Hence my reign cometh to an endeth…

hey all,

It’s fitting, somehow… Today, the last day of my KoPG reign, a day when we saw a monstrous gap up which mostly held and even advanced, I found myself trapped inside an MRI machine for most of the trading day…

Yes, between getting there through the morning traffic, waiting, taking the first scan, machine breaking just before the end, them trying, for an HOUR to reboot it, then having to re-do the scan on another machine, then driving home in the afternoon traffic, well, I had no contact with the market at all… But I managed to end the day with 0% loss, on the account of my 100% cash position 🙂

This is good.. In the past, I’d obsess over missing the gap up, which (I know) is stupid beyond belief. But it was this obsession which caused me to do stupid things, trading wise, and, well, the rest is history.

I wish all my (soon to be ex-) subjects the best of trading in the future, and see you all in the PG and in The PPT UserNotes section!

Ciao!

Hey guys,

As some of you, who saw/read my posts in PPT and/or 12631 know, I’m going through a relationship breakup now. I’ve realized that I’m in no emotional state to trade, so I’m going to step back for a little bit, maybe just wait for more PPT OverSold trades – those are pretty mechanical and emotion-less.

I’d like to dedicate this my last post as KoPG to explaining how a trading related event fucked up my relationship to the point where it became unsustainable.

Back in Feb I took a reasonably big kick to the teeth from Mr. Market. Ohhh, in the grand scheme of things it wasn’t too bad, on a trade I lost just under 10% of my account, bringing me from about +4% to about -4% YTD.  That, loss, combined with the fact that the position recovered almost completely by the end of the next trading day, really fucked me up, mentally and emotionally… I was lost, and tried to really make sense of what happened, why, etc. I tried jumping in trades, always thinking about making up the loss, trying new trading styles, losing more money in the process. By the end of Apr my losses were about -10% YTD.

During this time I was so in my head, I (without meaning to) pulled away from my partner/GF. I was focusing less on her, spending less time on her, even not responding to very overt sexual invitations. I was just too much in my head, obsessed about the trades, trading, money, markets, etc. Everything I did turned to shit, everything I passed on doing turned to gold. That’s how it felt, and boy, was I mad at the whole world, irritable, angry, annoyed and annoying, looking to pick arguments and fights out of nothing.

This, obviously, wasn’t a great situation for my GF to be in, and after trying to pull me back in, back towards her, she finally had enough, and told me this wasn’t working for her. I was shocked to hear her describe my behaviour over the last few months, but looking back, I couldn’t disagree with her. We talked, and talked, and I managed to get her to stick around for a little while longer, to give me a chance to shape up.

We tried for another 3-4 weeks. I loved going back to being the normal, charming, attentive, etc person, giving up on individual stocks helped, focusing more on PPT driven TNA trading really helped, and I made money again, making me happy there.

Unfortunately, it turned out to be too little too late.. She told that she really liked me now, but too much emotional scarring and damage was done before, and she just cannot find the feelings against. And she didn’t want to be with someone who didn’t spark those feelings in her…  I can’t blame her.

She was the best thing to happen to me in my life, to-date, and I fucked it up.

So, I will be moving out of her house soon. I will also, to get away from day trading, will be going back to work for a 6 month IT contracts here, in Toronto, for one of the banks. I will still trade, but it’ll be more technical swing trading, using the hybrid as the guide.

So, let my story be a warning to you guys. Trading, especially trading losses, can take a huge mental and emotional toll on you, to the point where it can, quickly, irreparably damage a pretty awesome 3 year relationship (yes, there were other little issues, which relationship doesn’t have those, but I’m convinced without the Libya TNA fiasco, I wouldn’t be writing this blog).

Take care of your mental health, and pay attention to when those around you are starting to give you warning signals that something might be wrong…

Cheers, and safe trading, everyone!

I hear references to how people view trading TNA to be extremely bad and dangerous. I’ve heard references to people who, after swearing off those tools, have managed to re-build their portfolios. I would love to hear from those people, because there’s something here I clearly don’t see…

Now, let’s get a few “givens” out of the way first:

a) yes, I have absolutely no idea what “TNA” actually is. It is an artificial market instrument, that’s as far as I’ll go – as to WHAT it actually is, what it contains, no freaking clue. Who knows, maybe the danger lies in there, if so, please let me know. But I have to admit, seeing people trade Chinese stocks which can be (and have been) stopped half way through a day, never to re-open again, I don’t consider TNA to be as dangerous…
b) TNA is extremely volatile, yes, BUT that can be managed with position size. 1200 shares of $IWM or 400 shares of $TNA will move, more or less, by the same amount (plus/minus, since the leveraged ETFs’ daily movements are goals and approximations, not guarantees). Yet I don’t hear people complaining about traders buying and selling $IWM…
c) Decay. Yes, all leveraged ETFs (well, ETFs in general, I THINK, but leveraged ones in particular) will suffer from a decay. For the purposes of this write up, I use the word “decay” to mean everything other than the movement of the underlying index which causes the value of it to change. This doesn’t really hit you on a day to day basis, but it can become significant if, for whatever reason, you choose to hold TNA for an extended period of time (say weeks). I think the most likely scenario here is a trade which went against you, and is so in the red that it becomes a hopeful investment (sound familiar, anyone  ) ? Well, let’s take a look at a practical example of this in action:

The Russell 2000 index opened today (I was writing this on Thur, May 19th) at pretty much the same identical level which was the HOD on Feb 18th (the day which will live in infamy forever, for me!!!!). Comparing the corresponding values of TNA on those two days, we see that TNA has lost 1.65% of it’s value, in 3 months of pretty volatile trading. 1.65%. In dollar terms, it means $1.50/share over the course of 3 months. Now, what I’m about to say will surely be heresy to a lot of traders, and I apologize for that in advanced, but to ME, a loss of $1.5 on TNA over 3 months is NOTHING. We trade this “stock” for its freakish volatility, for its big daily and intra-daily ranges. We trade it to get quick $3-$5 in days and get out. The idea that we won’t trade it, because IF we happen to hold it through 3 months of extremely volatile market swings, it’ll lose 1.65% of its original value to decay, is a joke. Never mind that this is something we’d really never do in the first place. TNA trades are scalps or tactical swings, from over sold conditions. To use its long term decay as an argument for not trading it in the short term is like saying that a particular SUV won’t hold up in a race across the Sahara, so therefore you shouldn’t buy it to drive your kids to school every day. The first part, while factually true, doesn’t have anything to do with the second part.

Please note that the decay on inverse instruments is much higher. Using the same timeframe described above, TZA lost 6.95% and TWM lost 3.45%. Holding TNA as an investment for weeks, in a hope it’ll come back is feasible (note I said feasible, as in MATHEMATICALLY FEASIBLE, not advisable or desirable or smart). Holding an inverse into a long rally (think Sept ’10 onwards) is NOT feasible. After several weeks, you’d need a very sizable collapse, to market levels far below where you bought the inverse, to hope to just break even.

So, as long as position size is managed in recognition of TNA’s volatility, and stops respected, and the instrument used only for relatively speaking short trades, I honestly don’t see the difference between trading IT and a proportionally largest position of the non-leveraged equivalent.

Please explain that difference to me…

Thanks!

By the way, Uncle Russell seems to be shitting the bed these days, is in a firm down trend, and the recent bounce from O/S conditions seems to have been just a short term one. The futures seem to indicate yet another move down. So, for swings, I’ll wait for the Russell to make a new lower low, which will most likely correspond with 3-4 down days in a row and another PPT Oversold. Those sounds like high prob TNA swing entry conditions! See you there:

Hi all,

Everyone has different trading styles. I am now realizing that what works best for me and my personality is dip buying, once some suggestion of support has been found (and PPT Hybrid flagging oversold is a very strong such suggestion, even in the absence of price action to support such a claim – if you’re not a member of PPT yet, you’re missing out, especially since we seem to be back in a market which doesn’t just go straight up).

As such, I don’t have really have fixed percentage stops in mind. I know that a 7-8% stop  is a pretty standard line in the sand for people, but I would never use it. Why not? Because I would never buy something 7-8% from its recent support (not anymore, at least!). To me, buying a stock and throwing an 8% stop on it means that either the  buy is based on fundamentals (i.e. you believe the stock SHOULD go up, just because it’s a good company, or you feel the selloff is overdone (can anyone say $GS!?!? 🙂 )), or is  a random dart throw – buy a stock, give it an 8% stop, and see what happens. Or, perhaps, you’re chasing it, and it’s that far away from support by the time you buy it.

I do not mean to put down any of these styles, I am simply saying this is not me.

I do not need to see evidence of the stock breaking up, before I buy. I operate on the assumption that, everything else being equal, after a selloff and a period of consolidation, the price will want to, by default move up, as dip buyers come in.  I just need to see something which suggests to me that the stock has stopped its slide. Nothing is for sure, no signal means “yes, DEFINITELY” the slide has stopped, trading is always (ALWAYS) a game of probabilities. As long as you have a “system” which lets you have more winners than losers, you’re laughing.  This is my system.

I’m doing to demonstrate using a 1min chart of TNA, HOWEVER please note that this approach would be valid (IMO) on all time frames – those bars could be hour, day, week, or month periods, and the idea would still be the same. I simply don’t have the personality or the patience to wait days/weeks for a trade to confirm/deny my theory, so day trading, or couple day swing trading is mostly what I do (this is why I failed to take full advantage of the Sept->Feb run, I was taking profits along the way, I did not just let my TNA and FAS positions run, so I booked great profit, but not egregious:) ).

(I apologize for the chart being somewhat busy, I guess I’m trying to demonstrate a few concepts here: stops, entry points, problems with chasing, and bailing out on poor entries if given a second chance).

Note that there are other styles of day trading/scalping something like TNA, where you almost anticipate that a particular point will act as support, and make a buy, with a very short stop on it – there is merit in that approach, but it’s beyond the scope of this blog entry, so I will not discuss it here.

The notes on the above chart are pretty self-explanatory, let me just point out that situation (g) was discussed (as a multi-day time frame, but the idea is the same here) in my previous blog post: http://ibankcoin.com/king_of_the_pg/2011/05/20/if-you-can-sell-a-bad-entry-trade-do-it-dont-think-about-how-much-you-could-have-made/ ; even if the the recovery did not bring you up to exact even, once it stalls again, most definitely put a stop under the most recent lows, to minimize your downside, should the price resume its downward slide.

Here’s my rant against chasing, again. Consider (d), and the dashed resistance line. You would be foolish to buy below that line, because that point has proven to be resistance in the past, so no reason to assume that it won’t act as such again, BUT if you wait until price breaks above it, you are very far away from any reasonable stop, and risking a LOT without having any idea of the upside. In the case of (d) there was quite a bit of upside, but in the case of (f), not so much – chasing after this price action in (f), above the resistance, was an excellent way of top ticking the buy, and finding yourself trapped for the rest of the session.   If you want to participate in  stock’s meteoric rise, wait for a pullback and consolidation. Yes, you’ll miss out on some profit, but you’ll miss out on losses too.

One final note about stops: when placing a stop under previous support, do not place it too close to that past support! I have seen, countless times, this situation (here I’m talking about stocks on daily charts, not min bar day trading): price approaches past support, goes under it by a hair, then suddenly jumps down more, stop, hovers, starts to recover, and shoots back up.  This is my theory of why that happens:  shorts automatically jump in few cents  below previous support – that rush of selling, in anticipation of a further slide, pushes the price down suddenly, while dip buyers are waiting to see what happens.. When the short orders are filled, there is a pause. If there is no clear evidence of further selling strength there, dip buyers will come in, and start to push the price up.. At some point, the now-trapped shorts will bail, buying back the stock, pushing the price even further up, which, to other dip buyers looks like the price found support and is recovering, which caused them to jump in, etc, etc, etc – and the stock recovers, having found new support, under old support.   This is why having a stop a hair under old support/low is a wonderful way of getting yourself stopped out on the bottom tick (and yes, I AM most definitely speaking from repeated personal experience).

Hope you’re all having a great weekend!

This post is about a general trading error, nothing to do with the Russell 2000, but keeping in line with the theme of my rule here, I’ll use TWM (a 2x Russell 2000 inverse)  to demonstrate what I’m talking about.

Scenario:

You get yourself into a horrible entry trade, which then promptly moves against you. Most likely you were chasing, hoping to ride the momentum. But the stock (or ETF) reverses, and you don’t bail out. Instead you watch it reverse, going lower, and lower, all the time thinking “I should have waited until now to buy it!”. Then the next day, a lucky break! That stock pops back up to where you bought it! However, instead of feeling lucky, you are obsessing about how much you “could have made”, had you just had a better entry, the previous day. So, rather than seeing the true p&l on that trade, you are seeing how much more it has to move, for you to make what you feel you “should” have made from a better entry, yesterday.

Then the stock pulls back, to where you are flat. You don’t bail – no, you still have a lot more coin you feel you need to make… Then it drops down… You hold it, watching it go reder and reder… Then finally you sell, taking a loss, not believing how stupid you were.
More often than not, you then watch it turn back up, and you stop looking at the screen, lest some piece of electronics goes out the window…

Here is this scenario, using TMA over the past 2 sessions:

Does this sound familiar? I bet it does.. It does to me. It’s happened to me many times over, most of the time after trying to chase a position.

This is a rule that I’ve developed for myself, to help me get out of such situations with a min of financial and emotional damage:
If Mr. Market gives you an opportunity to get out of a trade which you now recognize was a bad one, at break even, or even better, a small profit. TAKE IT!!!!!!!!!!! Do NOT (!!!!!) let thoughts of lost profit opportunities, or past day’s (or even hours’) action cloud your thinking – sell it. Period. Just do it, don’t think about it.

THEN, having removed the position from your balance and your mind, look at that stock again, objectively, taking into considering only the relevant price action. And ask yourself – outside of any other considerations (regret, frustration, etc), would I be buying this stock here and now. If the answer is yes, by all means, buy it back. If the answer is no, then don’t buy it.

Now, I know. I can see a lot of you thinking “but I don’t need to sell the stock, I can do that analysis in my head while it’ still on my books.” Guess what? If you could, you’d never yourself in this situation. Do no underestimate the impact that the very presence of a position has on your mental attitude about that stock, and what you see in the price action. This is a concept talked about in “Trading In The Zone”, an awesome book – if you have a position, it is normal for your mind to filter out “painful” information, which means your mind will give much greater weight to the ticks which “agree” with your position, and will cause you to (try and) disregard information which suggests you are “wrong” in holding that position.

If you unload that position, you no longer have to worry about that filter getting in your way – it will be much easier to OBJECTIVALY evaluate the price action, and decide if you should buy the position back…

Well, this isn’t the ultimate truth of the universe, but it is something which I’d argue over a beer…

Have a great weekend, everyone, and let’s have some great trading next week!! I picked up 200 shares of GS into the close, let’s see how that’ll treat me next week… Everything else is cash in my account.

Hi all,

The PPT hybrid oversold signal does provide for a great opportunity to trade a 1-2 day bounce, and we just saw that, and profited from it. Typically letting the oversold swings run longer is a great way to make even MORE money, however, if the market happens to be overly spooked, after a tepid bounce, we can see another leg down, to another oversold. This is exactly what happened in Aug of last year (current situation in the small PiP):

I got into TNA at the first oversold, didn’t take profit on the bounce, saw that profit disappear into a sea of red, and I didn’t have the balls to add more at the bottom. In the end I made money on the original O/S purchase  since the market recovered nicely, but the lesson here is: taking some profit on the first bounce, and getting out at flat for the rest would have been a winning strategy, allowing me to add without fear on the second O/S.

It is far too early to tell what the current action is telling us. The Bulls, as @chessNwine keeps telling us in his excellent market recaps, are doing an impressive job of keeping the market afloat. The bears, however, are doing an equally impressive job of keeping resistance down trend lines impassable, on most of the major indices. That, unfortunately, has the side effect of, by default, giving us a continued series of lower highs.

Please respect that. I am doing dip buying, but on intra-day basis (like with another TNA buy today) – not planning on putting on any swings (long or short) until we see more conviction from either the bulls or the bears.

My vague, personal feeling (from a newbie, so it’s worth what you paid to read this blog post) is that we’ll go lower before we go higher.

Update: I saw my $TNA buy go +$1, then start to retreat, so I sold out with a profit of just under $100.  Just keeping the day trading impulse happy, while the rest is patiently waiting for an indication of which way we might go, market direction wise.