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Trading philosophies and thoughts

2013- the year of Persistence, Patience, and Perseverance

Let me start off this post with a quote from Calvin Coolidge:

Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent.

In hindsight, we know the market has marched on ahead in an upward, albeit in a wavy manner, direction in the year of 2013; nevertheless, my personal path to achieving stock market gain was an uphill battle fraught with potholes and slippery slopes.

Potholes I fell into in 2013:

  • $ECTY- large losses (company filing bankruptcy)
  • $ETRM- medium losses (failed Phase III study)

Slippery slopes I encountered:

  • $AMRN- large losses (you know the story)
  • $USU- large losses (I bailed before the reverse split and the ensuing gigantic rally afterward)
  • $SZYM- medium losses (whipsawed from over-trading in downtrend market)
  • $APRI- medium losses (holding against a downtrend and gave up before the recovering year-end rally)
  • $NCTY- medium losses (mistake in betting big on a thinly traded and small float stock)

Despite the multiple losses I endured from the above trades, they were all managed losses.  In other words, I didn’t let these losses get out of control by averaging down.  While some of the losses were large, it was because I made the initial large bet to begin with and not as a result of averaging down   While I had suffered mental frustration with these controlled losses (who wouldn’t?), I did not wallow in self-pity, I got back up and moved on.  I am persistence because I know I can get my money back as long as I’ve my capital intact.  It is a matter of being perseverance in searching for the stocks that will give me back the money and more.

Sidebar: It is extremely important that you manage your losses according to sound money management principle.  If I had not managed my losses, I would not be able to recover no matter how persistence I could be.  The rule of trading world is that you MUST protect your capital to fight another day.  My trading style is focused on finding the hi-beta stocks that will give me the jackpot I’m looking for; thus, I know I’ve to take some hits from time-to-time.   While this has been my endeavor, I’m still developing and evolving as a trader; therefore, trading mistakes were made (as in $SZYM, $APRI, and $NCTY) and I’m learning from them.

Having covered my losses, let’s go over my wins!

  • $KNDI- very large gain
  • $INO- very large gain
  • $LRAD- large gain
  • $GALE- medium gain
  • $GOGO- medium gain
  • $NUGT- medium gain
  • $CERS- medium gain
  • $CLIR- medium gain

My biggest win in 2013 was $INO. Upon hearing about $INO, I did my research but was initially skeptical since stock price had been trading below below $1.00 for first half of the year. But when price started to climb to near dollar, I began to take notice of a possible breakout.  Then the proliferation of positive preclinical news came into the foreground.  With price advancing over $1, I began to average UP.  Not only that, I kept averaging up on each bounce up after a brief consolidation; by the time price reached $3, I was sitting on such huge gain it would be foolish not to lock in profit especially when I knew the preclinical trials result was still a long way to human trials.  In other words, the price went up too far too fast.  I exited about 80% of my position at an average price of $2.75 and the rest in mid-to-low $2.xx.  It was a very profitable trade.

$KNDI was a trade I found after I got burned by $ECTY.   Despite the punch on the stomach (figure-of-speech), I refused to give up my beliefs in the potential of EV.  $TSLA has pretty much convinced me that EV does have a place in our society after my few failed attempts to short $TSLA with put option.  My shorting $TSLA was based on simple assumption that the market cap had gone too far ahead of the fundamental; however, when I saw the actual Tesla Model S in the showroom and the elegant and simple design of the electric motor compared to the complicated ICE (internal combustion engine); I was sold on the concept of EV.

Tesla high-end car succeeds because Elon Musk knows that the top 10% of the wealth will buy the car if it looks nice and function perfectly.  And when Consumer Reports magazine gave the Tesla Model S the highest score in its Ratings: 99 out of 100 back in July, I knew then that EV is here to stay.

However, the only problem is that if $TSLA, the only EV with a much longer driving range on a single charge than its cheaper competition, already captured the top 10% wealth; who will buy the cheaper EV models with shorter range?  Hence my belief that $ECTY was the key solution to expanding the EV market for cheaper EV models.  Little did I know that $ECTY was so badly managed, despite its being the company chosen by US Department of Energy to spearhead the charging station project, that I promptly lost 80+% of my investment in a single day after $ECTY made an announcement of its major issues.

Still very much believing in the EV potential and that $ECTY mismanagement did not equal to EV failure, I kept on researching for the next EV stock to speculate.

Then I found $KNDI.

What tickle me the most about $KNDI is that it is not selling directly to the consumer which I know will not work because of the range anxiety.  Without the proliferation of charging station everywhere, it will be difficult for an accelerated growth in consumer buying.  But $KNDI is offering a solution that automatically solves the range anxiety issue; not only that it also solves the charging station issue as well.  By embracing the concepts of car-to-go and zipcar except that the EV must be returned to the garages strategically located at multiple fixed locations for recharging purposes, $KNDI found an optimal solution to the range anxiety and battery dilemma in the EV market.  What is more important is that consumers do not need to buy the car but simply rent them for a very low price that is cheaper than hiring a taxi.

At the time when I found $KNDI, price was trading around $5 after it came back down from a quick run to $8.  Because of the secondary offering after the spike to $8, the stock was mercilessly attacked by the short.  On top of that, the uncertainty from having to  wait for the new China EV subsidies that had yet to be announced only added fuel to the short.

Hmmm….

Instead of going away like most everyone because of the history of bad blood from some stock scams from China, I began to see this as an opportunity to buy when it was still cheap.  After reading all the due diligence performed by other $KNDI believers and compared them to those who short, my own analysis prompted me to start building a position in $KNDI.  While I was building my position, $KNDI was trading in a tight range b/w $4.50 and $5.50.  Plenty of patience was required on my part.

The good thing about having a large position on a stock is that you tend to watch its trading pattern very closely on a daily basis.  And when price crossed back over the 79 & 89 MA lines to the upside, I could sense a coming rally.  Thus, I decided to buy a boatload of Dec $7.50 call to supplement my stock position.  As luck would have it, right after I had bought the options, the stock became a runner the very next day.  When price reached $9 and started to reverse direction, I had the good sense to lock in profit on 70% of my option trades.  The rest I gave back to the market when it expired worthless.  Having exited most of my option trades, I decided to reduce my stock position as well to lock in profit.  My swing trade mentality was in full-swing.

From then on, I bought and sold $KNDI to supplement my core position without success for two months.  In fact, my realized gain was slowly leaking thru the multiple whip-saws from my trading in-and-out of the trading position. And then the news of Geely announcing to the public that it would have the EV version of the London black taxi available in five years.  That was all I needed to hear to double-down on $KNDI.  After the Geely announcement, I knew it was time to stop swing trading $KNDI.  Why did I feel that way?  It was the subtle message from Geely that it is committing to the EV market; otherwise, why made such a bold statement?  With $KNDI being in a 50/50 joint venture with Geely for the sole purpose of building EV cars, $KNDI has a LOT to gain from this announcement.

Again, I was correct in my assessment; thanks to my double-down on $KNDI, my gain was quite phenomenon in the last week in 2013.

Sidebar: Performing daily homework in researching for potential runner is the discipline that keeps me going forward.  And I’m not just talking about picking up stock ’cause so and so says he/she is buying.  I need to analyze the fundamental and decide if the stock has the “story” as well as a chart pattern to support it before I venture in.  If you are willing to do YOUR own analysis and homework on a stock regardless where you hear it from, the stock will become YOUR own pick; not someone pick.  And you will trade this stock according to YOUR trading strategy; not someone’s.  The benefit of doing YOUR own analysis is that you will LEARN from your mistake and grow as a trader. Otherwise, you will never grow as a trader if all you do is to follow someone pick.

My purpose of writing about my thought process in my $KNDI and $INO trades is to emphasize the importance of doing your own research.  By doing your own research, you will get a much better sense of the stock and how it is trading.  If you are the more risk-taking type, you may even augment your position size like I’ve done with $INO and $KNDI.

$GOGO came to mind as another perfect example.  After The Fly made the call on $GOGO, I began to research the stock and like what I saw.  Then I started to build up my position based on my analysis of the chart-pattern.  In other words, I began to trade $GOGO irrespective of what The Fly was doing with his $GOGO position.  If you do your own homework, you make the stock your own and you only have yourself to blame if the stock doesn’t perform.  This is the ONLY way you can learn and grow as a trader.

To conclude my post, despite having my portfolio down in the middle of the 2013 due to my losses mentioned above, I was able to climb back out of the hole and ended the year in a very positive note.

Due to my evolving as a trader, I am now focused on shepherding my current portfolio of nine hi-beta stocks for the potential run-up in 2014.  Holding on to a winning position for as long as I can is the only way to make the big bucks.  I like to see all nine of my stocks, if possible, to run the way $LNG and $CLDX ran in 2013 (both of these stocks I used to own but got out way too early!)

Current holdings:

$KNDI – I believe $KNDI will dominate in China with its business model of selling to the car-sharing garages.

$LRAD – I believe its newly minted mass-notification technology will dominate the replacement of the obsolete bullhorn speaker notification system worldwide.

$KGJI- I believe that the new wealth in China will increase consumers’ crave for 24K gold products that $KGJI will have blow-out quarter-to-quarter revenues that price has no choice but to keep going up.

$CERS- I believe that FDA will approve $CERS blood purification system.  Why?  ’cause they are selling them to Europe already without any issues.

$INO- I am “betting” that $INO has finally tweaked its synthetic DNA enough to work in human.

$GALE- I believe its Astral drug will sell well quarter after quarter.  I’m also “betting” that its NeuVax breast cancer treatment will succeed.

$XONE- I believe its 3D manufacturing machines will become dominant in the manufacturing sector.

$AMRN- I believe FDA will meet $AMRN half-way on its Vascepa label expansion.

$TINY- I believe that its portfolio of private investment in multiple nanotechnology companies will take fruition in 2014.

I wish everyone a happy and prosperous New Year!

My 2 cents.

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Where Ego Dares #8: Position Size

Last time I talked about tilting and its severe effect on our trading mind.  While being wrong can stir our sensitive ego into an excited mode; there is nothing more inciting to tilting than a position size that is larger than you can handle.

And I’m not talking about the size of your wallet.  Sure, you can have a huge wallet but your mind may not be able to handle the psychological effect of the losses due to your position being too large.  What most people forget is that the size, like leverage, cut both way.

With a position size larger than you can handle, a small negative turn of the stock can appear to be quite large and uncomfortable to you in term of the losses or profit give-back you are witnessing.  Sure, it all looks good when the stock is heading in your favor; who doesn’t like to see the profit multiply in spade?  But the moment price action turns the wrong way and you don’t act fast enough, you will not only give back your profit, you will lose more than you are prepared for if you don’t have a hard stop to protect yourself.

The problem here is that the moment your trade has done well on the get go; most people cannot handle the give-back of the profit when the stock corrects.  They are seeing green, why should they close out their position to cut losses or break even when there is still possibility of green later on?

Mentally, it is much harder to take a small losses when you have already seen paper profit earlier.  There are two things working against you:

  1. You regret not taking your profit when you think you should
  2. You don’t like to take losses in such large amount (due to your over-sizing position) even though the stock only corrects within the daily ATR (average true range).

The first item is usually the most common and the remorse can be quite debilitating to your mental stage; sometimes to the point of impairing your normal trading process.

The second item above compounds to your mental stage from the remorse and may push you to tilting if you do not act to stop the bleeding when price continues to go against your position.

Over-sizing in your position can blind you to the true direction of the price-action.  By being more fearful when you normally would not when you are holding a normal size position, your emotion causes you to lose the objective observation of the price action.  You start to see thing that isn’t there.

From my experience on the SP500 trade I discussed last time, when I saw the losses that was six times more than my morning win, I couldn’t handle that sudden turn of event so I tried to double-down to make it right.  The interesting thing was that, hindsightwise, I was correct all along in the overall direction of the SP500 trade.  I was just wrong on the extent of the retracement.  If I had given my position more “room” to breath with a 2% maximum stop loss from my original size, I would have made a killing by the end of the day.  But my doubling down after seeing my third trade turned into a losses exceeded my comfort zone in the position size department, I lost my objective perspective of the price action.  Not only did I lost perspective, I lost my ability to apply money management by cutting my losses before it got me to tilt.  If I had just walked away from the losses even though it was six times my first win, it would still be a manageable losses.  Perhaps a 3% of the portfolio instead of 15% I ended up with.

But it is easy said than done when you see unexpected losses due to fast market or your hesitation to act that are larger than the normal losses you allow yourself.  If you happen to have a large position size when the sudden turn of event happens, you are one step away from tilting.

After I took my volunteered hiatus from trading to find myself, I realized that in order to play this market to win, I need to be honest with my strengths and weaknesses.

I see my strengths as:

  • being quick to act
  • finding stocks that fit my trading style

I see my weaknesses as:

  • susceptible to tilting
  • easily spook

So when I came back to trade, I began to tailor my trading style according to my strengths and weaknesses.  Knowing that I am susceptible to tilting, I swear off averaging down when I’m losing.  Knowing that I’m easily spooked, I will cut my losses quickly by taking advantage of my strength to act quickly.

I also started to build up my tolerance for position size.  In other words, I would start small and then build up the size in incremental level over a period of time so that when I was losing; it would not affect my objective observation.

Remember, position size is a very personal matter so you have to be truthful to yourself.  DO NOT ever compare your position size to anyone else.  What is big to me may be peanut to someone else and vice versa.

You have to find an optimal position size that will allow you to see the truth of the price action even though you are sitting on a loss.  Trust me, in time, your optimal position size will increase as you start to bank coin following your successful trading system.

For those who have been reading my ego series, you know there is a catch.

What is the catch?

Before you even get to the issue of finding your optimal position size for your trade, you need to do the following:

  • master your thought process to develop your trading mind
  • master your focus to help your trading mind overcomes your natural mind
  • master your chart reading skills with the technical tools that fit your trading style
  • understand your strengths and weaknesses so you can form a trading style that increase your ability to trade successfully

Only after you are proficient in the above steps do you even have to worry about your optimal position size.  In the meantime, trade small until you get the hang of it.  Otherwise, you may become another number that support the statistic that only a few percentages of the trader can ever win consistently in the market.

This is my final post on the Where Ego Dares series.

Ain’t you forgetting something?

Oh, you mean how can I forget to talk about greed when we are dealing with the subject of ego?

I’ve already discussed greed in my prior post so it will be redundant if I bring it up here again.  Please click here to re-read it if you want.

Hope you all enjoy it.

My 2 cents.

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Where Ego Dares #7: Beating our own drum

Everyone is different and unique; therefore, everyone thought process is different and unique as well.  We can all agree on the same subject, but how our thought processes arrive at the same conclusion is totally different.  Each one of us will react differently if the agreed subject matter changes its form.

It is my thesis that each of our thought process is an energy with its own unique frequency and wave pattern “fingerprint” so to speak. In other words, we all beat our own drum when it comes to how we think. Not only that our thought process is as unique as fingerprint, our overload level or “tilting point” is unique as well.   When we “tilt”, we arrive at the fight or flight mental stage.  This is the mental stage where our ego will bury us with extreme fear (flight/panic) or extreme bravado (fight).  Neither are productive for our portfolio management.

Our natural mind, or our need to be right, set a ceiling for our frequency range as well as its wave amplitude before we tilt.  As long as we don’t tilt, our natural mind will function like a normal mind that will allow room for our trading mind to take over if we are focused enough .  This normal range is what some people call the “comfort zone”. This is why when we meditate, our mind will be further away from our tilting point. However, the moment we stress ourselves out with thought processes such as fear, worry, greed, etc, we exceed our comfort zone and our natural mind will enter into an extreme mental stage which will put our portfolio into jeopardy.

Now, do you understand why we need to beat our own drum when we trade?

Suppose you follow trader X whose personality, tolerance, and experience provide him/her with a tilting point of 7 on a scale of 10.  Meanwhile, your tilting point based on your personality, tolerance, and experience has a level of 5.

What do you think will happen?

Trader X can hold on his trade against drawdown in a calm manner while you are already tilted over with extreme emotional reaction to the drawdown.  There is no telling what kind of revenge trading you will do to the trade which may cause severe damage to your portfolio.  At the end of the stock run, trader X may walk away from the trade with a nice gain while you may already have suffered severe damage to your portfolio due to your tilting.

I like to mention that success in trading does not depending on how high your titling point is.  In fact, the higher your tilting point, the faster you may lose your money if you don’t apply proper money management.

Tilting is the “out-of-control” stage where your decision making is based on extreme emotional thought process. An important part of being successful in trading is your ability to avoid tilting. You can have a tilting point of 3 and still succeed in trading because you have the awareness to trade only the type of investment vehicles that you know won’t push you into tilt mode.   Or you have the awareness to choose a trading style that will help you avoid the tilting point.

Let me give you an example of tilting from my personal experience.

I started my trading journey trading T-Bond in the futures market. Interest rate was dropping and I bought T-bond futures based on someone recommendation.  I made money on my first trade in the futures market and I was hooked.  Having a commodity broker account, I naturally traded other commodities such as pork belly, sugar, orange juice, cotton, SP500, etc  Because of their high leverage, I daytraded these commodities more than I held them for swing trade.   Due to the short-term nature and my lack of discipline at the time, I had a hard time holding to my profit.  If I made money one day, I would end up giving it back sooner or later.  Of all the trading vehicles in the futures market, the SP500 Index futures was the only one that made me tilt.

I tilted only two times during my few years of trading the SP500 and it was two times too many.  Each time I tilted, I would lose about ten times more than I would normally allow myself to lose in a day.  While the amount I lost during tilting did not destroy my portfolio, it was a 15% loss compared to a 1.5% loss.  After I tilted the first time, I had the good sense to stop trading for a few months to take a break.

The trade would start out with SP500 taking a gap down at open.  I would then wait for the bounce to short.  The bounce came and I shorted.  Bang!  Right on the money!  I took profit and waited for the next bounce.  The bounce came again and I shorted again; only this time, price action continued higher.  Before I knew it, I was stopped out for loss that practically took away my earlier gain.  Seeing that it was a gap down at the open, I decided that price action for the SP500 index would eventually go back down again.  So, I picked the next resistance level to short.  Price went up to my sell stop and I got filled for the short trade.  At first, the trade would drop from the resistance and I won back my original gain on paper.  However, this day was unlike any other day, this day I wanted more.  I wanted a waterfall price action because my ego dictated that the SP500 had to fall further down.  So instead of taking my profit on my the 3rd attempt to short, I waited for the price to break the support and drop like a rock. No! Price action bounced from the support and headed higher.  The paper profit I saw vanished in front of my eyes and now I was seeing red.

I didn’t know it then but I was on the verge of tilting.  I got mad at giving back my paper gain so quickly.  So I decided to average down my losses by shorting more contracts.  Lo and behold, price did not fall.  It kept going up!   Suddenly, I was starring at a loss that was three times the size of my earlier gain.  I got really pissed.  Boom!  I tilted over!

I wanted to turn my loss back to gain as soon as possible.  So I figured if price really wanted to go up.  Fine!  I would then covered my shorts with twice the amount of contracts so I could go long.

OK! SP500, you want to go up!  I’m going up with you!  By this time, I didn’t care about my portfolio anymore, all I cared about was to be right about my trade.

Unfortunately, I reversed to go long right at the top of a giant retracement.  Holy F**K!  I was starring at loss that was now six times the size of my morning gain!  My emotion was going full steam.

No Fu*king way!  You are supposed to go up!

So I averaged down and bought more contracts.  But price kept on going down!

By the times I reached my pain threshold, I suffered a 15% loss on the SP500 trades due to revenge trading from tilting.

The 2nd time I tilted over on my SP500 Index future trades, I stopped trading for almost a year to find myself.

When I was ready to trade again, I chose stock trading instead.  It all started because my full service Merrill Lynch broker would recommend a stock and proceeded to lose money for me.  Yes, that was before Merrill Lynch went under and became part of Bank of America.  After multiple times of losing, I decided that I could do better using whatever skills I learned from commodity trading to apply to the stock market.  Lo and behold, probably due to the low leverage in stock trading compared to the high leverage in commodity, I have not experienced tilting ever since.

Now that I’m trading strictly on cash with no margin and with my commitment to avoid averaging down while losing, my odd of tilting is practically zero.  Oh yeah, cutting losses quickly play an important part as well.

The point I’m making is that you have to find your own tilt level and then beat your own drum underneath it .  You need to know how you can trade without tilting.  If you want to pick someone else stock pick, by all mean, but use your own trading style to execute the trade.  Otherwise, you are in danger of tilting.

Don’t worry about how other traders are doing with their multiple stock picks; just focus on the picks that you like.  Just because other traders make money with the picks you shy away doesn’t mean you miss your chance.  You may suffer tilting from other traders’ pick simply because the stocks are not right for your trading style. You must find the picks that you feel are aligning to the rhythm of your own drum beating.

Sometimes you may not have done the revenge trading like I had done with the SP500; but if you are sitting on a losing trade that make you nervous everyday, you may have already been tilted especially when you are asking everyone what you should do with the trade.  When you have to ask someone what to do with your trade, you are no longer beating your own drum.

You must take the time to find your own drum (the right market or the right stocks to trade) and the rhythm (trading style) to beat.  It will take some trials and errors before you find yourself.

To find yourself, you need to understand yourself.  To understand yourself, you need to look within yourself and be honest about your strengths and weaknesses.

And yes, I’ve never said beating your own drum is a walk in the park.  But to have a chance to win in this game, it pays that you learn how to beat your own drum pronto!

My 2 cents.

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Where Ego Dares #6: Surfing the wave

So far, I’ve discussed the use of focus to bring intensity to our thought-process so that we can outdo our natural mind in order to follow the proper trading process.

What is the proper trading process again?

While I’ve mentioned cutting loss being a major factor in the proper trading process; it is not the mean to an end.  In fact, cutting loss is only a part of the overall scheme in surfing the market wave.

Guess what, even for surfing, you have to deal with “wipe-out” which, to me, is no different than “cutting losses” in trading. Below is an excerpt from a lesson in wipe-out.

Get ready to wipe out. Wipe outs are an unpleasant but unavoidable part of the surfing experience. With time, you’ll get better at avoiding wipe outs, but for now, follow these basic steps to stay as safe as possible when one happens:

  • Stay calm. A wipe out can be dangerous, but if you keep your head there is usually nothing to fear. Think clearly and act decisively to minimize your risk.

Except for the dangerous part, the steps involve here are perfect for cutting losses.

Here is a rephrase:

Get ready to cut loss. Cutting losses are an unpleasant but unavoidable part of the trading experience. With time, you’ll get better at minimizing losses (by knowing when to enter a trade), but for now, follow these basic steps to stay as safe as possible when one happens:

  • Stay calm. A wipe out can be dangerous, but if you keep your head there is usually nothing to fear. Think clearly and act decisively to minimize your risk of taking a bigger losses.

“Act decisively” is a very important key point here.

Even a highly skilled surfer get wipe-out from time-to-time; on the same token, taking losses are what successful traders do to protect profit and their portfolio.

I must say that I’m not an expert surfer yet in the realm of trading.  As you can see from my daily journals, I’ve fallen off the wave plenty of times; but that does not preclude me from catching some nice waves from time to time.  I’m sure the dedicated surfers out there at the beach will agree with me when I say that I will accept any and all wipe-outs anytime any day just so I can have an opportunity to ride that big wave to the end when it comes.  Of course, in my case, I’ll take any small losses anytime any day just so I can have an opportunity to ride that big runner to the end when it comes.

Surfing the wave is an art and so is trading.  The great surfer, even though his/her technical skills are strong, has to know the when and where to surf to maximize his/her enjoyment of surfing the big waves.  They will travel to the proper beach at proper time to follow the big waves.

This is the same in trading.  We have to know where and when to trade to maximize our chance of finding the next big trends/runner.  Which beach to surf is as important as which sector to speculate.  A perfect example is the recent shift of money flow back to the solar sector which The Fly has keenly alerted us.

Are you catching my drift here?

If you are a dedicated surfer, your whole life is about looking for the next big wave to surf.  Your whole life is about improving your surfing skills.  You go to the beach whenever you can.  Your mind is always thinking of surfing.  And when you surf, nothing else matter.

Do you see the simple truth here?

When you make surfing your life interest, your thought process naturally is very focused on surfing; nothing else matter anymore.  Even your natural mind will be standing by the corner when you surf the big waves. For the surfer knows that the only way to ride the big wave is to be one with it.  Anything less and you will be wiped-out.

In trading, we call it trading “in the zone”.

There you have it.

To bypass our natural mind to trade in the zone, what’s the better way than to take trading to the next level by making it a part of your life-goal?

It all comes down to your dedication.

My 2 cents.

 

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To chase or not to chase?

Despite a negative DOW, there are a lot of short squeeze happening all around. The Fly and his team are raking in gain left and right.

However you need to be fast and nimble to take advantage of these momentum plays.  If you are, chasing can be rewarding if you are early in the game; otherwise, quick gain can become quick loss when you are not looking.

If you want to chase but is not so nimble, I suggest you use a stop based on intra-day low for protection.

For myself, I bought $CERS, $KERX, $MNKD, and $CUR at higher price which definitely fell into the category of “chasing”.  I picked these because the charts looked good for further breakout.  But I’m also aware of the need to be quick on cutting losses here.

For my $SZYM trade, truth be told.  I was shaken out of my $SZYM early in the morning for wanting to lock in my gain.  Based on the turn of event later in the morning (hindsight), it is safe to say that the short was getting nervous and embarked on a short campaign to drive the price lower which stopped me out.  But the downdraft was short-lived.  Buyers began to come back and drove the price back up which caused the shorts to cover en masse.  I bought back some at the low $10.xx but not enough to partake on the great momentum later in the morning.  I was away from my desk!  Later, I chased the price by buying on breakout of the intra-day high @ $10.7x.  Priced proceeded to head higher to $11.00 and I added a bit more.  Unfortunately, all good things don’t last for too long.  Price began to fall and I moved my stop quickly to lock in gain for 50% of the buy-back shares.  I was stopped out later.  As price continued to decline, I sold another layer for breakeven to bring me back to starter position.

So far, the chase on $SZYM had brought me a small gain which I considered a waste effort.  Yes, if I had held on to my original position from the morning, I would have made a lot more; but I learned not to think like that anymore.  Once I was out from my early shake-out, $SZYM became a new play with its own risk profile for my re-entry.   You can’t let the “coulda, shoulda” affect you as a trader; otherwise, you can paralyze yourself with remorse and self-criticism that you may end up not trusting yourself in the future.

As a trader, you MUST learn to trust yourself regardless of past decisions you made.  The market is hugely volatile and will take no prisoner.   So, accept your decision and move on.

So far, my chase on the above named stocks have been neutral at best.

There you have it.  If you are thinking that you are missing the boat by not chasing, you can rest easily that it is not the case here.

Be careful out there!

My 2 cents.

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Where ego dares #5: Intensity

Last time, I talked about bringing intensity to the thought process in order to amplify the mind power.  While this is simple to understand in theory, it is going to take a lot more to pull intensity out of thin air to power your thought process.  In my Grand Canyon trip, it was a matter of survival; therefore, my will to survive bring forth the intensity I needed to push myself onward.  Without the will, I would just lie down and give up.

As a trader, how do we bring forth our will to raise intensity to our thought process so we can follow through with the proper trading process to succeed in trading?

Before I go on, I like to remind everyone that intensity in thought process is a double-edge sword.  If the intensity lies on good intention with a positive thought process, you can create wonderful things; on the other hands, it can bring darkness to your life that are filled with sadness, sickness, and destruction (of self and other) if the intensity lies on bad intention with a negative outlook of life.

We already know how to bring forth intensity automatically by getting emotional about things or events.  If we are happy, our day lightens up more than normal; that is intensity.  If you encounter a bad news that affects you deeply, your day is filled with sorrow, sadness, and anger; that is intensity.

Ok I get it.  So how do we summon intensity to help our trading mind without getting emotional about things.  As you’ve already told us zillion of times, emotion is bad for trading!

Knowing that you can summon intensity with the emotion gives you clue that intensity is yours to take if only you know how to tap into it.

Ok, how?

By using the power of focus on your thought process.  You summon your will to “focus”.  When you get emotional about something, your thought process is being “focused” on one thing.  The only one thing that you are emotional about.  Because of the mind & body relationship, the intense focus of your thought process spills over to your body and cause you to have a body reaction such as butterflies in your stomach, an ecstatic episode, etc.

Your will is your 100% commitment to a single thought process that overrides other thought processes in your head.  Even your natural mind (aka ego) do not have enough power to overcome it.

In my Grand Canyon example, I was 100% committed to survival.  I wanted to survive so much that I found a solution to fight off the weakness of my starving body by focusing only on my foot and the one step movement.  There were no other thought than my foot and the one step.  I was free of my ego and I didn’t even know it.  By the time I was at the top, I didn’t care how I look or how I appeared to others (caring about what other people think is the ego domain). I grabbed anyone who walked by me, which was something I wouldn’t normally, and asked for information.

However, in our normal trading day, we are far from fighting for physical survival.  We are only fighting for a number that resides in our banking system- money.  Most of us aren’t foolish enough to put 100% of the money into the stock market.  Most will put aside money for general living expenses and invest some into the market.  While losing the money allocated to the stock market may put a dent to your life-style, it is not going to kill you or put you on the street.  Hence, most lack the will to draw on the intensity to the thought process to improve trading success.

“Oh well, I don’t need the money right away, I can wait out the drawdown for all the stocks in the portfolio,” was the usual thought process for a lot of people.  Basically, a lot of us don’t mind being a bagholder.

Of course I mind!

Ok, let me clarify.  A lot of us prefer to take the risk of being a bagholder than to take the effort to do the right thing by cutting losses quickly.

Hey you!  What about your $AMRN and $LRAD trades?  Ain’t you a bagholder on them as well?

Oop! You got me there!

But there is one difference between my being a bagholder on $AMRN and $LRAD and most bagholders in general.  I’ve “assigned” $AMRN and $LRAD as  position trades with the express purpose of waiting out their fundamental success from the very beginning.

Yes, my position trades on $AMRN and $LRAD are underwater from my re-entry point but I’ve done my research and am willing to allocate a percentage of my portfolio for “speculation” purpose.

Meanwhile, s lot of bagholders hold ALL their stocks in their portfolio and ride the whole portfolio down along with the general market correction.  In my humble opinion, this is poor portfolio management,

Do you see the difference?

Like I said, most people only have their investment portion of their money in their portfolio; therefore, while they don’t like the pain of the drawdown of all their stocks in the portfolio, the drawdown won’t kill them.

“I can wait it out.” is the usual response.

It is your money and it is your freedom to  manage it the way your ego wants it.

But do you catch my drift here?

There is absolutely no incentive for most people to summon their will to become a better trader/investor.  Nada!

Simply because the effort is very hard.

It is very hard to focus intensely on the proper trading thought to overcome the ego desires to be right.

It is very hard to maintain the focus on the proper trading thought to overcome the ego desires to be right.

It is very hard because it will require a lot of your energy and commitment to stay focus.  Most people will prefer to engage in other forms of entertainment than to waste it on trading discipline.

For all I know, you work very hard during your day and you just don’t have the energy and time to maintain the focus for the trading effort.

The point I’m making here is that to have a shot at becoming a successful trader/investor, you have to take the extra miles to get there.  And most successful people know that.  Those who make millions or billions in the business world know that; that is why they hire the best money manager they can find to manage their money.  They know they don’t have the time to become a successful trader on their own.

But if you want to manage your own money, you have to step up.  You have to summon the will to focus on the proper trading process and do the right thing.

The intensity is there for you to take it to your trading mind.  You just need to take the effort to focus on it.

At the end of the day, the question you have to ask yourself is, “do you want to take the effort to overcome the inertia and your natural mind to become a successful trader?”

It is all up to you.

You are what you think.

Your reality is a sum total of how you think.

You can enhance your reality by bringing positive intensity to your thought process or you can let your reality stay the same by remaining in the same thought process you have now.

But even then, spending the time and hard work can only increase your probability of success.  It doesn’t guarantee success.  Your ego is a very powerful entity.  You may think you have it under control using the intensity I’ve discussed. But your ego has patience.  It can wait for your moment of weakness.  Jesse Livermore, one of the past great trader in our financial world, succumbed to his ego at the end.

Let’s not get ahead of ourselves.  Keep it simple.  Just bring enough intensity/focus so you can bypass your natural mind to cut losses quickly.  Cutting losses quickly is by far the most important and yet a simple action to perform on your way to become a successful trader.  As we all know, simple is not the same as easy.

My 2 cents.

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Where Ego Dares #4: Power of the Mind

In the previous post on Where Ego Dares series, I postulated how our dominant natural mind can weave havoc on our trading success by interfering with our ability to see the path the price action.is trying to tell us.  Our “need-to-be-right” natural mind only sees what it wants the price “should” be instead of seeing the trend of the actual price action itself.  This can create a dilemma for trader/investor alike if the money being used for stock market investment is not meant to be tied up like long-term real-estate investment.

Don’t get me wrong, the natural mind does not get to be where it is without reaping huge benefits for society as a whole.  It is through our natural mind that we are where we are in our technology advancement.  Our “need to be right” drives us to excel in many fields of study ranged from building a better mouse-trap to finding a cure to a mutated influenza.  Thus, it is no wonder our minds are preprogrammed by our society since birth to thrive in the “need-to-be-right” mode.

As you know by now, the ego  not only exercises control over our other thought process but also thrive to exercise control over another human thought process or group of human thought process.

How can one human exert so much control over another (or a whole country)?

Oop! We are getting off the tangent here.

Let’s get back to the trading world, how can we prevent the natural mind from interfering with our trading mind?  How do we effectively train our trading mind in the present of our natural mind?

To answer the questions, we need to understand the power of the mind.

Let’s go back to the basic:

Mind = continuous thought process

Now add some juice and you get:

Power of the Mind = continuous thought process x intensity

Remember the Power of Positive Thinking?

Every day, in every way, I’m getting better and better

How ’bout The Secret (as in The secret laws and principles of the universe)?

aka The law of attraction.

The above two systems of thought require you to dial up the intensity of your thought process in order to be effective.

Are they effective?

It depends.

“Depend on what?”  you asked.

Let me give you a personal example of what the power of mind can do for you so you can understand what I mean by “depend”.

A group of us decided to hike down the Grand Canyon for a weekend trip.  I was the one responsible for bringing the tent. Hiking down the trail to the bottom of the canyon was a walk in the park since it was all downhill.  However, on the way back up after a day of rest at the bottom, the journey was one of life and death.  First, we didn’t bring enough food.  We had enough for one light meal of breakfast before our hike back to the top.  Seeing how quickly we were to hike down the trail from top to bottom, we figured it would add a few more hours to get back up to the top.

A few more hours was about right, what we neglected in our calculation was that the energy our body burned on our way up was x-times more than it burned on our way down.  Each one of our group was struggling to get to the top at our own pace without enough food; since I was the one carrying the heavy tent, I became the last one in the line of our group.

After making my way to 2/3 of the trail with 1/3 more to reach the top, my body was literally running on empty.  I couldn’t move anymore.  My stomach was craving for food where none was available.  My body felt like a puppet without a puppet master to direct its movement   I fell down and found the sandy trail a welcome comfort for a worn out body.  I closed my eyes and accepted that my life would end here in the middle of the Grand Canyon.  I wasn’t afraid of dying; in fact, I felt peace just for being able to lie down without moving.  I was drifting into a dead sleep without evening knowing it.  I did not know how long I was lying there until someone tapped my shoulder and asked if I needed water.

“I’ve water! But I need food…”

“Fella, you need to keep walking; otherwise, you will die here.” was the response I heard.  Since I wasn’t offered any food, I assumed the stranger did not have any to offer.

After the wake-up call, I began to think…

“I’m still in college, it is too young for me to die here and give up.”

From that point on, I forced myself to stand up and then I told myself to move one-step at a time.

“One step… One step… One step…”

My head was only looking at my feet.  I did not dare to look ahead for fear of thinking of the impossibility.

All my mind was focus only on making that one step and the next one step and the next one step and so on.

By the time I started to see sign of being at the top, I was more motivated but still extremely weak.

I reached a crossroad where I had to decide to turn left to the outhouse or straight ahead to the tram stop.

I grabbed the first person I saw and asked, “Is there food on the house to the left?”

“I’m not sure, I haven’t been inside that house.” was the answer.

I couldn’t risk wasting my last ounce of energy to reach the house that had no food; so I decided to walk to the tram stop where I knew a tram would take me to a visitor center where plenty of food would be available.

The whole point of my story was that it was my first hand experience to the power of the mind.  My body was not there but my mind was there to save me. What amazed me was that my mind knew exactly what to do.  One step at at time was the secret to keeping me alive.  If I was to attempt to walk the final third with my head up; I would have given up hope. The staving body would not be able to deal with the unknown distance to the final destination.  By looking only at my feet and moving one step at a time, my starving body could work with that.

All we need is to summon the intensity, redirect it to the thought we want to focus on, and magical thing can happen.  Magical in the sense that what we think cannot happen can actually happen.

“Man can form things in his thought, and, by impressing his thought upon formless substance, can cause the thing he thinks about to be created.” Wallace D. Wattles.

Remember, mind = continuous thought process.

Add the intensity, you have the power of the mind.

With the power of the mind in your disposal, you can impress your thought upon formless substance which, in turn, cause the thing you are thinking of to be created.

In the realm of the trading world, we call it the power of positive affirmation.

In other words, you are going to use the power of the mind to redirect your negative trading beliefs into a positive trading beliefs.

Do you know who is the perfect example in the use of power of positive affirmation here?

None other than The Fly himself.

Remember these sayings The Fly keeps on reminding us?

“The Fly” reigned supreme, magnanimous above his peers scolded and scalded them with hot wine and words that transfixed into scissors to cut off the lips of the uninvited.”

“The Art of Winning While Losing”

“I win a lot”

In summary, it is extremely important that we keep a powerful positive mental attitude in our trading mind.

One of my password to one of my computers is, “I am a disciplined trader”  Thus, every morning, I repeat to myself while I type in the password that I am a disciplined trader.

Ruth Barrons Roosevelt, J.D., whom I consider a pioneer in developing positive affirmation for trader, has the following statement in her website:

The three pillars of strength upholding your trading and investing success are:

  • first, a proven trading strategy or method;
  • second, a disciplined money management plan and practice;
  • and third and most importantly, your own individual mental and emotional trading self-mastery.

To achieve mental and emotional trading self-mastery, we need to add intensity to our thought process in order to make it stick.

In summary,

You have the power of the mind on your side.

As has proven by my Grand Canyon trip, you can call forth the intensity and harness your thought power behind the right mental attitude toward self-mastery.

Your ego respects power and will take a second seat if the intensity you call upon is focus on self-mastery.

To begin your journey, you only need to have the desire to improve and the tenacity to persist.

Good luck.

My 2 cents.

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Where Ego Dares #3: Training

My past posts support Osho’s contention that continuous thought creates the mind.  And when you have two conflicting continuous thoughts going on in your head, then you have two minds vying for your attention.  The battle for control of the two minds is what make an ego.

Ego = continuous thought #1 (mind #1) vs continuous thought #2 (mind #2)

As in any battle, the mind that has the most training will always win.  Since we are all by-product of our society, in the absence of new training, our preprogrammed mind will always win.  It is the “I’m right” mind. I call it the natural mind because it comes out automatically without any effort on our part.

Preprogrammed mind = Natural mind = Automatic mind = I’m right (or I need to be right)

If our natural mind is in charge while we are trading, then we are “blind” to what the price action is telling us.  In other words, what our eyes see and process when looking at the chart or tape is being shouted down by our natural mind.

Your brain processes the price action from the vision of your eyes and give you the following thought, “Whoa! Price is going down like a waterfall!”

“Ignore it! It is only a temporary. Price will go back up because my fundamental analysis says so!” your natural mind shouts at you.

But I wanna cut my losses!”

“Don’t you dare! I want you to buy more! Average down here ’cause I’m right!”

And so it goes…

And here is the rub.

Most of us are not even aware of this natural mind being our obstacle in the pursue of investment success; instead most of us are looking at the wrong direction.  We think that if we have a Holy Grail trading system, our natural mind will listen and obey its signal and we will be on our merry way to being rich.

You see, what you have forgotten is that our natural mind will have no part of it.  It will denounce the so-called Holy Grail trading system the moment it spits out some losing trades.

Just by being aware of this natural mind isn’t going to make you a better trader but it is a necessary first step.  From here, we need to train another part of our mind to become a winning trader.  A mind that is trained in the art of trading to displace our natural mind during trading hours.

Let me give you a parallel example to get my point across.

Before I learned the simple four movement in martial art as I explained before, I didn’t know how to defend myself correctly.  Hence, when a punch was going for my face, my natural mind would have me reacted in fear and my body helplessly unorganized to defend such a sudden attack.

In the same token, our natural mind is not prepared to deal with a situation when our belief of the stock is being challenged by price action going the wrong way after our buy order is filled.

After getting proficient of my four martial art movements from weekly practices, my trained mind and body automatically countered an attack before the natural mind even had a chance to get involved.

In the same token, when the stock goes the wrong way after I’ve bought, my trained mind (from the many hours of researching the statistical significance of supports & resistances, candlestick chart formations, moving averages, momentum indicators) automatically executes an order to close the trade to cut losses or lock in profit before the natural mind has a chance to say no.  Trust me, your natural mind is very adept in talking you out of taking the proper action to cut losses.

“Are you sure you want to cut losses here?  You do know that price will go back up after you cut losses, right?”

The truth of the matter is that the ego is not completely wrong here.  Statistically speaking, (even if it is only 10% of the time) we WILL from time to time cut our losses quickly right at the bottom of a correction.  And it is from this statistical event that our ego persists in haunting us in order to freeze us into inaction.

By training your mind in the art of cutting losses quickly, which will require a firm commitment on your end, you will transform yourself to cut losses automatically without thinking.  Remember, our ego is simply a dominant continuous thought process; thus any thinking on our part will automatically bring forth our ego. Hence, if you can cut losses automatically without thinking, you are way ahead of most traders whose natural mind is their dominant decision maker.

Nevertheless, our natural mind is a very powerful ego and can get really feisty if you ignore it too often.  Say you cut your losses quickly in one of those statistical event of getting out at the bottom before market takes off without you, your ego can do seriously harm on your psyche by blasting you with all kind of insult and emotional guilt and pain.  After a bout of this guilt-ridden episode from your ego, you may not be so sure about cutting your losses quickly next time.

And this is why it is important that we train ourselves in calming our ego with other form of exercises such as meditation, Tai Chi, yoga, chanting, etc.

Being aware of our ego messing up our trading is not enough, you must know how to cut your losses quickly in spite of the interference from our natural mind.  To do that, you must embark on a training like an ambitious Karate martial artist who wants to earn his 10th Dan black belt or someone who want to achieve the highest level of internal martial art like the Tai Chi master in the video below:

 

 

 

Remember, these are just friendly demonstration of the internal martial art.  To achieve the highest level of internal martial art, it is not the exercise and practice of the physical movement like Karate but a long and patient practice of cultivating chi.  Believe it or not, if you embark on a path to cultivate chi, you are also embarking on the path to minimize the impact of your ego as well since ego can prevent your chi from developing.  Thus, practicing Tai Chi is one of the routine I like to keep up on a regular basis.

My 2 cents.

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Where Ego Dares #2: Thought

Last time, in Osho’s essay, he postulated that The Mind is nothing more than a continuous thought process.

Key components: continuous + thought + process

Let’s start with thought.

What is thought, really?

The moment you utter a word in any language in your head, you have thought.

Why do we have thought?

I believe the three items below encompass the majority of the reasons

  1. we want something
  2. we describe something
  3. intuition

1) We want something

You are walking in the woods and you feel an urge to pee.  “I’ve got to find a place to pee.” becomes your thought.

2) We describe something

While looking for a place to pee, you’re thinking, “there are some tall bushes over there I can hide while I pee”.

3) Intuition

“Wait a minute, something doesn’t feel right over there,” becomes your thought as you approach the area.

I’m sure you can come with some other reason why we have thought; but most likely they can fall into one of the three categories above.

What if I’m solving a problem?

This is an interesting question!  You know why?  Because the thought involves in solving a problem can morph from one of the three to another.

First, you describe the problem, then you want the problem solves.  Later, your answer to the problem comes from your intuition.

While the three examples above are in extreme simple form, these three drivers of our thought are able to weave a continuous complex thought process in our head that gives birth to our mind.

Now, we have body and mind.

What is the deal with body and mind?

Well, our mind, being a complex thought process we weave together in the language of our creation, happens to be “floating like a cloud” as a result of the neuron firing process in our brain which is the command center of our body.

So, when the mind says jump, our body jumps.  When the mind says cry because it is thinking of a painful situation, tears come out of our eyes.

“Impossible! This sure-winner stock dropped like a rock right after I bought!”  When you think this, your body goes through the emotional state of disbelief and even anger and yet you decide to buy more to average down.

Here is another way to express your thought in the same situation, “Jeez stock dropped like a rock after I bought, I’m getting out right now!” Your body goes through the emotion of relief for getting out of the stock pronto.

You can obviously see the big difference between the two thoughts above.

How do one ends up picking either one of the above thoughts then?

Excellent question!

This is where your ego comes into the picture.

Before moving on with the discussion of ego, remember this from Osho?

If somebody is controlling the mind, then it will only be only a part, a fragment of the mind controlling another fragment of the mind. That is what the ego is.

So you have a thought process that creates a mind that says “this stock has to go up because my analysis of the fundamental is corrected” even though the stock price has been declining for the last month. This mind creates stubbornness in you..

Meanwhile, you have another set of thought process that creates a separate mind that says, “OMG! How can it be? My money is losing fast and I may be getting a margin call soon if I don’t do something!” This mind creates fear in you.

Now, you have “a fragment of the mind controlling another fragment of the mind”

– I am right against fear of loss

or

– stubbornness against fear.

When these two minds in us collide with equal force, you have created a “deer in the headlights” situation- you are effectively frozen in action.

Going back to the two earlier examples:

“Impossible! The sure-winner stock dropped like a rock right after I bought!”  When you think this, your body goes through the emotional state of disbelief and even anger and yet you decide to buy more to average down.

Which part of the mind has control in the above example?  Yes, the “I am right” mind.

Here is another way to express thought in the same situation, “Jeez stock dropped like a rock after I bought, I’m getting out right now!” Your body goes through the emotion of relief for getting out of the stock pronto.

Which part of the mind has control in the above example?  Yes, the “fear of loss” mind.

So, at the end of the day, it is all depended on which part of the mind has more juice to back it up.  In other words, the mind with more training and exposure usually win the day.

And which of the the mind do you think usually has control during the day?

You’ve got it, the “I am right” mind.

You know why?

It is how we are programmed to think by our society.  We mimic the “I am right” mind of our parents, the school teachers, and all authority figures we want to become when we grow up.

While this “I am right” mind works wonderfully in our society and in the business world, it can be a hindrance when it comes to trading.

Therefore, our task as a trader/investor is to train our thought process in the direction of “fear of loss” mindset along with the art of following price action.  In other words, we have to train this mindset so it becomes the dominant mind (aka ego) when it comes to making a final decision on the trade.

But it’s easier said than done. 

Let me show you how I make it works for me.

Overtimes, I’ve engineered my “I am right” mind to work on my position trades and keep it busy there while I train my “fear of loss” mind to cut losses during swing trading.  Yes, I disable the ability of the “I am right” mind to average down.  To do a conditional average down, my “fear of loss” mind will be the one to take that trade.

So far so good.

The beauty is that my “I am right” mind is not dominating 100% of my portfolio which will be quite dangerous if it is.

That is all for today.

Btw, I did not come up with all the above thought process on my own.  Since I’ve read many books in the past, I’m simply putting together thought processes from others in a way that works for me.

My 2 cents. 

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It’s not about right or wrong picks, it’s about trade management

If the market turned south when you were 70% or higher loaded in equities, paper losses were forgone conclusion.  However, you could manage your portfolio so that the losses would be controlled if the carnage continued.

I was fortunate to have the gut to chase $DUST by Friday close; thus, I was able to gain the profit to offset the losses I took this morning.  I made several calls last week and only $DUST saved the day.  The others were either going nowhere ($CERS, $APRI) or took the other direction of my calls ($PPC, $DNDN, $PACB).  Was I upset?

Not really.

That was because I knew I was not a prophet who could foresaw price movements 100% of the time.   My intuition, at best, would give me 51% win ratio.  But the point here is not about how much winning picks versus losing picks.  If you can accept this simple truth that none of us has the divine crystal ball to work with; then you can stop chastising yourself for not seeing the current carnage.  Instead, spend the energy to manage your trades so you can prevent your portfolio from bleeding further.

As I had discussed this before, I used the “thought” of buying  back my positions I sold today at a cheaper price later to give me the confidence to execute my trades to cut losses.  Yes, I may be selling at the bottom but you cannot allow this “ego” thought to freeze you like a deer facing the headlight.  You have to be “OK” to miss the “possible” late rally so that you will allow yourself to cut losses.  Take a look at my $SZYM today.  If I hadn’t taken my losses in the morning time, I would be sitting in a much bigger losses.  Instead, I’m now salivating while waiting for the right time to buy back in for a much cheaper price.

Take heed to The Fly warning about averaging down today.  If today down day is just a  prologue; averaging down will be like opening your spigot to allow more of your blood to come out faster.

I’m not suggestion going all cash here.  Portfolio management is simply a process to minimize the risk by reducing the hi-beta or non-performance stocks so that cash will be available to buy back stocks at cheaper price if ones are fully loaded.

Go with the flow, my friends, go with the flow.

Now that I’ve done my mumble jumble on trade management. let’s take a look at the $SPY daily chart:
SPY_Daily

As you can see, today down day penetrates the support from year 2007 high.  The next level of major support is the year 2000 high.  If this 2000 high can hold the downdraft, we may still be stuck in a consolidation stage with the previous rally as an aberration.  However, if the 2000 high fails to support price; further downdraft will be quite ugly.  Yes, there is a lot of “ifs” here.  This beg the question, why will you want to be fully loaded when there is a lot of “if’s” in the face of the current downside storm?

Do some of us forget that the beauty of the stock market is that you can open and close your positions at any times in the day when the stock market is opened?  Why do you worry about holding stocks the way people are holding gold bar right now?  For crying out loud, stocks are liquid and you can always buy back.

This post is meant for people who are having a hard time deciding what to do with the fully loaded position and is gnawing their teeth right now.  If you are already managing your portfolio accordingly, my hat off for you.

Currently 57% cash.

My 2 cents.

 

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