In My Birthday Suit

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.

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.

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.

I am honored once again to be bestowed with this reign as King of The Peanut Gallery. I thank you all for your many comments and votes on my posts made last week. I am rather excited to know that the area I enjoy writing about most is actually what you are interested in reading. And so I will dedicate my time here this month to Trading Psychology.

I actually had another post ready but have decided instead to address today’s tape first and the various reactions that traders may have to it.

I have remembered how to play defense. Thank goodness! And so I managed to avoid getting raped in today’s tape.

I chat with several traders during the day and I am intrigued by the actions or inactions that we see on a day like today.
It seemed at first that the bulls were holding a strong defense even in light of a) the inability of Congress to raise the debt ceiling and b) poor jobs numbers. But alas the tape bid its bulls farewell as it decidedly slipped through multiple support levels, completely negating the breakout $SPX seemed to want only a day earlier. My guess is that the bottom of the channel will lend significant support at 1300 tomorrow, but if this doesn’t hold, look out below. http://twitpic.com/55l837/full

Anyone who knows me, knows that it takes a lot for me to take a bearish stance, so when I get negative, there is likely a reason or three.

Until the debt ceiling is raised, all bets are off and it seems very likely to me that this scenario could play out. Watching $SPX sell off, you would think that smart traders would drop any weak positions pending confirmation of a strong correction, but not all traders were on board with this idea today.

As the day played out, I suggested that it was a good idea to not only respect stop losses very strictly but also to take profits on winners that were showing weakness and I am rather proud of myself for adhering to this discipline. I dropped all but my strongest positions which included taking profits in some that were dropping such as $CBS. Rather than staying in just because it was still in a winning position; I chose to sell it before it became a losing position even though it was still well above my stop loss.

On a side note, stocks that maintain strength in light of the selloff are winners and the only logical ones to hold onto.

But I saw traders who allowed their positions to continue lower and lower while never selling out. It is very easy to justify a losing position when those pesky emotions step in the way. Our ego tells us that we must be right and this causes yet another psychological trader downfall – stubbornness.

In overcoming stubbornness as traders, we must be able to accept losses. We must come into every trade knowing that it can be a loser even if we have the highest probability thesis on our side. If we come into each and every trade accepting that it might not work, it can help us accept the loss and drop the losing trade while we still have our heads above water. While we can certainly set rules for stop losses and be disciplined about sticking to them, it can be harder to give up on a winning position that begins breaking down if we have not raised our stop loss.

In recent months, I had a few trades go horrifyingly wrong on me because I did not sell them when they broke down. Winners turned into losers. If I questioned a position initiated by “thebill”, I was assured that it was still ok, justified by moving the trend-lines lower than originally drawn. When I questioned this, he told me I was too hung up on trend-lines. I realize now that out of stubbornness he was changing his original thesis based on those original trend-lines. Fortunately, for today at least, I seem to have learned my lesson.

Hey all,

Yes, figure after monopolizing the KoPG blog with personal BS might as well try and squeeze as many final market related posts I can, before Jeremy pulls the plug on my access 🙂

As most/all of you know I tend to focus on the small caps, and the Russell 2000 and its instruments. Those looked VERY GOOD over the past 2 sessions, coming into today. But just now I had a look at the OTHER averages/indices, and those do no look so promising. The Russell made a new higher high and it convincingly broke out of its month long down channel… However, in that, it is alone.

Take a look at these charts, and you’ll see that, based on the action so far, the Russell is the only index still looking hopeful. The others either have failed to make a new higher high, and/or  they got rejected at the down channel resistance level.

I’m not assuming anything here, not betting on any particular market direction, gonna wait it out and see what happens.. Who knows, maybe this will be the summer of non-stop several day long The PPT O/S and O/B cycles. That would be frigging awesome!!

Hi guys,

I just looked over the 20+ comments on the relationship post, thanks, guys (and gals),  loved reading them all…

Things are much better now, I’ve thought about it a lot, and I realized that I was mourning the loss of the relationship I WANTED to have with her, not the one I actually DID have, and as soon I as allowed that thought to enter my mind, 100% of the “pain” or heartache, or whatever, was gone.

At this point in time I’m just annoyed at having to move out, find a new place, etc, but I’m not upset about the relationship coming to the end. As some of you pointed out, there were other issues at play, and while this was the final straw,  is was probably just a matter of time anyway…

Anyhow, enough with this relationship BS, we’re here to make money, let’s get back to trading blogs!

I’ve never been one to try and make money on the short side, so I’m sitting out this O/B reading here a bit, in 100% cash.  I’ll wait to see what happens, we might get a pullback back down to O/S, like the last few times, or MAYBE we’ll have an Apr 20-21 like churn around here, before heading higher.  Since I’m running around, looking at places to live, and can’t watch the market, I’m not feeling like betting/gambling, so I’ll let the market tell me what it wants to do in the next 1-2 days.

But guys, come on! – If you’re not a member of PPT, you’re missing out! This month’s O/S and O/B readings have been dead on, a licence to print money, how can you NOT want to sign up? One PPT TNA trade, and you’d have made enough money to pay for PPT for years!

Cheers, all!