Boy, was I wrong about MW missing earnings. There is never a sure bet when it comes to these earning plays. Well... there's never a sure bet when it comes to trading, period. Sure was glad I didn't play it though.
You know, here's what I'm talking about the confusion... you got a tropical-storm-soon-to-be-hurricane coming. It's not like Katrina, but at least it's the first major big one since Katrina. You would think USO and UNG would go up, but they don't. It gapped up this morning and just losing ground all day. Whatever. This means that the downtrend still holds. You don't trade the news; you trade the reaction. My short order for the coal ETF KOL got triggered and I think I should've taken some profit in the middle of the day when it started bouncing.
I'm going to list the things that didn't quite make sense to me, with what I guess was the reason in the parentheses.
SHLD misses by 12 cents but bounced hard right around 85 (GDP data that came out today)
ENER beats by 8 cents but falls after the open (Oil going down)
Potential big ass hurricane coming but crude and natural gas goes down (Dollar strengthening?)
Oh whatever... what do I know. Nobody knows anything out there. If someone tells me exactly what the market is going to do tomorrow or for any timeline I'd call him a fucking liar in his face.
FNM and FRE is touching that down trend line... I'm tired of playing these two stocks, seriously I wish the government would just come out and we're going to save it or say "let it burn!" It reminds me of a song by Usher
I was looking at the projected path for Gustav, honestly I was more interested to see if our home opening game would be ruined, but it looks like we won't know the full effect of the damage until probably Sunday or Monday. Either way, makes for a VERY interesting open on Tuesday when we come back from Labor Day, especially when we got ISM data coming out at 10 am EST as well.
Thursday, August 28, 2008
Tuesday, August 26, 2008
My Perfect Storm?
Some of my oil/energy short orders got triggered with the fear of a hurricane and it can be pretty easy to push prices around in this low volume. I think this hurricane is a little different the previous two (or was it three?) we had this season. The previous ones were quickly dismissed as no threat to the rigs out on the gulf, but judging by the projected path of this one it might actually do some damage. I've changed my limit orders to just flags now. I don't want to end up with so many positions again that I can't think clearly. If the hurricane turns out to be a whole lot of nothing I think this little spike could get you some nice entries with a reasonable stop.
I'm still up on my ENER short position from 79.95... this coming storm, oil inventories on Wednesday and I think ENER reports earnings on Thursday make me want to take profits. I'm down on GMXR and I might give it only another point b/c I take a loss. I wanted to short SPWR when it was around 97 but with the recent report about LDK and STP's good earnings and contracts I wanted to sit out and observe more. I personally want to think the solar story is over for now. A lot of these contracts were in the past, it's more important about the future projection. We'll see what SOLF says on Wednesday.
MW reports after the close on Wednesday. I might play it if I was up a lot for the day. I'm short biased against Men's Wearhouse. I think it's crap.
SAFM and SFD reported today, I think one beat earnings and the other missed; can't remember which at the moment, but both cited challenging environment, particularly the cost. I put on my DF short and it's working so far; hopefully some analyst come out and downgrade the entire industry. HRL wasn't really moving and TSN I got in kind of late for only a slight profit. PPC started dying and I really should've gotten in with earlier and with more size. I knew about the two earnings today, I simply forgot about PPC was in that group so it too me some time to believe in the move. I think that was my best trade for the day.
Russia (RSX) gapped down and finished lower again, although I'm starting to hear CNBC talk about Russia more now. It could be that they don't have anything else to cover. I mean... c'mon, they did some story on Guitar Hero today that I think they even forgot to say the stock implication. It was more about this "new" guitar they have out. It could also be an indicator that it's bottomed, as we all know often analysts downgrade the bottom and upgrade the top. Sell the frenzy and buy the panic I guess.
I'm still up on my ENER short position from 79.95... this coming storm, oil inventories on Wednesday and I think ENER reports earnings on Thursday make me want to take profits. I'm down on GMXR and I might give it only another point b/c I take a loss. I wanted to short SPWR when it was around 97 but with the recent report about LDK and STP's good earnings and contracts I wanted to sit out and observe more. I personally want to think the solar story is over for now. A lot of these contracts were in the past, it's more important about the future projection. We'll see what SOLF says on Wednesday.
MW reports after the close on Wednesday. I might play it if I was up a lot for the day. I'm short biased against Men's Wearhouse. I think it's crap.
SAFM and SFD reported today, I think one beat earnings and the other missed; can't remember which at the moment, but both cited challenging environment, particularly the cost. I put on my DF short and it's working so far; hopefully some analyst come out and downgrade the entire industry. HRL wasn't really moving and TSN I got in kind of late for only a slight profit. PPC started dying and I really should've gotten in with earlier and with more size. I knew about the two earnings today, I simply forgot about PPC was in that group so it too me some time to believe in the move. I think that was my best trade for the day.
Russia (RSX) gapped down and finished lower again, although I'm starting to hear CNBC talk about Russia more now. It could be that they don't have anything else to cover. I mean... c'mon, they did some story on Guitar Hero today that I think they even forgot to say the stock implication. It was more about this "new" guitar they have out. It could also be an indicator that it's bottomed, as we all know often analysts downgrade the bottom and upgrade the top. Sell the frenzy and buy the panic I guess.
Monday, August 25, 2008
My Slow Week?
This is the week before Labor Day, typically really slow and I think volume in most stocks and ETFs today was about 60% to almost half of their average volume. I haven't dialed down my trading shares and I really ought to this week.
I was a bit surprised at how many important numbers and earnings, especially retailers, are coming out this week. Well, I say they're important I mean they're at least interesting to me. Too bad we might not get any reaction from them at all, maybe a hiccup and that's it. Maybe this will set up for a crazy start in September after Labor Day like what happened back on MLK Day.
I'll be watching the earnings for SAFM and SFD, they sell chicken and pork, respectively. DF I think would also be in play (DF sells milk products) other than the obvious HRL and TSN. DF and SFD have shown relative strength after having multiple downgrades. We'll see if maybe they go right back down to where they bounced.
Speaking of DF... I'm really surprised what a beating WBD has taken along with the Russian ETF RSX. I can't tell how much of the down slide is related to what's going on in Georgia. I want to say the down slide started long before Georgia and that only made it worse. I'll be watching and waiting for sign of rebound in both of them.
Oh, before I get back on track again... I just realized lately that there's an ETF for heating oil, except that the volume is really too low for my liking. It might be a good idea to find a good entry right now before winter comes.
Anyway, among the retailers reporting this week, AEO, BIG, CHS, JCG, TLB, SHLD, TIF, TWB, ZLC, WSM and DDS. I haven't been able to borrow shares of ZLC so I think I'll probably just play BIG and SHLD. On top of that, we have consumer confidence and FOMC minutes coming out on Tuesday, durable goods orders along with the regular crude inventories on Wednesday, GDP on Thursday, and Chicago PMI and Michigan Sentiment on Friday. Let's please get some consistency going and form some kind of trend, but I wouldn't be surprised we end up down 200 pts one day in reaction to one number and up another 150 the next day b/c the number is not as bad as anticipated.
Nevertheless, let's get ready for some FOOTBALL! USC @ Virginia, Alabama @ Clemson, Illinois @ Missouri, and who knows, maybe Appalachian State will repeat their upset last year over Michigan at LSU this week (LSU doesn't exactly have their QB issue settled, so I wouldn't be too surprised)
I was a bit surprised at how many important numbers and earnings, especially retailers, are coming out this week. Well, I say they're important I mean they're at least interesting to me. Too bad we might not get any reaction from them at all, maybe a hiccup and that's it. Maybe this will set up for a crazy start in September after Labor Day like what happened back on MLK Day.
I'll be watching the earnings for SAFM and SFD, they sell chicken and pork, respectively. DF I think would also be in play (DF sells milk products) other than the obvious HRL and TSN. DF and SFD have shown relative strength after having multiple downgrades. We'll see if maybe they go right back down to where they bounced.
Speaking of DF... I'm really surprised what a beating WBD has taken along with the Russian ETF RSX. I can't tell how much of the down slide is related to what's going on in Georgia. I want to say the down slide started long before Georgia and that only made it worse. I'll be watching and waiting for sign of rebound in both of them.
Oh, before I get back on track again... I just realized lately that there's an ETF for heating oil, except that the volume is really too low for my liking. It might be a good idea to find a good entry right now before winter comes.
Anyway, among the retailers reporting this week, AEO, BIG, CHS, JCG, TLB, SHLD, TIF, TWB, ZLC, WSM and DDS. I haven't been able to borrow shares of ZLC so I think I'll probably just play BIG and SHLD. On top of that, we have consumer confidence and FOMC minutes coming out on Tuesday, durable goods orders along with the regular crude inventories on Wednesday, GDP on Thursday, and Chicago PMI and Michigan Sentiment on Friday. Let's please get some consistency going and form some kind of trend, but I wouldn't be surprised we end up down 200 pts one day in reaction to one number and up another 150 the next day b/c the number is not as bad as anticipated.
Nevertheless, let's get ready for some FOOTBALL! USC @ Virginia, Alabama @ Clemson, Illinois @ Missouri, and who knows, maybe Appalachian State will repeat their upset last year over Michigan at LSU this week (LSU doesn't exactly have their QB issue settled, so I wouldn't be too surprised)
Saturday, August 23, 2008
My Confusion
No major trend going that I got in early enough. I've been trying to stretch out my trading timeline and start to think more like a fund manager, but before I'm confident enough to risk real capital I've been using a trading simulation application to test my result.
Although I can't say that I thorough enjoy Andrew Horowitz's The Disciplined Investor podcast (I think he can be very condescending), which I do listen on a somewhat regular basis during my commute to work, I do like his methodology. He uses a Quanta-Funda-Techna method, which is looks at the quantitative first, then the fundamental (EPS, etc), and then the technical (charts), to screen for stocks. I personally use a similar style except I don't have a fancy term for it. In essence I look first at the big picture first, from there I identify the industries that are in play and whether it's strong or weak, from there I find the leaders and laggers of those industries. After I have narrow it down to at least a manageable list of stocks, I look less at its P/E ratio and what not, but I tend to value the IBD data more. P/E ratio... well, people make arguments for buying stocks w/ low ratios thinking it's undervalued or shorting high ratios b/c it's overvalued. Personally... I think it's a load of bull crap if you think like that. I tend to believe that stocks trades w/ a high P/E ratio for a reason. I use it more for a screening tool, but I wouldn't formulate my opinion over a stock over that simple ratio. One additional note though is that I would almost never buy a stock w/ a P/E ratio more than two times its growth rate.
I don't believe that us traders should "predict" the market. What we should do is observe what's happening in our environment for changes and catalysts, find potential trades from that and wait for confirmation. I've come to the realization that the market doesn't care what I think. I might think short or long a stock when the tape is telling me the opposite and the market slaps me w/ a big F-U!
Although I usually don't spot the up trend early enough and I don't like to chase them, what goes up usually comes back down. I guess I have to thank my experience w/ JSDA. It's possibly the easiest pattern to recognize. These growth stocks shoot up after a few blow out quarters and then the analysts start praising the companies, but once the earnings slow down and you start seeing the lower low and lower high pattern... get in and short. There are tons of examples, CROX went from 75 to 4. CEA: 120 back down to 20. ZNH: 90 to 16.
Lately I've been just floating out shares on this trading simulation platform and getting whacked left and right. My entries are usually terrible and honestly nothing is trending very well... at least the ones that I got into. But I've cleaned out everything in my fake portfolio and starting over. Recently the craze about oil gave you some good chance shorting oil and oil/energy related stocks on the way down. Two days ago the pop in XTO, DVN, APA, CLR and CNQ gave you a good short entry with a reasonable stop... except for some reason I thought it was going to break out and longed it to "hedge" against my other oil and energy short positions. Really don't understand what I was thinking. I guess I thought these stocks were beat up way too much.
JRCC at 45 looks like a pretty good short to me, although the chart is not as clean as I'd like. PCX is also not as clear, but I'll definitely short it when it breaks 50. CWEI has a cleaner lower high and lower low pattern, although this stock is kind of illiquid and the spread is bigger. I'm looking to get in around 88, 89 on the next spike. SPWR above 80 is a clear break out; although now I'm looking to get short close to this 100 level. LUFK still looks like it's in an up trend, I'm waiting for it to break down. ENER at 80 also looks like a good short. I'm also looking to short some metal and heavy construction stocks... MEA is this only one that I know off the top of my mind would be a good one, but we'll see what happens w/ X and CLF.
It sounds like I'm a bear and I'd have to say I'm slightly short biased b/c stocks tend to move down faster than they move up, but you need to be able to go both ways, too. When oil starts to break the trend, you could find stuff that would benefit from this... namely, the airline stocks that have been beaten up so much. I've sort of missed the train going long on them so I'm going to wait to see if I can get a good entry.
Although I can't say that I thorough enjoy Andrew Horowitz's The Disciplined Investor podcast (I think he can be very condescending), which I do listen on a somewhat regular basis during my commute to work, I do like his methodology. He uses a Quanta-Funda-Techna method, which is looks at the quantitative first, then the fundamental (EPS, etc), and then the technical (charts), to screen for stocks. I personally use a similar style except I don't have a fancy term for it. In essence I look first at the big picture first, from there I identify the industries that are in play and whether it's strong or weak, from there I find the leaders and laggers of those industries. After I have narrow it down to at least a manageable list of stocks, I look less at its P/E ratio and what not, but I tend to value the IBD data more. P/E ratio... well, people make arguments for buying stocks w/ low ratios thinking it's undervalued or shorting high ratios b/c it's overvalued. Personally... I think it's a load of bull crap if you think like that. I tend to believe that stocks trades w/ a high P/E ratio for a reason. I use it more for a screening tool, but I wouldn't formulate my opinion over a stock over that simple ratio. One additional note though is that I would almost never buy a stock w/ a P/E ratio more than two times its growth rate.
I don't believe that us traders should "predict" the market. What we should do is observe what's happening in our environment for changes and catalysts, find potential trades from that and wait for confirmation. I've come to the realization that the market doesn't care what I think. I might think short or long a stock when the tape is telling me the opposite and the market slaps me w/ a big F-U!
Although I usually don't spot the up trend early enough and I don't like to chase them, what goes up usually comes back down. I guess I have to thank my experience w/ JSDA. It's possibly the easiest pattern to recognize. These growth stocks shoot up after a few blow out quarters and then the analysts start praising the companies, but once the earnings slow down and you start seeing the lower low and lower high pattern... get in and short. There are tons of examples, CROX went from 75 to 4. CEA: 120 back down to 20. ZNH: 90 to 16.
Lately I've been just floating out shares on this trading simulation platform and getting whacked left and right. My entries are usually terrible and honestly nothing is trending very well... at least the ones that I got into. But I've cleaned out everything in my fake portfolio and starting over. Recently the craze about oil gave you some good chance shorting oil and oil/energy related stocks on the way down. Two days ago the pop in XTO, DVN, APA, CLR and CNQ gave you a good short entry with a reasonable stop... except for some reason I thought it was going to break out and longed it to "hedge" against my other oil and energy short positions. Really don't understand what I was thinking. I guess I thought these stocks were beat up way too much.
JRCC at 45 looks like a pretty good short to me, although the chart is not as clean as I'd like. PCX is also not as clear, but I'll definitely short it when it breaks 50. CWEI has a cleaner lower high and lower low pattern, although this stock is kind of illiquid and the spread is bigger. I'm looking to get in around 88, 89 on the next spike. SPWR above 80 is a clear break out; although now I'm looking to get short close to this 100 level. LUFK still looks like it's in an up trend, I'm waiting for it to break down. ENER at 80 also looks like a good short. I'm also looking to short some metal and heavy construction stocks... MEA is this only one that I know off the top of my mind would be a good one, but we'll see what happens w/ X and CLF.
It sounds like I'm a bear and I'd have to say I'm slightly short biased b/c stocks tend to move down faster than they move up, but you need to be able to go both ways, too. When oil starts to break the trend, you could find stuff that would benefit from this... namely, the airline stocks that have been beaten up so much. I've sort of missed the train going long on them so I'm going to wait to see if I can get a good entry.
Monday, August 18, 2008
My Possible New Home
I'm posting some pictures of the new house that we should hear back from the buyer today (after finally figure out how to use the slideshow feature on Picasa). Chances are we'll have to raise our offer a little bit but hopefully there's a zone to negotiate in. This place will cut my commute to work by maybe more than half.
The view is pretty good. I don't want to sound like a brat but I know there are other houses that we looked at with better view but with the combination of price and distance to the office this one is great. I really dig the Tuscan style, although I think my mom hated it at first. My favorite room is the study. One of the houses that we grew up in my parents had someone come in and custom build a bookshelf for my sister and me in our rooms so we can put all our books. I can't quite explain it but I always loved that bookshelf. It's easy to put all the books and what not there. Maybe it makes me feel smart? Not quite sure. There is a tree kind of blocking the view of the hill but I think I can easily chop it down or even we put in a pool that's probably gotta go anyway.
Fingers crossed that we got a desperate selling on our hands. The seller has already moved out for a while, I think he's in Florida now? I just think that the house has a lot of character and I loved Chianti when I visited.
I do have to make a brief comment related to trading on this. Personally, my view of the housing market that is it'll probably reach true bottom next year, but we all know how hard it is to pick the exact bottom. There's a lot of news on how much the housing crisis has created and although I didn't see as many signs w/ the house that we made an offer on, the house the next door was also for sale and I could piece together some signs of just much pain the seller is trying to sell the house. The house next door is smaller and the view is better, but it's been sitting on the market almost too long and the price has gone down I think by about 300 to 500k. The realtor said the seller was an interior designer and designed the house himself. Although I can't say I liked the layout of the house... there were just... too much wall. My personal opinion is that he didn't utilize the space well enough and ended up w/ bunch of rooms that were just too small and cramped, at least for my style. Even the kitchen was kind of small.
Anyway, what I saw from around the house I was willing to bet that this guy was divorced b/c all you see are pictures of his kids or him w/ his kids but there's no picture of the mom what so ever, which I thought at least was kind of interesting/weird. The master bedroom was just a full size, maybe a really small queen? It just seems out of place for a "family" bed. There were two rooms for the kids but as I peeked to seek the closet space there were no clothes in there, which led me to guess that the kids just visit on weekends. So we've got a below average interior designer in a struggling economy and housing market (I'm not trying to make fun of the guy but I really think the layout of the house is terrible), divorced, and the bank is about to foreclose on his house unless he sells it before a certain date. I feel for the guy, you know? Can you imagine families out there with more kids and worse jobs than this guy and how much they're going through trying to make payments on their mortgage.
Sunday, August 17, 2008
Trading in the Zone Recap
I just finished reading Mark Douglas' Trading in the Zone. It took me way too long to finish the book. The Dale Carnegie class started when I was in the middle of the book so I started reading for the class instead and I didn't really pick up Douglas' book again for a while. Plus, I just have to say that this book is pretty deep. There are time I felt like I was Neo from The Matrix reading something Morpheus wrote. It's in English and I understand the words but when they're put together I can't seem to understand them sometimes. It's like the author is using one string of long and complicated thought to explain another long and complicated thought.
Despite that, I'd still recommend the book. It talks about trading on a psychological level, which is something that I need to read at the moment. The main idea of the book is to get over the fear or other negatively charged energy that we have and trade in a state of mind where we're not scared of losing money or get upset if a trade doesn't work out, but instead treat trading as a series of probabilities. You can achieve consistent result if you identify what is your edge and have good risk reward, therefore if you win only say 50% or 60% of the time but you have a 3:1 or 2:1 risk reward you're going to make money consistently.
Here are the quotables from the book:
The defining characteristic that separates the consistent winners from everyone else is this: The winners have attained a mind-set --- a unique set of attitudes --- that allows them to remain disciplined, focused, and, above all, confident in spite of adverse conditions. As a result, they are no longer susceptible to the common fears and trading errors that plague everyone else.
I don't think I could put the difference between the consistent winners and everyone else more simply than this: The best traders aren't afraid. They aren't afraid because they have developed attitudes that give them the greatest degree of mental flexibility to flow in and out of trades based on what the market is telling them about the possibilities from its perspective. At the same time, the best traders have developed attitudes that prevent them from getting reckless. Everyone else is afraid, to some degree or another. When they're not afraid, they have the tendency to become reckless and to create the kind of experience for themselves that will cause them to be afraid from that point on.
So if you are afraid of being wrong or losing money, it means you will never learn enough to compensate for the negative effects these fears will have on your ability to be objective and you ability to act without hesitation. In other words, you won't be confident in the face of constant uncertainty. The hard, cold reality of trading is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, you will try either consciously or unconsciously to avoid any possibility you define as painful. In the process, you will subject yourself to any number of self-generated, costly errors.
... It will feel like you can't trust the markets; but the reality is, you can't trust yourself.
Trading can be characterized as a pure, unencumbered personal choice with an immediate outcome. Remember, nothing happens until we decide to start; it lasts as long as we want; and it doesn't end until we decided to stop. All of these beginnings, middles, and endings are the result of our interpretation of the information available and how we choose to act on our interpretation. Now, we may want the freedom to make choices, but that doesn't mean we are ready and willing to accept the responsibility for the outcomes. Traders who are not ready to accept responsibility for the outcomes of their interpretation and actions will find themselves in a dilemma: How does one participate in an activity that allows complete freedom of choice, and at the same time avoid taking responsibility if the outcome of one's choices are unexpected and not to one's liking?
The hard reality of trading is that, if you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible. This is a level of responsibility few people have aspired to before they decide to become traders. The way to avoid responsibility is to adopt a trading style that is, to all intents and purposes, random. I define random trading as poorly-planned trades or trades that are not planned at all. It is an unorganized approach that takes into consideration an unlimited set of market variables, which do not allow you to find out what works on a consistent basis and what does not.
The best traders think in a number of unique ways. They have acquired a mental structure that allows them to trade without fear and, at the same time, keeps them from becoming reckless and committing fear-based errors.... the bottom line is that successful traders have virtually eliminated the effects of fear ad recklessness from their trading. These two fundamental characteristics allow them to achieve consistent results.
The consistency you seek is in your mind, not in the markets. It's attitudes and beliefs about being wrong, losing money, and the tendency to become reckless, when you're feeling good, that cause most losses--not technique or market knowledge.
It's when you're winning that you are most susceptible to making a mistake, overtrading, putting on too large a position, violating your rules, or generally operating as if no prudent boundaries on your behavior are necessary. You may even go to the extreme of thinking you are the market. However, the market rarely agrees, and when it disagrees, you'll get hurt. The loss and the emotional pain are usually significant. You will experience a boom, followed by the inevitable bust.
What separates the best traders from everyone else is not what they do or when they do it, but rather how they think about what they do and how they're thinking when they do it.
If your goal is to trade like a professional and be a consistent winner, then you must start from the premise that the solutions are in your mind and not in the market. Consistency is a state of mind that has at its core certain fundamental thinking strategies that are unique to trading.
You can't rely on the market to make you consistently successful, any more than you can rely on the outside world to make you consistently happy. People who are truly happy don't have to do anything in order to be happy. They are happy people who do things.
The best traders stay in the flow because they don't try to get anything from the market; they simply make themselves available so they can take advantage of whatever the market is offering at any given moment.
The threat of pain generates fear, and fear is the source of 95 percent of the errors you are likely to make.
Risk is relative, but to the person who perceives it in the moment, it seems absolute and beyond question. when the child encountered his first dog, he was bubbling with excitement and curiosity. What is it about the way our minds think and process information that could automatically flip the boy into a state of fear the next time he encounters a dog, even if it's months or years later.
If there is such a thing as a secret to the nature of trading, this is it: At the very core of one's ability 1) to trade without fear or overconfidence, 2) perceive what the market is offering from its perspective, 3) stay completely focused in the "now moment opportunity flow," and 4) spontaneously enter the "zone," it is a strong virtually unshakable belief in an uncertain outcome with an edge in your favor.
Not predefining your risk, not cutting your losses, or not systematically taking profits are three of the most common--and usually the most costly--trading errors you can make. Only the best traders have eliminated these errors from their trading. At some point in their careers, they learned to believe without a shred of doubt that anything can happen, and to always account for what they don't know, for the unexpected.
When you've trained your mind to think in probabilities, it means you have fully accepted all the possibilities (with no internal resistance or conflict) and you always do something to take the unknown forces into account. Thinking this way is virtually impossible unless you've done the mental work necessary to "let go" of the need to know what is going to happen next or the need to be right on each trade. In fact, the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.
In what way does a trader have to learn how to be rigid and flexible at the same time? The answer is: We have to be rigid in our rules and flexible in our expectations. We need to be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an environment that has few, if any, boundaries. We need to be flexible in our expectations so we can perceive, with the greatest degree of clarity and objectivity, what the market is communicating to us from its perspective. At this point, it probably goes without saying that the typical trader does just the opposite: He is flexible in his rule sand rigid in his expectations. Interestingly enough the more rigid the expectation, the more he has to either bend, violate, or break his rules in order to accommodate his unwillingness to give up what he wants in favor of what the market is offering.
A probabilistic ind-set pertaining to trading consists of five fundamental truths:
1) Anything can happen
2) You don't need to know what is going to happen next in order to make money
3) There is a random distribution between wins and losses for any given set of variables that define an edge
4) An edge is nothing more than an indication of a higher probability of one thing happening over another
5) Every moment in the market is unique
The best traders are in the "now moment" because there's no stress. There's no stress because there's nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove anything. If and when the market tells them that their edges aren't working or that it's time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge.
Consistency is the result of a carefree, objective state of mind, where we are making ourselves available to perceive and act upon whatever the market is offering us (from its perspective) in any given "now moment."
To remove the sense of threat, you have to accept the risk completely. When you have accepted the risk, you will be at pace with any outcome. To be at peace with any outcome, you must reconcile anything in your mental environment that conflicts with the five fundamental truths about the market. What's more, you also have to integrate these truths into your mental system as core beliefs.
When you really believe that trading is simply a probability game, concepts like right and wrong or win and lose no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.
When you believe at a functional level that every edge has a unique outcome (meaning that it's a dominant belief without any other beliefs arguing for something different), you will experience a state of mind that is free of fear, stress, and anxiety when you trade. It really can't work any other way. A unique outcome is not something we have already experienced, therefor it is not something we can already know. If it were know, it could not be defined as unique. when you believe that you don't now what is going to happen next, what exactly are you expecting from the market? If you said "I don't know," you are absolutely right. If you believe that something will happen and that you don't need to know exactly what that something is to make money, then where's the potential to define and interpret market information as threatening and painful? If you said "There is none," you are absolutely right again.
If you are not experiencing the quality of mental freedom and it is your desire to do so, then you must take an active role in training your mind to believe in the uniqueness of each moment, and you must de-activate any other belief that argues for something different.
If you asked me to distill trading down to its simplest form, I would say that it is a pattern recognition numbers game. We use market analysis to identify the patterns, define the risk, and determine when to take profits. the trade either works or it doesn't. In any case, we go on to the next trade. It's that simple, but it's certainly not easy. In fact, trading is probably the hardest thing you'll ever attempt to be successful at. That's not because it requires intellect; quite the contrary! But because the more you think you know, the less successful you'll be. Trading is hard because you have to operate in a state of not having to know, even though your analysis may turn out at times to be "perfectly" correct. To operate in a state of not having to know, you have to properly manage your expectations. To properly manage your expectation, you must realign your mental environment so that you believe without a shadow of a doubt in the five fundamental truths.
When it comes to personal transformation, the most important ingredients are your willingness to change, the clarity of your intent, and the strength of your desire. Ultimately, for this process to work, you must choose consistency over every other reason or justification you have for trading
What separates the "consistently great" athletes and performers from everyone else is their distinct lack of fear of making a mistake. The reason they aren't afraid is that they don't have a reason to think less of themselves when they do make a mistake, meaning they don't have a reservoir of negatively charged energy waiting to well up and pounce on their conscious thought process like a lion waiting for the right moment to pounce on its intended prey.
Self-discipline is a technique to create a new mental framework. It is not a personality trait. People are born with self-discipline.
Beliefs can be changed, and if it's possible to change one belief, then it's possible to change any belief, if you understand that you really aren't changing them, but are only transferring energy from one concept to another
sub-beliefs building blocks that provide the underlying structure for what is means "to be a consistent winner."
1) I objectively identify my edges
2) I predefine the risk of every trade
3) I completely accept the risk or I am willing to let go of the trade
4) I act on my edges without reservation or hesitation
5) I pay myself as the market makes money available to me
6) I continually monitor my susceptibility for making errors
7) I understand the absolute necessity of these principles of consistent success and therefore, I never violate them.
Despite that, I'd still recommend the book. It talks about trading on a psychological level, which is something that I need to read at the moment. The main idea of the book is to get over the fear or other negatively charged energy that we have and trade in a state of mind where we're not scared of losing money or get upset if a trade doesn't work out, but instead treat trading as a series of probabilities. You can achieve consistent result if you identify what is your edge and have good risk reward, therefore if you win only say 50% or 60% of the time but you have a 3:1 or 2:1 risk reward you're going to make money consistently.
Here are the quotables from the book:
The defining characteristic that separates the consistent winners from everyone else is this: The winners have attained a mind-set --- a unique set of attitudes --- that allows them to remain disciplined, focused, and, above all, confident in spite of adverse conditions. As a result, they are no longer susceptible to the common fears and trading errors that plague everyone else.
I don't think I could put the difference between the consistent winners and everyone else more simply than this: The best traders aren't afraid. They aren't afraid because they have developed attitudes that give them the greatest degree of mental flexibility to flow in and out of trades based on what the market is telling them about the possibilities from its perspective. At the same time, the best traders have developed attitudes that prevent them from getting reckless. Everyone else is afraid, to some degree or another. When they're not afraid, they have the tendency to become reckless and to create the kind of experience for themselves that will cause them to be afraid from that point on.
So if you are afraid of being wrong or losing money, it means you will never learn enough to compensate for the negative effects these fears will have on your ability to be objective and you ability to act without hesitation. In other words, you won't be confident in the face of constant uncertainty. The hard, cold reality of trading is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome, you will try either consciously or unconsciously to avoid any possibility you define as painful. In the process, you will subject yourself to any number of self-generated, costly errors.
... It will feel like you can't trust the markets; but the reality is, you can't trust yourself.
Trading can be characterized as a pure, unencumbered personal choice with an immediate outcome. Remember, nothing happens until we decide to start; it lasts as long as we want; and it doesn't end until we decided to stop. All of these beginnings, middles, and endings are the result of our interpretation of the information available and how we choose to act on our interpretation. Now, we may want the freedom to make choices, but that doesn't mean we are ready and willing to accept the responsibility for the outcomes. Traders who are not ready to accept responsibility for the outcomes of their interpretation and actions will find themselves in a dilemma: How does one participate in an activity that allows complete freedom of choice, and at the same time avoid taking responsibility if the outcome of one's choices are unexpected and not to one's liking?
The hard reality of trading is that, if you want to create consistency, you have to start from the premise that no matter what the outcome, you are completely responsible. This is a level of responsibility few people have aspired to before they decide to become traders. The way to avoid responsibility is to adopt a trading style that is, to all intents and purposes, random. I define random trading as poorly-planned trades or trades that are not planned at all. It is an unorganized approach that takes into consideration an unlimited set of market variables, which do not allow you to find out what works on a consistent basis and what does not.
The best traders think in a number of unique ways. They have acquired a mental structure that allows them to trade without fear and, at the same time, keeps them from becoming reckless and committing fear-based errors.... the bottom line is that successful traders have virtually eliminated the effects of fear ad recklessness from their trading. These two fundamental characteristics allow them to achieve consistent results.
The consistency you seek is in your mind, not in the markets. It's attitudes and beliefs about being wrong, losing money, and the tendency to become reckless, when you're feeling good, that cause most losses--not technique or market knowledge.
It's when you're winning that you are most susceptible to making a mistake, overtrading, putting on too large a position, violating your rules, or generally operating as if no prudent boundaries on your behavior are necessary. You may even go to the extreme of thinking you are the market. However, the market rarely agrees, and when it disagrees, you'll get hurt. The loss and the emotional pain are usually significant. You will experience a boom, followed by the inevitable bust.
What separates the best traders from everyone else is not what they do or when they do it, but rather how they think about what they do and how they're thinking when they do it.
If your goal is to trade like a professional and be a consistent winner, then you must start from the premise that the solutions are in your mind and not in the market. Consistency is a state of mind that has at its core certain fundamental thinking strategies that are unique to trading.
You can't rely on the market to make you consistently successful, any more than you can rely on the outside world to make you consistently happy. People who are truly happy don't have to do anything in order to be happy. They are happy people who do things.
The best traders stay in the flow because they don't try to get anything from the market; they simply make themselves available so they can take advantage of whatever the market is offering at any given moment.
The threat of pain generates fear, and fear is the source of 95 percent of the errors you are likely to make.
Risk is relative, but to the person who perceives it in the moment, it seems absolute and beyond question. when the child encountered his first dog, he was bubbling with excitement and curiosity. What is it about the way our minds think and process information that could automatically flip the boy into a state of fear the next time he encounters a dog, even if it's months or years later.
If there is such a thing as a secret to the nature of trading, this is it: At the very core of one's ability 1) to trade without fear or overconfidence, 2) perceive what the market is offering from its perspective, 3) stay completely focused in the "now moment opportunity flow," and 4) spontaneously enter the "zone," it is a strong virtually unshakable belief in an uncertain outcome with an edge in your favor.
Not predefining your risk, not cutting your losses, or not systematically taking profits are three of the most common--and usually the most costly--trading errors you can make. Only the best traders have eliminated these errors from their trading. At some point in their careers, they learned to believe without a shred of doubt that anything can happen, and to always account for what they don't know, for the unexpected.
When you've trained your mind to think in probabilities, it means you have fully accepted all the possibilities (with no internal resistance or conflict) and you always do something to take the unknown forces into account. Thinking this way is virtually impossible unless you've done the mental work necessary to "let go" of the need to know what is going to happen next or the need to be right on each trade. In fact, the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.
In what way does a trader have to learn how to be rigid and flexible at the same time? The answer is: We have to be rigid in our rules and flexible in our expectations. We need to be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an environment that has few, if any, boundaries. We need to be flexible in our expectations so we can perceive, with the greatest degree of clarity and objectivity, what the market is communicating to us from its perspective. At this point, it probably goes without saying that the typical trader does just the opposite: He is flexible in his rule sand rigid in his expectations. Interestingly enough the more rigid the expectation, the more he has to either bend, violate, or break his rules in order to accommodate his unwillingness to give up what he wants in favor of what the market is offering.
A probabilistic ind-set pertaining to trading consists of five fundamental truths:
1) Anything can happen
2) You don't need to know what is going to happen next in order to make money
3) There is a random distribution between wins and losses for any given set of variables that define an edge
4) An edge is nothing more than an indication of a higher probability of one thing happening over another
5) Every moment in the market is unique
The best traders are in the "now moment" because there's no stress. There's no stress because there's nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove anything. If and when the market tells them that their edges aren't working or that it's time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge.
Consistency is the result of a carefree, objective state of mind, where we are making ourselves available to perceive and act upon whatever the market is offering us (from its perspective) in any given "now moment."
To remove the sense of threat, you have to accept the risk completely. When you have accepted the risk, you will be at pace with any outcome. To be at peace with any outcome, you must reconcile anything in your mental environment that conflicts with the five fundamental truths about the market. What's more, you also have to integrate these truths into your mental system as core beliefs.
When you really believe that trading is simply a probability game, concepts like right and wrong or win and lose no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.
When you believe at a functional level that every edge has a unique outcome (meaning that it's a dominant belief without any other beliefs arguing for something different), you will experience a state of mind that is free of fear, stress, and anxiety when you trade. It really can't work any other way. A unique outcome is not something we have already experienced, therefor it is not something we can already know. If it were know, it could not be defined as unique. when you believe that you don't now what is going to happen next, what exactly are you expecting from the market? If you said "I don't know," you are absolutely right. If you believe that something will happen and that you don't need to know exactly what that something is to make money, then where's the potential to define and interpret market information as threatening and painful? If you said "There is none," you are absolutely right again.
If you are not experiencing the quality of mental freedom and it is your desire to do so, then you must take an active role in training your mind to believe in the uniqueness of each moment, and you must de-activate any other belief that argues for something different.
If you asked me to distill trading down to its simplest form, I would say that it is a pattern recognition numbers game. We use market analysis to identify the patterns, define the risk, and determine when to take profits. the trade either works or it doesn't. In any case, we go on to the next trade. It's that simple, but it's certainly not easy. In fact, trading is probably the hardest thing you'll ever attempt to be successful at. That's not because it requires intellect; quite the contrary! But because the more you think you know, the less successful you'll be. Trading is hard because you have to operate in a state of not having to know, even though your analysis may turn out at times to be "perfectly" correct. To operate in a state of not having to know, you have to properly manage your expectations. To properly manage your expectation, you must realign your mental environment so that you believe without a shadow of a doubt in the five fundamental truths.
When it comes to personal transformation, the most important ingredients are your willingness to change, the clarity of your intent, and the strength of your desire. Ultimately, for this process to work, you must choose consistency over every other reason or justification you have for trading
What separates the "consistently great" athletes and performers from everyone else is their distinct lack of fear of making a mistake. The reason they aren't afraid is that they don't have a reason to think less of themselves when they do make a mistake, meaning they don't have a reservoir of negatively charged energy waiting to well up and pounce on their conscious thought process like a lion waiting for the right moment to pounce on its intended prey.
Self-discipline is a technique to create a new mental framework. It is not a personality trait. People are born with self-discipline.
Beliefs can be changed, and if it's possible to change one belief, then it's possible to change any belief, if you understand that you really aren't changing them, but are only transferring energy from one concept to another
sub-beliefs building blocks that provide the underlying structure for what is means "to be a consistent winner."
1) I objectively identify my edges
2) I predefine the risk of every trade
3) I completely accept the risk or I am willing to let go of the trade
4) I act on my edges without reservation or hesitation
5) I pay myself as the market makes money available to me
6) I continually monitor my susceptibility for making errors
7) I understand the absolute necessity of these principles of consistent success and therefore, I never violate them.
Saturday, August 16, 2008
My Hibernation
It's August... really, not much to update trading wise. We had a Fed day and even that was very much a non-event. The market barely moved at all when the announcement came out. Honestly, August is probably not that bad, I just always had a losing trade to close out the day. I had one day that I put in bunch of short sell orders when I thought I was putting in bids and another day I put in my bid price a whole dollar higher and end up losing a chunk of money.
Two more weddings in August... one was for my sister and the other was for Kristen, a friend of mine since high school. I actually ran into our Risk Manager from work at Kristen's wedding... turns out he knew the groom's grandparents. I think I'm done for a while, there are few more weddings I know are in the pipeline but it might not be as big of a deal and I'm not sure I'll be invited. It was a little awkward seeing an ex at Kristen's wedding, but I think at least I'm finally over her. I had to say though that I was a little bit disappointed in the food, maybe it was b/c my expectation was way too high. Seriously though, the salad the served us was like something they bought at Sam's Club. The food was awesome at my sister's wedding though. We're friends w/ the owner of Cafe 101, and they had sushi and sashimi for appetizer and the main course I couldn't even finish b/c I was way too full by that point.
I don't know if it's b/c of the fact that I've been staying up watching coverage of the Olympic games or what but I've been feeling kind of tired and honestly, not really motivated to trade. I probably should've booked that trip to NYC. Phelps is just amazing. He puts so much pressure on himself you have to be a little concerned whether he will snap or not and what happens if he ends up w/ only 6 or 7 gold medals. It really reminds me of some friends from Southwestern that sets extremely and ridiculous high goals for themselves and still manage to accomplish those goals. I don't care what planet you are from, the human race never ceases to amaze you.
Oh, and I'm happy to report that my family has made an offer on a house. The buyer hasn't responded yet. I think we've low balled him too much. He's moved out of the house for a while now, I suppose we'll be able to see just how eager he is to sell w/ this offer. We're willing to go a little higher, maybe to a point where he'll break even after paying commission to the brokers. I don't really want to count my eggs b4 they hatch though, a lot could happen in the negotiation process. It would be nice though to live much closer to the office. The view is nice and we have already made some plans on building a pool and where to put a ping pong table and all that. Again, anything could happen. We'll make more plans when we actually get the house.
Dale Carnegie class is going really well. I love seeing the breakthroughs people have in the class. Starting in September the class will be on Thursdays and I think I'm going to take furthers steps on becoming an instructor in the future and deeper in with the organization.
Sigh... I just feel like taking a really long nap. Wake me up after Labor Day. More detailed updates on the weddings, house and Dale Carnegie class when I get more energy.
Two more weddings in August... one was for my sister and the other was for Kristen, a friend of mine since high school. I actually ran into our Risk Manager from work at Kristen's wedding... turns out he knew the groom's grandparents. I think I'm done for a while, there are few more weddings I know are in the pipeline but it might not be as big of a deal and I'm not sure I'll be invited. It was a little awkward seeing an ex at Kristen's wedding, but I think at least I'm finally over her. I had to say though that I was a little bit disappointed in the food, maybe it was b/c my expectation was way too high. Seriously though, the salad the served us was like something they bought at Sam's Club. The food was awesome at my sister's wedding though. We're friends w/ the owner of Cafe 101, and they had sushi and sashimi for appetizer and the main course I couldn't even finish b/c I was way too full by that point.
I don't know if it's b/c of the fact that I've been staying up watching coverage of the Olympic games or what but I've been feeling kind of tired and honestly, not really motivated to trade. I probably should've booked that trip to NYC. Phelps is just amazing. He puts so much pressure on himself you have to be a little concerned whether he will snap or not and what happens if he ends up w/ only 6 or 7 gold medals. It really reminds me of some friends from Southwestern that sets extremely and ridiculous high goals for themselves and still manage to accomplish those goals. I don't care what planet you are from, the human race never ceases to amaze you.
Oh, and I'm happy to report that my family has made an offer on a house. The buyer hasn't responded yet. I think we've low balled him too much. He's moved out of the house for a while now, I suppose we'll be able to see just how eager he is to sell w/ this offer. We're willing to go a little higher, maybe to a point where he'll break even after paying commission to the brokers. I don't really want to count my eggs b4 they hatch though, a lot could happen in the negotiation process. It would be nice though to live much closer to the office. The view is nice and we have already made some plans on building a pool and where to put a ping pong table and all that. Again, anything could happen. We'll make more plans when we actually get the house.
Dale Carnegie class is going really well. I love seeing the breakthroughs people have in the class. Starting in September the class will be on Thursdays and I think I'm going to take furthers steps on becoming an instructor in the future and deeper in with the organization.
Sigh... I just feel like taking a really long nap. Wake me up after Labor Day. More detailed updates on the weddings, house and Dale Carnegie class when I get more energy.
Tuesday, August 5, 2008
My August So Far
Three trading days into August so far. It looks like I'll be at David's desk for about another two weeks maybe three. Last three days has been ok, could've been better since I hit a losing trade into the close all three days. Today it was a key stroke that cost me a couple hundred bucks... I mean to put bids out instead I got short 1200 shares of some stupid stock at a really bad price. It's ok though. I know I can do well by eliminating some of these mistakes.
Not sure what August is going to be like. It could be real crazy like last year or it could be boring as hell. The Fed decision day today was pretty much a none event. It was left unchanged just like everybody expected. The next meeting is not until September 16th, sigh... I think we're going to have a boring August.
I got an email for the Managing Director as well as the CEO congratulating me on a good month. Personally I was a little bit worried b/c I couldn't quite pinpoint what to credit my good month to. I didn't feel like I did anything too differently, if there's any difference it would be from a confidence perspective or something subconsciously. I looked over my numbers w/ Jane and it looks like my win percentage was about 66% compared to 60% in prior month(s) and I was doing about 5,000 more shares per day. My down efficiency went up but so did my up efficiency. My goals for this month is to have the same consistency, 3-1 up vs. down day ratio and I want my up day to be twice as big as my down day number.
Are we out the bear market? Who knows... I kind of think it is and this is based on the event last week when MER announced another bad write-down but the street didn't react negatively to it at all. We'll probably be sideways until the next Fed meeting, SPY is starting to form a channel btwn 124 and 129.
Not sure what August is going to be like. It could be real crazy like last year or it could be boring as hell. The Fed decision day today was pretty much a none event. It was left unchanged just like everybody expected. The next meeting is not until September 16th, sigh... I think we're going to have a boring August.
I got an email for the Managing Director as well as the CEO congratulating me on a good month. Personally I was a little bit worried b/c I couldn't quite pinpoint what to credit my good month to. I didn't feel like I did anything too differently, if there's any difference it would be from a confidence perspective or something subconsciously. I looked over my numbers w/ Jane and it looks like my win percentage was about 66% compared to 60% in prior month(s) and I was doing about 5,000 more shares per day. My down efficiency went up but so did my up efficiency. My goals for this month is to have the same consistency, 3-1 up vs. down day ratio and I want my up day to be twice as big as my down day number.
Are we out the bear market? Who knows... I kind of think it is and this is based on the event last week when MER announced another bad write-down but the street didn't react negatively to it at all. We'll probably be sideways until the next Fed meeting, SPY is starting to form a channel btwn 124 and 129.
Subscribe to:
Posts (Atom)
