Everybody’s A Freakin’ Critic

It is my job as the writer to communicate whatever it is I want to say. In my previous post, I did not communicate well to some readers. My apologies to the readers who stopped by and read the post out of context of my previous writing.

So let me start by saying…it’s a blog! It is a form of entertainment. As the author, I am putting on a show for you the reader. And that’s it. If what I say is entertaining to you, great; if you learn something about yourself, even better. If it helps you trade better, whoot whoot!

I will not spend the energy to defend myself against incorrect assumptions made in the comments section of my …Swingers…post. I would rather spend my time finding the next great set-up or enjoying my family. I must learn to ignore critical comments as taking them to task only distracts me from the work I should to be doing.  There will always be critics. If readers follow my posts regularly (and especially if they follow my work in the 12631 chat room) those readers will have a better view of my intent. There is no point in responding to criticism but I am happy to answer direct questions.

In response to SPYderCrusher’s questions:

Q. Why were you BUYING stocks in a DOWNTREND for the last 6 of 7 weeks?

I would counter that while it WAS trending down, it did so with significant chop…bouncing up and down through support levels, which gave mixed signals to me and other traders. I chat with other traders throughout the day; we share ideas. The first week was easy…decidedly down and I played good defense.

The next three weeks in May were deceitful. They weren’t decidedly down and they showed bullish signs repeatedly bouncing off of various support levels. It was hard to tell which direction we were going. I wasn’t comfortable swinging short or long. When I accepted the chop and started taking profits earlier, it worked. I adapted to my environment. This was not much of a change from what I normally do. I always lock in profits early in a trade, but unless it is a day trade, I will usually give the set-up a few days to develop. But momentum trades (long or short) were failing in the chop within a day or less. All things being equal, if I take 10 trades with good probable set-ups and I stop out of 7 of them for 5% each and I make 10% on each of the other 3, I am still down 5%. It is my observation that this has been a common occurrence in the chop for some traders.

Q.  What SETUP are you using? WHAT CONSTRUCT guided your decisions to do anything?

I look for stocks with good basing or bull flag charts on the dailies that have some decent volume. I might look for those patterns, put in a bookmark, then buy more when the green volume kicks in….not all breakouts are created equally. I analyze each chart for both upside and downside potential. I want to have an idea of how much I can get out of the stock before I enter the trade and I want to have an idea as to how far it will drop if it goes the wrong way. I set my stops at support levels that I determine usually from previous lows, moving averages or some combination. I don’t want to enter a stock that has a lot of downside risk. I have learned from that mistake already. :~)

If I want a second opinion, I ask Chess or RC, or any one of the other talented traders that I chat with. The best calls are the ones that are not extended and have a clear stop. I use Worden StockFinder to scan charts for volume and other parameters but I have not mastered a good break out “compression” scan using Worden. I am very interested in learning how you create those compression break out screens, Danny. If you would impart your parameters for your scans on Worden, I would be ever so grateful. I will also get many ideas from various PPT screens and chart those.

Q. There are several variations of questions that all surround the idea of me changing my trading style.

I never intended to communicate that I had changed my style, merely adapted it to the current conditions. There is a difference between completely changing your style and changing up a few plays. The mistakes I made when trading with “Bill” were a direct result of me not sticking to my style. Taking profits earlier in a choppy market, was just changing a few plays specific to the team I was playing against. I didn’t go from playing quarterback to playing safety; I had enough of that with “Bill”.

Q. Did  your last strategy stop working, or did you try and force it?

Well, to be honest, I probably forced it. I need to figure out how to bench myself when the environment warrants it. Perhaps if I take a closer look at Danny’s work, I will find some answers. After all, “delayed gains are better than losses.” G.S. Seldon

I think that answers most of the questions in Danny’s comment.

Live and learn. ;~)

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AKA: Shopping on 5th with Dad

For Father’s Day, thedaughter and I dragged thedad to NYC for a little shopping. Thegrandmaman had given thedaughter a $100 gift card to Juicy Couture, owned by $LIZ, for her 10th birthday, having confused the name with Justice, a tweenage favorite with discount prices.

We thought a trip to Juicy’s flagship store would offer the most choices for us to peruse. Thedad, being the consummate analyst, was eager to go in order to observe the retail market in the face of declining consumer sentiment. So off we went to 5th Avenue in search of fashion and Father’s Day fun.

Juicy Couture is not a style that I seek out. I have always found those velour track suits with the Juicy logo on the backside rather tacky. A throwback to the 1970’s with a tramp stamp on the derriere. Yuck! But I checked out ideas for my little girl online before we went and saw some cute things so I was looking forward to finding something nice.

As there was nothing worth noting in the children’s section, it didn’t take long before we were looking at women’s clothes in petite sizes where prices start around $200.

Are you kidding me? Well, we were there, and we had the gift card AND thedaughter had received nearly straight A’s on her report card; she had earned a reward. I told her to choose one dress/skirt…whatever, and I would pay the difference. We chose a few summer dresses to try on.

The sales clerk was very attentive; no doubt she recognized my Dior handbag. She asked thedaughter’s shoe size and returned with a cute pair of $200 plastic bubble sandals that were a size too small, so thedaughter wore the sandals just to try on the dresses. We chose one dress we all really liked and the clerk was clearly disappointed that we were only buying one dress and wouldn’t we also like to buy the sandals to go along.

No, thank you.

Juicy was overpriced; scant customers and pushy sales clerks left us less than impressed. When we dropped into Zara’s, we figured out where Juicy’s customers had gone. Better prices, more variety, and great designs were showing throughout this Spanish discount clothier. We found a great looking shirt for thedad that made a nice Father’s Day gift. I was intrigued to hear the ice cream girl say that Zaras clothes are of lower quality than Juicy’s because they are made in China, (actually the shirt we bought was made in India but the Juicy dress WAS made in China.) Many Americans are quick to assume that cost = quality and this just isn’t the case.

We ventured back out onto the street and a few blocks up found $ANF. If you have never seen this carnival before, the people line up around the corner to go inside while bad cologne and house music waft out the front door as if by bubble machine. We decide to check it out as they have just let a hoard of people into the store and the line had shrunk to just a few stragglers. Of course it wasn’t long before the line behind us had wound its way back around the corner. Thedaughter was beside herself to get inside. Her friends at school told her A&F was the best! Thedad stood there grumbling something about the line being unwarranted. Nobody around us supported him because they all really wanted to be there.

When we were finally granted entrance as if we were being ushered into the Haunted Mansion at Disneyworld, thedad and I stopped short to giggle at the teenage boy with the washboard abs and nipples the size of plates. When you consider that it is clothes, including shirts, they are selling, it is amazing how much nudity goes on here. Thedaughter was already elbow deep in clothes racks by the time we caught up with her. People were shopping here; they stood in line to get in, they stood in line for the dressing room and they stood in line to buy.  I had to admit, the designs were really nice…much more variety than Juicy. I picked up a price tag and was pleasantly surprised to see Zaras prices. And that is how thedaughter got a second new dress on Father’s Day.

While I have banked much coin charting ideas from The Analyst Bomber, his recent short idea on this name does not resonate with me. I will NOT be shorting $ANF….but I might consider shorting $LIZ.
Happy Father’s Day to all the Dad’s out there.

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We often talk about the pitfalls of being stubborn on a trade. Pesky emotions, pesky ego, keeping you from dropping a loser because you have gone and convinced yourself that this stock is worth a billion dollars and you don’t want to admit that you were wrong. Many of us have had to learn this lesson the hard way, multiple times, taking enormous losses over stocks we were sure would go higher. Some even added to their positions as their snowball rolled downhill becoming a larger snowball with a greater loss. But being stubborn can hurt a trader in other ways too. Continuing to trade with a tried and true style that has stopped working in current market conditions can have tragic results.

Swing traders are struggling. If you are a swing trader, you know what I am talking about. The only way you may have avoided this in recent months is to have avoided trading.

You and I are not the only ones having trouble, of course. I just read a note on equity strategy from Citigroup that talks about under-performing equity hedge fund managers who, like the rest of us, are finding it difficult to adapt to a market with no trend. Ideally, we want to find a trend, hop on it and stay on it for several weeks to months, banking egregious amounts of coin, but it simply is not working that way at the moment.

To quote the note, “Fund managers are unhappy. The median global long only equity fund has underperformed this year. The average long/short fund has lost money. It seems that many investors are finding it hard to adapt to trendless markets. Indeed broad stock price indices have largely moved sideways this year, return spreads amongst the sectors and regions have evaporated and price momentum strategies are fading.”

Momentum traders are seeing their positions start out positively only to see them fade within days, hours or even minutes of taking the trade. Many traders are finding themselves dumping losers with 5% losses or more that had started out as winning positions. This brings me to another point, selling is the name of the game. No matter what market you are in, if you can’t figure out when to take profits, you will never make money. Taking a 5% loss on EVERY trade will eventually bleed you dry.

But this is a market that only gives those profits for a day or two and many traders have difficulty changing their style. They don’t want to become…ewwww, gasp, cough, cough…DAY traders. The very thought leaves such distaste in some traders’ mouths that it is akin to being trailer trash. This is the trader who cannot bring himself to take profit within a day of placing a trade.

Unfortunately for us, the analyst who wrote the Citi note does not believe the trendless market will change anytime soon; hopefully he is wrong. But at least he doesn’t expect a continuation the down draft of the past seven weeks saying, “We think investors will have to get used to trendless markets. It is typical at this stage of the cycle, when stock prices Grind Higher with EPS.”

Grind higher? Well there is some good news, if it sticks. It would be nice to at least have a market that grinds higher with EPS. This would definitely be an improvement on seven weeks of dripping lower amidst a lot of indecision. The writer goes on to say that trends can be found in the trendless market and gives his opinion as to what those might be. Finding a trend where one does not exist is no easy task. The current market conditions require the trader to adapt, be nimble … maybe even change his/her style a bit to trade what the market is giving.

The other option is to stay out of the market. This is a perfectly viable option. There are many traders who believe strongly that we should wait for the right market environment. Our old friend Danny, aka: Spyder Crusher, has a market timer to tell him when the environment suits his style or not. This is great as long as you have the time to wait. But it could be a long wait of not just weeks but months at best and years at worst, so the trader must have enough capital to comfortably cover expenses for that long and still survive.

I am not currently in a position to wait that long, so I have to adapt. It took 6 of the last 7 weeks for me to finally figure out how to trade the market we are in, but I had a profitable week on the 7th consecutive down week of 2011, thank goodness, and I did it by adapting and taking profits early.

In this environment, I have decided to take a third to half the position’s profits on the first day…as soon as I have them. Any position that does not give me some profits on the first day, gets dropped before the end of the day. And all swing trades are no bigger than half size giving me a large cash position at the end of each day. Each swing trade gives me SOME profit and I don’t risk turning an initial winner into a complete loser because I have locked some profits in. It’s working….for now.

Each trader can only decide for himself what is the best solution, but one thing I can tell you: if it isn’t working, change it. Face the emotions that plague you and stop being so stubborn. And above all – Good Luck Swingers!

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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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