where those thoughts creep in.  Usually after a series of 

14. As much as I might try to "let go," I find it very difficult to put past emotional wounds behind me.   

I think I'm okay here. 

15. I have a money management philosophy that is founded in the principle of always taking some money out of the market when the market makes it available.
Agree. I like profit taking. 

16. A trader's job is to identify patterns in the markets' behavior that represent an opportunity and then to determine the risk of finding out if these patterns will play themselves out as they have in the past.
Agree.  100%

17. Sometimes I just can't help feeling that I am a victim of the market. 

Agree.  I've had multiple positions gap against me in a week. I know they are my fault but still sometimes those thought creep in.  Conversely, I sometimes feel I am the greatest trader ever.  As much as I know better, those thoughts creep in as well. 

18. When I trade I usually try to stay focused in one time frame. Agree Disagree.

I use multiple time frames. Monthly momentum, weekly breakouts, daily charts for exits. 

19. Trading successfully requires a degree of mental flexibility far beyond the scope of most people.

Agree 

20. There are times when I can definitely feel the flow of the market; however, I often have difficulty acting on these feelings.
 Disagree  

21. There are many times when I am in a profitable trade and I know the move is basically over, but I still won't take my profits.
Agree Disagree

22. No matter how much money I make in a trade, I am rarely ever satisfied and feel that I could have made more.
Agree Disagree

23. When I put on a trade, I feel I have a positive attitude. I anticipate all of the money I could make from the trade in a positive way.
Agree -- and those usually are the trades that lose money.  

24. The most important component in a trader's ability to accumulate money over time is having a belief in his own consistency.
 Disagree

25. If you were granted a wish to be able to instantaneously acquire one trading skill, what skill would you choose?

how to do insider trading.  Just kidding. How to hold on to stocks that make parabolic runs to catch most of the move without waiting until the backside. 

26. I often spend sleepless nights worrying about the market. Disagree.  

27. Do you ever feel compelled to make a trade because you are afraid that you might miss out? Yes 

28. Although it doesn't happen veiy often, I really like my trades to be perfect. When I make a perfect call it feels so good that it makes up for all of the times that I don't.
Agree.  Perfection in anything feels amazing. 

29. Do you ever find yourself planning trades you never execute, and executing trades you never

planned? Yes.  Occasionally. 

30. In a few sentences explain why most traders either don't make money or aren't able to keep what they make. 

See prior post. 

Trading in the Zone: The Intro Survey

At the beginning of Trading in the Zone, Mark Douglas' provides a survey.  I thought I would share my  answers to what I perceive as several of my trading issues.

"5. My risk is always defined before I enter a trade. Agree Disagree."

Disagree:
I have a stop limit when  I entry a trade and I assume that is my risk.  Yet on several occasions. I have been gapped and have taken much larger losses than I had anticipated as my risk.  I had not accounted  for the black swan type of events. 

"11. I have sustained periods of consistent success usually followed by some fairly drastic draw-downs in my equity. Agree Disagree"

I find this the most frustrating aspect.  Just when I feel I get it and I'm "in the zone"  I find my self taking a large loss on a trade where I had bent rules.  Last year I went in big FUEL and took nearly a 10% hit.  At the time, that happen I was up over 60% on the year and had just completed a 16% month.  I could do no wrong.      

I did it again in January and in June.  None of these drawdowns were slow.  They were usually caused by  I don't fault the market, downgrades, missed earnings or any of the things the financial press may have attributed the drop in a stock.  I got intoxicated with my success and suffered the hangover. 

Although I have been able to pick myself up each time and trade successful and pull myself out, It's time to stop that cycle.   

21. There are many times when I am in a profitable trade and I know the move is basically over, but I still won't take my profits. Agree Disagree 

Agree. Probably related to 11.  There are times when I feel my profits are too small relative to the number of shares I have on, which prevents me from taking the profits.  Many times those positions cause the most harm. 

"30. In a few sentences explain why most traders either don't make money or aren't able to keep what they make."

We attempt to rationalize moves and apply logic to why a stock has moved too much or why It will move a lot in our favor.   We jump at poorly planned trades out of fear of missing out.  Our equity curve reflects our emotional state so when we get a burst   in our equity curve we do not see the risks and trade in a manner different than what caused the equity increase. 

What Animal is the Market to You

One of the books I'm reading is "Trading Chaos" by  Bill Williams:

Williams asks the reader "What animal best captures for you the characteristics of the market?"   This is on page 5 and I haven't read the rest of the book so I'm not sure where he's going with this but what the hell:

To me, the market is a Jelly fish:

Tantalizing and beautiful as it flows effortlessly yet dangerous if embraced without care.

Mind Games: Trading Psychology

I've spent a lot of time working out the details of the setups I find profitable.  I know they work.  Now I need to work on me.  I.e. the psychological component of trading.  It doesn't matter how good my trading strategies are If I cannot execute.  

Sure the "psychology of trading" sounds cliched but I feel it is what is holding me back at times.   For example, at times:

•  I've fretted over pull backs 
• I've put on too much size
• I've put on too little size
• I've held on to losing trades
• I've chased trades
• I've been unable to pull the trigger.
• I've worried over whether to sell into a strength, 
• I've broke or bent my rules after a winning streak only to give back entire stretches of profit and more. 
• I've even found myself searching twitter message boards to determine who else is in the trade and what are they thinking (i.e. I did not have enough confidence in the trade to not give a damn what anyone else thought) 

I suspect I'm not the only one to have those issues at times.  Those are all signs that I'm not completely comfortable with my trade and I am not seeing my vision for the trade or I am doubting it.

Yet, I've also had moments where:

• I saw the entry perfectly and hit it. 
• I bought pull backs because I knew they were an opportunity
• I bought breakouts at levels others were too afraid and the market ripped in my direction
• I've gotten out of potential losers before they broke against me because I could read the price action. 
• I didn't care what any analyst, other trader thought because I knew what my plan was.

That emotional state feels amazing.  And I don't want to ever go back to insecure trading. 

For that reason, I will be delving into trading psychology, my psychology in a number of posts.  This month. I have read/ am reading a number of books on trading psychology and I will be working through the exercises.  I will be doing it publicly because by sharing I force myself to face my insecurities and defeat them.  By defeating fears, I can reach objectivity.

 Mark Douglas' "The Disciplined Trader" speaks the process to reaching the this psychological state:

 

1. Learning the dynamics of goal achievement to stay positively focused on what you want-not and what you fear. 

2. Learning how to recognize the skills you need to progress as a trader and then stay focused on the development of those skills, instead of the money, which is merely a by-product of your skills. 

3. Learning how to adapt yourself to respond to fundamental changes in market conditions more readily. 

4. Identifying the amount of risk you are comfortable with - your "risk comfort level"-and then learn how to expand it in a way that is consistent with your ability to maintain an objective perspective of market activity. 

5. Learning how to execute your trades immediately upon your perception of an opportunity. 

6. Learning how to let the market tell you how much is enough, instead of assessing the potential from your personal value system of how much is enough. 

7. Learning how to structure your beliefs to control your perception of market movement. 

8. Learning how to achieve and maintain a state of objectivity. 

9. Learning how to recognize "true" intuitive information and then learning how to act on it consistently.

So that's the plan. I must conquer my demons to truly become a successful trader  The failure to do so means my successes will be short lived.  I.e. that I simply borrow money from Mr. Market because I'm sure to have to pay it back If I don't have the solid psychological foundation.

Cheers.

Why I Trade

Why do I trade?

I suppose the easy response would be for the money.  But I don't think that's it. I already have a six figure income as a litigator and I've enjoyed the accolades that have come with success.  I'm being consistently named among the top in my field and I've won cases that others (including my opponents) have thought were unwinnable.  I've argued motions with millions of dollars at stake.  I've won millions for my clients at trial.

 The skills I have that set me apart is my ability to implement a winning strategy, anticipate my opponents moves, and have a response.  I see the chess board. I know what my opponent's move will be before they do and I've already beaten them.  They just do not yet know it.  Although this is a blessing, knowing what the result will be 6 months ahead of time makes it difficult to wait patiently and go through the motions.  A complex lawsuit may take years to complete. The truth is I often become bored with the litigation process.

So I trade. 

I trade because the market presents orderly chaos. It does not lie to me, it has no agenda, or rationalization--it just is. It presents an endless stream of opportunities held in check by unlimited opportunities for ruin.  I know the face of my adversaries. In litigation, my advisory is opposing counsel.  In trading, its me. 

 I trade because the market gives me instant feedback.  If I'm wrong, I will know it quickly.  I own my losses.  They were not caused by the "shorts," an analyst's unexpected downgrade, a binary risk, or a Jim Cramer bash.  They were caused by me. I alone entered the trade. I alone chose how I defined my win or loss, and I alone chose how I exited the position.

I trade because I recognize that "value" is an illusion. It does not exist.  Stocks are not the companies they represent. I buy and sell psychological states. A stock is never overbought or oversold. It is never a "Value" play.  Rather,  as discussed by Mark Douglas' the Disciplined Trader Value = Comfort.  Value traders are betting that a stock trade at level where it becomes psychologically comfortable to buy.  Perhaps that's based on company's earnings or whatever the in vogue "valuation" is at the moment.  In other words, it is an approach that attempts to find a trend in a fundamental measure that becomes comfortable to buy. Although a fundamental investor will never admit it, they are trading psychology. I readily acknowledge it. 

I seek to capitalize on identifying the tipping point where a level that as comfortable to sell suddenly becomes uncomfortable.  The short sellers rush to cover the buyers rush in afraid of missing the next big thing.  I then sell to the late buyers at a handsome profit.  

 Most of all, I am trading my own psychological state.  I've had some of best trading runs after defeat and my worst losses after huge gains  The markets were not overbought or oversold--- my mental state was.   I've had epic defeats. I refused to take a loss because I could do no wrong.  My worst losses all started out as marginal winners, but I had a vision.  The market just didn't yet see it yet, so I held.  I held to the point where I gave up those gains.  I continued to hold to the next support level and then the one after that. I held till I realized  I had a problem and then looked at the mirror and I sold and skies cleared and clarity resumed. I then position sized appropriately, I plan my trades, I honored my stops and my equity curve grew. I just had a 14% run,  I reached Nirvana during that run, I saw the trade develop and I executed.  I sold losing trades early, and I held my winners. 

When I plan my trade, and I execute it properly it feels fucking wonderful. 

That is why I trade. 

The Four Horsemen of Failure.

Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.”" -

How do the deadly 4 manifest?

Being wrong
Not taking an early loss.
Moving a stop loss to give it more space

Losing money
Cutting gains short when a trade starts to go against you.  
Currently this is the one I struggle with the most at this stage in my trading 

Missing out
Chasing
Taking trades that don't fit into your system because they are moving. 


Leaving money on the table
Thelma and Louise, cliff... you get the picture. 

Why I went to Cash

I went to all cash on Monday morning selling my positions one after another like dominoes going down.  The reason I did was that I got a big warning on the market monitor. Over 20 Stocks were up over 50% on April 24. What the 20 > 50%  signals is that there is over exuberance in the market the bullish side. That's the equivalent of red lining your car.  You could push it more... but its not going to end well. 

The Beer Goggle Effect

After a big run, you will start to see the quality of setups diminish.  Nonetheless,  many traders start getting beer goggles and start thinking that every setup looks good.  Next thing they know it they wake up the next to something hairy and it hurts when they pee.    

In my opinion, the market needs to hit the reset button here and clear the junk out so that the good risk / reward trades are allowed to present themselves.

Remember, cash is a position and sometimes it is a very good position.

Cheers!

The Struggle

I hit this one of on a pull back to 13.90   On a weekly I can see there is a Week 1 breakout and this thing is going higher. Easy right.  Not so much.

Yet I sold it yesterday after watching this painful hour, sure it was only a .70 drop, but when you have profits and your seeing them rapidly evaporate you start thinking where's the bottom? Am I going to give it all back.    So I pull the trigger and take a 10% gain.

 Of course the next day, ADXS rockets for 17%, which is why I write this post. After all, if it had continued to drop, I would just think I'm smart.  Oh well, something to work on.

For whatever reason, It is easier for me to sit through a pull back and keep to the plan if I don't have big gains in a stock.   On those types of trades I know where my stop is going to be when I take it. If it goes against me fine, that's expected but when I get up big the exit is not so clear.

Overcoming Bias --- Use the Force!

Many times as traders we  have biases about certain stocks. Certain sectors have bottomed are oversold, are a solid investment etc.  In other words, we hindered by what we think a certain stock should do.  Too often this cacophonay of rumors, message boards, other traders' opinions and our  own need to be right drowns out what the market is telling us.

I was recently inspired by a story told by a successful member in a trader group I belong.  This trader reported that he had a friend who was an accomplished trader and money manager that had previously put up several digit returns managing a multi-million dollar account but was now  struggling.  The struggling trader was now down double digits in January and asked for advice.  The successful trader looked at the stocks the struggling traders had been trading and did something very creative.  He removed the names from the stock charts and asked the struggling trader friend what trade he would make.  

After going through the exercise for over 6 hours. They learned that struggling trader would have had a 90% success rate had he followed his system.  But instead of following his rules, the struggling trader was stuck trying to pick bottoms and making other knee jerk reaction type stocks.

This story inspired me.  Why not just remove the names and tickers from my charts and then do my scans. After all, Luke learned to use the fore with a blindfold.

So here's my Force Chart:

Stock 1

I ran a normal scan and then scrolled through charts until I came to one of interest.

What do we know about this stock?

It recently broke out in a very big way with huge volume.  From that we know that there was a fundamental change to this company.

Was it earnings? An FDA approval?  I don't know and that's the beauty of the approach.   Is there a trade to be made here?  Not under my rules  This is $8.00 over its breakout point.   Chasing a story would likely cause a loss.

What about this one?
Stock 2

This stock also saw a big gap on high volume.  This has the look of being earnings related but the prior day had a big range expansion day so, perhaps not.

 After the initial burst this stock has now settled in  I don't see this as being able to make a burst move that would last 3 days and it would be difficult to place a trade at this level.  To trade this stock, I would want to buy support by waiting until a test of 35 and buying that test.  At the current levels I don't see a trade here.

That analysis was easy to do.  But what if I had just read a detailed SeekingAlpha article by someone who said Stock 2 was his top pick and was surely headed for a double and citing some sound reasons.  we might be tempted to chase if the stock starts moving.

But to avoid that temptation, Use the Force.

"If You don't know who you are, the market is an expensive place to learn."

I'm taking Adam Grimes' online course. It's free and can be found here.  As an opener, Grimes cites the market adage I have in the title and asks "who are you? 

Who Am I?

In my past reflections and market musings, I've come to the conclusion that trading  is a game we play against ourselves.  It's now time to size up my opponent.

Background

My initial interest to the markets was during the go-go period of 1998-2000. I was in college.  I have a distinct recollection of a 60 Minute episode that portrayed day traders.  The gist of the program was that  people were quitting their jobs in masses to trade the markets and they were making fortunes--except the ones that lost fortunes. I was making $7 bucks an hour and I was hearing about people making 10K in a day. I thought that sounded like the coolest job ever.

 I was still risk adverse and had no plans to day trade.  Nonetheless, I convinced my parents to let me open an investment account at E-trade and I put some of my college funds in the account.  

My First Trades

 Shortly after opening my trade account, I read a Money magazine article about stock picks and Knight Trimark (NITE) was  one of the recommendations as they were a market maker who would make money on every online trade. In addition, I picked Etrade as I figured I would now be using their services so I might as well be an investor. Call it beginner's luck because these trades were absolute home runs. NITE, which I had bought in the 40s would run upwards of $150 and split 4/1.  Etrade made a similar parabolic move. 

Of course, that was not entirely unusual during the period, stocks like AMZN, EBAY, CSCO, JDSU, JNPR were going parabolic.  And then there was QCOM.  One of my college buddies had bought 300 shares when it was a $15 stock.  He was up over a hundred grand, when he told me about it.  I didn't buy but I did buy his next recommendation RMBS.   

I was doing a lot of reading mostly on yahoo messages boards. It was all half-hazard approach but it all worked.  Everything worked back then.  Anyway RMBS looked like it was at support (or at least what I had believed was support) I bought 100 shares at 60.  I would sell it 3 months later for over $200-- (it ran to $470 and split 4/1. )

At that point, I started getting into swing trading.  I came across a guy called "TraderMike." (He now has a site called Wallstreetwindow.)  This was really my first foray into swing trading.  Trader Mike had a free newsletter or email list in which, he would send out a watch list.  These stocks were usually hitting 52week highs. The day after doing so, they would nearly always gap up.  10-50%.  I was making money with this method but I never really understood position sizing or risk management and those types of things.  I had some big winners a $6000 1 day winner in JMAR on a 50% gap up comes to mind.  

Bubbles pop and the internet bubble popped magnificently. All things considered, I came out relatively unscathed.  I gave back some profits, I big losses on a stock called InfoSpace, but I had sizable profits that I had retained.

Tradermike made a call that Gold wold be the next thing...and it would be.  But when gold was still $400 an ounce there were no ETFs.   You had to buy the miners.  While this could have been the trade of the decade, I lost money.  As I look back on it, I had no idea on how to buy a set up. I was constantly shaken out of stocks like NEM, GG, RGLD and became discouraged despite the parabolic rise in gold over the next decade.

CBOE

I was serious about being a trader and coming out of college I landed at an option market maker as a junior trader.  My job responsibilities included placing trades on other exchanges to spread risk for our traders to spread and basically learning how to trade.  I was to go  through an intensive 6 month training program.  Mock trading, option theory, strategy.  After that time, I was to get a badge and begin trading.  It didn't work out that way. 

The market popped in a big way, After 9-11, the market got a huge surge in volatility then the volatility dried up.  When volatility dried up, market maker profits go down.  Everyone on the floor was hemorrhaging money.  The firm was not anxious to put new traders on the floor as it, and every other firm, were firing their existing traders.  It became a very depressing place to work as our mentors were being let go.  I never got my badge and a year after starting the trainee program was discontinued and I was out of a job. 

I became very jaded on trading in general but one good thing about taking the job at the CBOE was that trading in personal accounts was strongly discouraged due to conflicts of interests, etc.   After I was let go, I went on to more schooling.  My trading profits were spent on tuition.  As I worked towards my new career, life got in the way and my trading fell mostly by the wayside.

The Next Chapter--Discouragement 

Most traders go through the discouragement when they first start to trade. I got mine a decade later after I attempted to trade again.  I tried  to keep up on the market and would read seeking alpha articles on various stocks.  I wanted to get back to trading but I had convinced myself that it is now too difficult.  I read about the complexity of the various hedge fund strategies, paired trading, high frequency trading, automated trading and all that good stuff. I was convinced that trading again was beyond my capabilities and it would be a fool's game to try.

In 2011, I placed some long term trades after the market sold off very large.  I bought MO, DIA, JNJ.  I did well, but as I attempted to move towards shorter term strategies my results were not that impressive. I would win on most of my trades but then shit like an elephant when I lost.  I had no concept of proper money management.

Fortunately, I then came across "Step Into My Trading Room" by Alexander Elder. I learned the importance of the 2% rule--- no trade risks more than 2% of your equity and the importance of keeping a trading journal.

I would like to say that everything suddenly made sense and I started following all these rules and became a profitable trader at that point, but that's not what happened. Here's what really happened:

I was initially hindered by positions I had that were not really trading positions.  But I didn't want to simply sell them because I had read a few books.  My trade selection was poor, It was a difficult time in the market and I fared poorly and lost interest. 

In 2013, I took a look at some beaten down stocks that I thought could make comebacks.  I bought NOK and BAC.  Both stocks made come backs over the course of the year but my returns lagged the market badly.  But I made a strong charge at the end of the year. 

It was this move, that revitalized my interest in trading again.  NOK sold out its handset division to MSFT.  I then did a few more profitable swing trades and my account had recovered. 

2014- My Breakout Year?

  I've eventually learned to define my setups, find profitable setups, and make money.  This was not exactly a smooth year. I've had numerous relapses into past bad habits  but I am now confident I can succeed and I've done so:

Self Assessment

Here's where I am at this point in my development as a trader.  It is an honest assessment and a transparent assessment.

Strengths:

• I have defined my setups.
• I have defined my risk tolerance
• No hesitation to take a trade.
• No regret about missing a trade
• Not usually afraid to re-enter a stock at higher prices if the setup warrants 
• I go into a trade with the mainframe how much will I lose.  This frame of mind has allowed me to properly position trades and to avoid hype
• I still have confidence in my setups even after multiple losses in a row.
• I can overcome multiple losses in a row with 1 or 2 profitable trades.
• For the most part, I have been  able to immediately take losses.
• I've been able to consistently find profitable setups. 
• I've made some very good counter-trend trades. 
• I've bought well for the most part.
• I've avoided significant drawdowns. 
• I can research stocks for profitable shorts. 
• Transparency -- 
• My trade journal remains an open book. By keeping it open to the public, I force myself to be accountable. It helps me follow my rules and my setups.  It is also a very helpful tool to see how stocks I've traded in the past acted on past trades.

Weaknesses:

• I occasionally take impulsive trades that do not always fit my set up criteria
• I'm too influenced by trade recommendations of people I respect.
• I take profits too early on many breakout trades.  
• I am uncomfortable when a stock Rips in my favor.
• I am uncomfortable when a breakout buy fades -even if just a small amount so I sell
• On a handful of occasions, I've froze and not taken a loss when I should have and I have broke my 2% rule.
• I've fallen prey to the sirens call of massive profits and have traded too big at times. 
• I've not been able to consistently stay in trends.  I captured only 1 big trend this year.  
• My selling criteria are not as well defined as my buying criteria. 
• I have little conviction in any particular trade.
• I migrated from strategy to strategy a little too haphazardly.

Year Highlights

• I caught a 50%+ trend trade in HCLP

• I developed a setup to trade low price momentum stocks profitably, which has delivered gains over 50% on a few stockss

• I've traded continuation anticipation setups well 
• I have found a trading community that I very much enjoy.
• Having the resolve to recovering from a trade that took 9% of my equity.

Goals

• Catching a superstock / EP early 
• Staying in stocks that are moving in my favor longer
• Gaining conviction in individual trades.
• Fewer mistakes.