The End of The World continued or Bettie Page’s Market

There we were, thehusband and I, now charged with earning all our income trading Mr. Market. We decided to day trade mostly with a few swing trades on the side. We had decided that we needed to guard our capital and come at the market from a cash neutral position. After the ’08-’09 crash, we were cautious. I was flat out scared, and with this now being our only income, we HAD to make it work and we HAD to protect our capital. Finally, we started adding back longer term positions and I dedicated a separate long term account.

Once the Devil’s Market started rising from 666 on the S&P in March of ’09, we started making money. It was too easy. You could throw a dart at a heat map and make money. If I hadn’t been so cautious, I could have made a lot more. If I had reinvested in $OXY even, I’d have made most of my losses back. But how do you go all back in after the experience of watching it all disappear so quickly? You don’t. Your fear steps in and keeps you from repeating the thing that screwed you before. Your fear (pesky emotion) is there to help you learn from your mistakes. But we were making money again….aided by the fact that we had discovered IBankCoin and The PPT. We were smart enough to know that we needed help from pros because clearly we had just screwed it up and could no longer afford to do that. We were making money again and it felt good. We made more money in ’09 than we had made in previous years with salaried jobs.

We had not changed our luxurious lifestyle. We never had a reason too. We lost a lot of money but it happened so fast. In one month, I had lost half the value of my $OXY stock of which I was heavily in and I sold it at the bottom. It took over two years to get back to its 2008 peak.

But we were making money in short term trades and could still easily afford our lifestyle without making any changes. 2010 proved more difficult but we managed to make it by even if we were getting a little behind. I had the attitude that I could make it back and so we still had not changed our lifestyle. By the fall of 2010, thehusband had started a new job and I had joined 12631. The future looked brighter. I made good money in the last quarter of 2010 with the help of The Pelican Room’s Chess and RC and thehusband was bringing in an outside income again. Retirement accounts were set to grow again.

2011 is really starting to hurt. I am a little stunned that I allowed myself to get to this point. And I am fighting those pesky emotions. Worse, nobody seems to be able to get a hold on this market. It is not dropping quickly as it did in 2008, which would be easier, it is just bleeding us at a couple of percentage points per week, now six in a row, seemingly bouncing off of support levels then drifting down through them by a couple of points. How much further can it go? … a lot further before becoming a double dip recession which is rather scary.

And so it is the end of the world as we know it….again. I am a good trader in a tight spot – nothing new there. I have good risk management rules. I was wooed by the crack from the likes of “thebill” and I lost discipline when I needed it most, but I have the skills and intuition to get back on track. Sadly I am losing my optimism. Worse, even thehusband has gone negative, heck even Jim Cramer is getting bearish. This can only mean one thing, we are about to have a rip the tits off Bettie Page roaring rally.

Or we will slowly, drip, bleed and chop down into a double dip recession proving that when you screw up really badly in Mr. Market’s world, it is a world that will end but will be reborn again as it has in cycles for the last 100 years.

I know, I know…I should wait for the right market environment to trade in… but hey, it’s the end of the world, and I feel fine.

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Props to the band for the title.

Hope you enjoy it as much as I do. If not, feel free to skip it and move on to the next post.

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At this stage in my life, I tend to be positive, optimistic, upbeat. I have learned that things generally tend to work themselves out. But it wasn’t always so. I was an angry twenty something; horrified at the fact that life had become so difficult. I had been raised by a French woman who, although the carefree, happy go luckiest member of her family, grew up in Europe during wars. She tends to worry; she tends to be dramatic. Few people make a bigger mountain out of a molehill than my mother, so it stands to reason that I would have some of this instilled in me.

She did well for herself. She had personal success and she married well. As such, I was raised in a household that earned in the top 0.5% of families in the US. The town I grew up in, notably famous for its wealth, was loaded with top earners. In my school, my family ranked about in the middle I would guess. And the teachers regularly reminded us that we were the wealthiest kids in the country.

By the time I was ready for college, it all disappeared like a South Park retirement account. My father had gone on a fixed income, my mother had divorced my wealthy step-father and nobody was going to pay for college. I was caught off guard by this. It seemingly collapsed so quickly. I was turned down for college loans because my family had too much money. Isn’t it ironic ?

After growing up the little rich girl, at 18, I was out on the street without a dime. And so I spent my 20s doing the work/college thing as an angry lower-middle class young woman struggling to make ends meet and striving for a career that may never happen.

There was much drama and life experience after that until I met and married thehusband. Cut to 2006 – We had started a family….many experiences and successes in business brought thehusband and I to a certain place in our lives. We were both now in finance and this was the moment when I was ready to quit working in a “real” job to manage our money full-time. I had plenty of capital to do so with good cushion…a whole lot more than most people have when they start trading full time.  

For the next couple of years, we did well, I with my trading and thehusband with his success as a research analyst; we were growing our wealth nicely. And we took advantage of it, living lavishly. When the fall of 2008 came around, our boat was rocked. I was getting pretty nervous as I watched our accounts dive 10, 20, 30%…thehusband wasn’t worried yet. At first we were outperforming the market in our trading accounts. Oil was still going up while the broad indices were dropping. Being in companies like $XOM and $OXY, and making a few well timed shorts, we thought we had outsmarted the overall situation, but this didn’t last long. Thehusband is a smart man who tends towards optimism. He has always been my rock. When most people look outside and say, ” it’s a nice day”…he says ” it’s a Spectacular day”. He has often calmed me in the face of a storm. But in this case,  it would have behooved us to be less positive earlier on.

Unfortunately, I sold near the bottom. Like so many others, I (and thehusband AKA: my in-house analyst) could not imagine the market going lower. When the S&P (and our capital) was cut by 50%, we both agreed it was time to give in. If I had known then what I know now… if I had had the stop loss rules in place then that I have now, I would be in much better shape today. I would have lost 10% of my capital at most, instead of nearly 50%. I remember thehusband saying we were better off  than other folks who had lost 80%. Then in December, thehusband was laid off.

We traded together for the next 2 years. We were a little scared to have no solid income but it was fun working together. Friends were amazed that we would spend so much time in the same space day in and day out and still enjoy each others company. The truth is that he is my favorite person in the whole world. Working with him, analyzing the markets together, talking macro all day long. I actually dreaded spending time with anyone else. Why hang out with stupid people when I could hang out with him? No offense meant to stupid people.

To Be Continued…

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You didn’t think I would be naked in here, did you?

I must admit that the past couple of days have weighed on my desire to write. I related all too well to Fly’s post about this being a “Stupid Business”. Not only do I do this for a living, and only this, with no other day job; not only have I been doing it for 5 years full time; not only do my trading profits pay for fully half of our family’s expenses, but … I don’t also have a client managed account that pays me fees….so it’s all personal trading profit that keeps my bills paid.

Needless to say, no profit does not pay the bills and sadly, like plenty of other folks, profits have eluded me of late. The market gods were kind enough to give some back to me today, but I am sure it is only because it is my birthday.

As I look back, I could have lost more, if I hadn’t sold the losers when they were losers. Monday’s action really hurt me. Nearly every trade I owned coming into the week was down 4-5% by the end of the day. I wasn’t making bad choices, just having a streak of bad luck in a very choppy market. In a conversation with Chess that day (always good for some Zen feedback), he reminded me that all gamblers/traders have streaks of bad luck. He reminded me to stick to my rules and honor my stop losses. I did that. He suggested I stop working so hard because at times, hard work is not rewarded in this “Stupid business” and is often punished. …Sigh!

I have been punished. Certainly I have spread myself thin as I discussed in recent posts and have over traded, but I also just a had a streak of bad luck. It happens. The answer is to take a day off and move on, but of course, I can’t bring myself to take a day off. I will continue working and just try to make good decisions and sometimes that means sitting on hands for awhile because “delayed gains are better than losses”. But I will still be here researching, charting and doing math to figure out my next move.

Tuesday was a pisser. At first it seemed that all my stops were for not….that following my rules was a mistake. Most of those stocks that I sold at a loss were back up by Tuesday morning. But by the end of the day, the market had found new lows that continued into Wednesday. Stopping my losses where I did, proved to be a savior against more losses. I am glad I kept it light. The moral of the story is to be disciplined and ALWAYS follow your rules, because more often than not, they will protect you.

But for just a moment, let’s say that I hadn’t taken those losing tickers off when I did. Would it have been right to continue holding them…into Tuesday’s sell-off, into Wednesday’s sell-off? Would it have been too late for me to sell them at more than 10% losses? No, it wouldn’t. Holding losers only risks more losses. I know many traders are tempted to believe the ticker will eventually come back, but this would only be a waste of capital. Protecting myself from having further losses, I held the cash that allowed me to go in and day trade some good runs today, on my birthday, and try to scratch my way back. If I were still in those losers and even if they were up today, it would take me longer to make up those losses that I garnered along the way.

Always sell the losers! For another reason as well…holding on to losers messes with a trader’s head. When you are always looking for that come back, it doesn’t bode well for confidence either. If your thesis is no longer intact, if you wouldn’t buy the stock right here, right now….dump it! And don’t look back.

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I accidently blinked twice and was taken out back today. I know I am not the only one.

Today Mr. Market mocked me, my stock picks, my words and my rules. That’s what I get for being haughty about them. I was hit hard by stopping out of nearly all my recent positions down from 3% to over 6% today. These include $ATPG, $LOGI, $MPEL, $MOV, $QTM & $ZAGG. I now have over 90% cash and part of my remaining small book is puts in $SSO. We lost support in $SPX at 1300 and then at 1290 which makes me feel that we go lower. From here I will stay light until a true bottom presents itself. There are a few support levels we could trip on the way down to the 200 day moving average at 1249.

My task is to get my head in a neutral place so that I can be objective going forward. I wish us all luck in this endeavor.

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I have a very strong work ethic. As such, I struggle to respect money found or gifted as much as much money earned and so I suffer from a common psychological flaw that affects most people and especially traders, Mental Accounting.

A comment made by @AlphaBetaBanjo, on one of my recent posts, has led me to the subject of this post. Thank you @AlphaBeta for writing,
” ……..It has always been about the emotion. Disrespect the value of a Dollar gained or lost, learn to respect the time you commit to your trade and slowly you will find emotion will leave your conundrum. I am in this trade because yada yada I will be out of this trade regardless of outcome in ( fill in the blank). I treasure my Grandfathers watch…….he sold it to me on his death bed.”

I would say it a bit differently than @Alpha. My personality requires me to remind myself to “respect” the value of the dollar no matter how it is gained in order to avoid going mental, but the result is the same.

We all have unique ways of viewing the world and so we all have unique rules we must set for ourselves. Disrespecting the value of the dollar vs. time commitment in trade planning is @AlphaBeta’s rule that keeps his emotions checked. My first rule is to be accountable and thereby transparent by sharing all my trades. This keeps me from making emotional trades and taking only ones that I have thought out and am willing to admit. It’s not such a different rule really, it’s just a different viewpoint. It forces me to think out my trades and stick to my thesis and only take those trades that are logical to me. But taking his words more specifically, I am reminded that we are complicated beings and as such, no one rule likely covers the entire gamut of what we need to honor in order to keep our spectrum of emotions in check.

As I cogitate upon the mistakes that I have made in recent months, I must acknowledge the highs that my account reflected only a month ago. As soon as I saw those highs, I went mental, or at least my accounting did.

“Mental Accounting” can destroy a trader’s profits. We tend to view money made quickly as money not earned and it can really screw up our ability to defend it. How many of us find a $20 bill in last winter’s jacket pocket and think, “beer money”…instead of say, putting it toward the ever increasing cost of a tank of gas?

Over the weekend, TheHusband (sic) and I watched HBO’s original film Too Big To Fail that reenacted the events leading to TARP (the Toxic Asset Relief Program). Thehusband is a securities analyst …always talking of market manipulation and conspiracy theories; he spouted one that came to him while watching this movie. He rattled on about this and that, eventually arriving at the conclusion of his conspiracy theory. My more simple view is that it was a form of “Mental Accounting.” Those big brains could only think about what money they could make now, right now, without considering the consequences. How else could someone dream up CDO’s?

My account highs last month were made by taking risks that I would not normally take while following “TheBill” but I lost that money taking the same risks, perhaps even larger risks. Consciously or sub-consciously, I let all those gains disappear partially because I didn’t have as much respect for them as the gains I make when I am following my rules and trading more thoughtfully.
But sometimes quick gains can happen even when we are following our rules. In certain markets, it can be easy to have a few trades that work early in the day and this too can lead to taking bigger risks or larger than normal position sizes because we think that we are playing with “house” money. We are as a gambler who gambles away his winnings instead of walking away, simply because they are winnings. We think of it as money we can afford to lose instead of money that can pay down our mortgage.

In my effort to improve my trading skills, and since I need accountability, I hereby announce publicly my effort to avoid mental accounting. It is not that difficult, all I have to do is follow my rules…only take trades I have thought out, be accountable and always stick to my position sizing. And again I say, wish me luck.

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