1
Sep

Que Sera Sera - Some Things Never Change $SPX $DJI

This is a little piece I wrote several years ago and I had chosen it as the introduction to my new website when I started this site. Some things need to be re-posted. I hope you enjoy it.

 

Doris Day - Que Sera Sera

 

When I was just a little girl, I asked my Mother what will I be? Will I be pretty? Will I be rich? Here’s what she said to me

Que Sera, Sera…Whatever will be, will be. The future’s not ours to see…Que Sera, Sera…..

From the book Psychology of the Stock Market, by George Charles Selden.

1 – Your main purpose must be to keep the mind clear and well balanced. Hence, do not act hastily on apparently sensational information; do not trade so heavily as to become anxious; and do not permit yourself to be influenced by your position in the market.

2 – Act on your own judgment, or else act absolutely and entirely on the judgment of another, regardless of your own opinion. “Too many cooks spoil the broth.”

3 – When in doubt, keep out of the market. Delays cost less than losses.

4 – Endeavor to catch the trend of sentiment. Even if this should be temporarily against fundamental conditions, it is nevertheless unprofitable to oppose it.

5 – The greatest fault of ninety-nine out of one hundred active traders is being bullish at high prices and bearish at low prices. Therefore, refuse to follow the market beyond what you consider a reasonable climax, no matter how large the possible profits that you may appear to be losing by inaction.

These words, his personal summary of the ideas he tries to espouse, are rules to live by for any active trader. Written by Selden in 1912, his book is amazingly accurate in describing the sentiment of today’s market and every market for the last century.

Believe it or not, the market has not changed in these one-hundred years because we the people have not changed. We would like to believe that we have evolved with all our new technology; that trading and investing today is unique to any time in history, but this is merely delusional. We are emotional beings reacting with the same fear of winning or losing and the enthusiasm for knowing our business; both these emotions hinder our ability to be objective with regards to Mr. Market.

In these last few years that I have been trading actively, I have heard many seasoned traders talk of this being a normal or abnormal market. I have heard traders say that this it is not right that we should not be able to profit more than 3%-5% on a trade and I have heard traders say that it is not right when we are able to profit more that 3%-5% on a trade, but in actuality, this is all normal. The market finds a point where it will rise when it can no longer sell off until it reaches the point where it should rise no further. At this time, it continues to rise in small increments, what we call the chop for a few days or more until it finally turns to the downside. The trader who says, “finally a normal market” is just as naïve as the trader who asks, “what happened to our normal market?” – for both conditions exist, have always existed and will always exist.

The same holds true for the inverse, as the market will sell off to the point where it should sell off no further based on fundamental analysis, but it will continue down in a chop just as it did at the market top. There are, and always have been, traders who take advantage of each moment in the cycle because this is what they have determined is the way to best make a profit and they scoff at those who profit during a different time in the cycle. There are those who like to take profits early and those who like to let it ride and both sides believe that the other is foolish. One side believes the other takes too much risk, while the other side believes the one to be careless and unable to take full advantage of the possibility of profit.

Today we separate the value investor from the chartist. The two sides generally despise each other openly, claiming that the other is unrealistic and is not trading with best odds, yet both sides make the same mistake led by those pesky emotions.

As I read Selden’s book over the weekend, written a century ago, I was amazed at how traders, investors and speculators had the same sentiment then, as we do now. Most professional and successful traders fall into the same traps that Selden speaks of. We have all seen the various sides that the pros on IBC have taken with regards to the market. We have our bears who are relentless in their resolve regardless of what the market is actually doing; the market is overbought they say. Certainly it cannot go higher and when it does they whine for it is wrong and has been manipulated to defy its fundamental course.

We have our bulls who are just as stubborn and all the while using the same excuses, making the same mistakes that traders have always used and made.

The market is manipulated, we say, the bearded clam has made it so with his POMO. It will go higher! We are at our most bullish because the market has risen to our expectations, why should it stop now. We expect it to continue amid the chop which we are sure will become a blow off top…and we say this as if we have never heard this before…as if no trader or analyst in time ever considered that the market was being manipulated. But traders have always accused the market of manipulation as Selden clearly points out, whenever prices don’t go as the speculator has determined they should, say if a ticker “looks strong, has encouraging news and they hope for large profits….if prices decline, they charge it to ‘manipulation,’ ‘bear raids,’ etc., and expect early recovery’ since…’the bear news appears to be put out maliciously, in order to cause prices to decline further.” It usually takes a painful slide into a grotto of losses before the trader determines that “there is no use fighting the manipulators” and suddenly we have a surge of short selling.

Does this sound familiar? It’s been going on for a hundred years folks.

Selden speaks of the “Market Makers” that have always made it so, although he doesn’t call them this, he simply calls them “They”. He discusses the possibility of “They” being the large investment banks, the floor traders or big oil companies. He mentions this long before we had high frequency trading, trader bots or even online brokerages. Somehow, the market makers have not changed much with all our technological advancement.

I know quite personally the mistake of many traders/investors to rely on research analysts to tell them where a stock or the broad market will go, but we forget that analysts don’t trade. They are not experienced in the art of trading so how is it that we trust them to tell us how we should do so?

These are often the manipulators who spread the rumors in order make the stock trade a certain way. The sell side analyst has a client for whom he wishes to be correct so that he can continue to sell his research and assessment. By the time companies report earnings the miss or hits in the earnings reports are often expected by analysts who know they have spread the rhetoric so that the expectations have moved the prices in the direction that they said they would even before earnings are reported. There is much truth to the idea that expectations are usually priced in and only when there is a surprise do we get real movement after earnings. If the consensus is for a stock to have good earnings, for example, it is very easy for the analyst to set those expectations just a little high all the while knowing that the stock will run up into earnings by having set those expectations and this is why many seasoned traders will often sell out before the earnings report because even if the earnings meet expectations, the price has already been run up and will now come down.

Selden devotes a chapter to this concept which he calls, “Confusing the Present with Future Discounting”.

We may be easily impressed by these analysts who write eloquently and make calls that come into fruition not admitting that “They” made them so.

We may be equally impressed by the analyst who debunks other analysts because his analysis is more accurate. Certainly there are some who are better than others at running the numbers and making accurate predictions. These debunker analysts of analysts are the true professionals, we say. This is who shall lead our trading decisions because they so eloquently and accurately debunked the calls of the other analysts, but again we forget that a good analyst is not necessarily a good trader. He does not trade; he is usually restricted by his firm and is rarely allowed to trade in the firm’s effort to not raise flags to the powers that be. Rarely does the portfolio manager in a large hedge fund do his own analysis. He usually buys the research from the sell side analysts and employs his analysts to either debunk or affirm the sell side’s analysis. The portfolio manager eventually makes his own decisions which may take the analysis into account although, if he is well seasoned, realizes that the time frame of the analysis is what he needs to correct.

I will sideline here for just a moment to give you a bit more detail of the start in my own career which I have mentioned before. The money manager and hedge fund for which I started out was a very rare occurrence.

I was very interested in learning about the market and how to trade it. I interviewed for this job with this small hedge fund. I had much double entry accounting experience under my belt and this well known and respected Money Manager / Venture Capitalist hired me to do the accounting for his fund. It was a fairly large fund considering how little staff was involved. The fund managed a large sum by most standards and the staff consisted of this money manager and me and no one else. It is unheard of in the industry for a money manager to run such a large fund with a staff of one book keeper inexperienced in the ways of Mr. Market. He hired me not just because I interviewed well, had much accounting experience, good references and proved that I could do math quickly and accurately in my head, but because I answered the 100 million dollar question when he asked me why I wanted the job. I told him, “because I want to learn how to make a lot of money”. And so he took me under his wing and gave me a beginning for which I will always be grateful.

The first stock that I modeled under his direction and that we subsequently analyzed together was $NFLX. It was July of 2005 and we decided that it was clearly a short at its current sub $20 price. I probably don’t need to show you a chart of $NFLX for you to guess that we were dead wrong. It not only went up from there, but is now trading at well over $200. But at the time we were convinced that the financials were over valued and had to come down. This was my first lesson in price action although I did not realize it at the time. I did not yet understand why traders or money managers hired analysts or purchased sell side research. It is quite rare to be unbiased enough as a trader to also be your own analyst for the analysis will sway you, once again led by those pesky emotions.

I have also heard many on this site scream some of the same words that Selden describes as being said by a conservative individual when he describes the danger of getting a “notion” in one’s head. “You meet a highly conservative individual and ask him what he thinks of the situation. ‘I am alarmed at the rapid spread of radical sentiment,’ he replies. ‘How can we expect capital to branch out into new enterprises when the profits may be swept away at any moment by socialistic legislation?’”

Have we not heard the same rhetoric in recent years with regards to the Obama administration? How many watchers of Fox News have declared the same sentiment for today’s America as if it has never been suggested before. My own Mother in her conservative extremism had declared the Czars of Obama policy would destroy all that America stands for. She has believed this to be true since he took office as if no one had ever said this before.

I am pretty sure Alan Greenspan felt the same way as he sat by Ayn Rand’s side mesmerized by her philosophy which she so beautifully articulated and which later caused the famed Fed Chairman to allow our banking system, unregulated, to dig a hole so deep as to collapse the market. Not that this collapse was anything new, nor that he or anyone else had the ability to negate it. I hear so many talk of the impossibility for our economy to recover because of the lack of jobs. Do you think no one has said that before? Surely we can all imagine this sentiment in the early 1930’s. Selden discusses this same sentiment having taken place in 1909. And in a recent viewing of the film The Game from 1997 with Michael Douglas and Sean Penn, the idea that the economy would never recover because jobs were never to come back was a background theme. The reverse of this is he who speaks radically that spending and high cost of living are unimportant when compared against the trillions of dollars of new wealth that will certainly ensue and he is of course, a convicted bull.

 

All of these ideas hinder the trader simply because we have them. We do not innately have the ability to “go with the flow”, to curb our emotions and not take a side. I have been fortunate enough to meet one such trader, although I will not name him for I have already spent too much time as a marketeer (sic) in this role as King of The Peanut Gallery. If you recognize the value of this ability, you will or maybe already have searched it out. That trader who can curb his emotions and remain unbiased in the face of so much bias. The trader who can, as Selden preaches, “keep out of the market, when in doubt, because delays, do indeed, cost less than losses.”

This is my final word. The market is behaving normally. The market has always behaved normally for this is how the market behaves. Don’t fight it for acceptance will allow you to finally be unbiased. Trust in the price action and “go with the flow”. I hope this helps and I wish you all the best of luck in your trading endeavors.

 

images

15
Jul

Afternoon Update $SPY

Markets are pulling back slightly and while the turmoil in Greece over the new bailout is a good excuse, the past few days have left the SPY a bit extended from the 8 ema. But we are still well within the 2015 range and the interim uptrend to the top of that range is still in tact. 

Today's doji creates a relatively small pull back and may be setting up a bullish doji sandwich. I am staying the course for now. I will not be scared out by the recent whipsaw action this year. The only recourse is to stay with my strategy. This is when trader's psychology is most needed. I will not allow my emotions to be triggered. My strategy will start working again eventually and as long as I keep losses to a minimum, I will be profitable overall. Tenacity is key. Tomorrow is another day. Here is the chart:

spy715

 

12
Nov

We Love Drama But Drama Doesn't Love Traders

There is a lot of drama going on in the trading blog-sphere today. Ted Turner once coined the phrase, "we love drama" and how true it is. For those who delve in the drama of interblog politics, readers are rapt with attention.

Poppycock is all I have to say. I have no interest in attracting trolls and haters. I am happy to just share my work and coach serious traders. But all that drama did inspire me to write about something that you all may find of interest.

Emotions!

One thing I often discuss is how most strategies work with discipline but the discipline is virtually impossible until we learn to cut the emotions from our work. While our emotions protect us in life and allow us to stay safe, they have the opposite affect in trading. Those emotions  often cause traders to abandon their strategy in the name of fear and are more likely to lead to high risk trading. They bring out the gambler in us.

Cowboys and gunslingers bragging on the nets about how to make that big score are preying on the naivete of nubile traders looking to get rich quick. This lack of risk averse strategy that allows the trader to keep emotions at bay usually leads to bigger losses.

The key to being profitable as a trader is to take small losses and bigger winnings. Don't be a gunslinger. Keeping risk ratios in check keeps the odds in one's favor. Accepting that every big win comes with a small loss, will help to keep your emotions in check.

gunslingerno

 

 

 

21
Aug

Timing Isn't Everything, But It Helps or Being Trendy - $SPY

trendy

I often talk about trading with the overall trend. I had run across this concept several times in my trading career. First when I read GC Seldon's book, Psychology of The Stock Market in which he states, "Endeavor to catch the trend of sentiment. Even if this should be temporarily against fundamental conditions, it is nevertheless unprofitable to oppose it."

 

Around the same time, I was fortunate to work with a wonderful trader who called himself SPYderCrusher. SC suggested that I only suffered significant losses when I was fighting the trend. He had developed a software program using Worden charts that could time the market. His work was insightful and I started following his timer with my trades. The idea was to only go long when the timer was green and to stay on the sidelines (or go short) when the timer was red.

It worked. My trading improved significantly and the idea of avoiding trading against the overall trend stuck with me. Quite simply, longs don't work as well in a distributive environment and shorts don't work as well in an accumulative one. 

Unfortunately for the trading community, SC stopped sharing his work with the public.  And while I lack software programming skills, it did occur to me that I could analyze the market in the same way that I analyze individual stocks.  During the time that I followed SC's work, I also analyzed the indices using candlestick signals and other technical indicators and patterns, and I found that my own analysis came to the same basic conclusions that his did. Thus my personal Market Timer was born. 

As I built the building blocks that have become my strategy, sticking with the trend became an integral part of the means to an end; the sum of which is always keeping the odds in my favor.  

Over the years, I incorporated the idea of Dow theory into my timer which suggests that there is a primary trend with more minor trends beneath it. As such, I don't tend to go short when my daily market timer turns red if the longer term trend is still green, but rather stay on the sidelines. Although I may at that time already have longs in my swing trading portfolio when that turn arises and I may in this case combine a few shorts with my longs to keep a more neutral bias or I may just let each position play out but discontinue adding new longs in the more distributive environment until my timer turns green again. 

The title of this piece reiterates that this is but one piece to the puzzle. 

Update: 

It has been brought to my attention that this post may have left some traders more confused about my timer. To clarify, I analyze the market the same way I do stocks...using candlestick buy and sell signals as well as the moving averages and technical patterns to determine if the market is bullish or bearish on a daily time frame.
Since we are talking about swing trading on a daily time frame, I go long or not depending on the trend in the indices on a daily time frame.
But I also keep in mind the notion that comes from Dow Theory that the overall trend, the longer term trend may not be what the shorter term or daily trend is because secondary trends zig and zag within a trend. Price doesn't move in a straight line. 
For example, here are two charts that show both a shorter term trend going in the opposite direction of a longer term trend. 
downtrend uptrend

Comments are welcomed and encouraged. 

5
Dec

Confidence vs Ego - A Psychological Essay for The Retail Trader

I often talk about the psychological aspects of trading. In my chat room I tell members that trading is 90% psychology and only 10% stock picking. Time and again I see traders who put all their energy into finding the right stock to buy. Moreover they get cocky about it.  cat lion

There is a fine line between Confidence and Ego. Confidence is supremely necessary when it comes to trading profitably but too much Ego can be destructive. A trader must have enough confidence to take trades and let his strategy play out. There are many trading strategies out there and most of them work as the long as the trader is disciplined and sticks to a set of rules that keeps him adhering to that strategy without fail. The reason is that no one trader is any more likely to be a better stock picker than another but if you have confidence in your strategy, you will stay the course and likely be profitable over time. Ego on the other hand, can keep a trader in play long after a particular stock pick proves to be incorrect. This does not keep the odds in the trader's favor.

Trading is an odds game. My entire premise comes down to the idea of keeping the odds in my favor. Whether you are a support /resistance trader or a trend trader or a fundamentals trader, you still need to keep the odds in your favor. The data tells us that even the best traders on Wall St. only get their stock picks right about half the time, yet somehow they manage to be profitable. Even if your skill allows you to get your stock picks right more than half the time, say closer to 60% as I tend to do with candlesticks, it is best to expect half of those picks not to work. This allows the trader to drop losers early and without question or ego telling him it will work eventually. Likewise, it takes confidence to let a winning trade run and not cut it too early for fear of losing that gain. 

Some years ago I decided to stave off trader chat rooms because I kept running into know-it-all traders who spent a lot of time pumping up their own egos by preying on the confidence of other traders. I wrote a piece several years back that I entitled, "Confessions of a Chat Room Slut." It was based on one such bad experience in a chat room. The culprit was the moderator himself. A self proclaimed stock trading guru and mentor who loved to knock down my confidence.  

slutwalk

I had spent some time looking for that right mentor and all those folks out there bragging about how good they were got my attention. I, like many others of my kind, felt intimidated by their supreme trading skills as I saw them and assumed they knew better than I. I note that they are all men. This ego pumping phenomena is not as commonly seen in women traders. 

In order to protect the folks in my world, I nicknamed this guru "Bill" in my writing...not his real name of course, but it allowed me to eschew his actions and vent my emotions. I soon realized that "Bill" was actually just selling a used car. He and others like him spend much time bragging and writing blog posts that insult their readers for not being as good they are. They do this, I assume, in order to keep their own confidence up pumping their egos to a nasty level. These same trading gurus never post their actual trade performance results in public. They are not actually selling their all supreme ability to trade after all. They are selling themselves in a vulgar manner that gets you to pay them money while they brag and prey on your confidence. Sometimes they even prey on your trades. You have likely run into a few of these. They talk about making tens of thousands of dollars each day but never mention position sizes and only talk about their winning trades. They abound on the Twitter-verse. 

Not long after leaving "Bill" I met someone who really gave me a new perspective. His name is Dr. Doug Hirshhorn and he is a trading coach to elite traders and portfolio managers in the top firms on Wall St. I had come across his work by way of a piece he did pointing out why women make better traders than men. Okay, I admit this drew me in, but his reasoning was sound and touched on the idea of confidence vs ego. He talked about how women tend to be better managers of risk and see the bigger picture while men often let their egos get in the way and only see the now....while being more aggressive risk takers.

I soon found myself reading his book 8 Ways To Great which I purchased online. Dr. Doug became involved with coaching traders while pursuing a PhD in Sports Psychology. He became interested in applying those ideas to trading. One day while at the gym, I saw Doug Hirshhorn working out (harder than anyone else of course) and I walked up and introduced myself.  We exchanged email addresses and phone numbers and I feel all the more wise to have had the chance to converse with him both by email and by phone on several occasions.

It was Doug who told me that I am just as likely to pick a winning stock as any of those "gurus" on the Twitter-sphere. I have since studied his work and am proud to say that it supremely changed the way I view trading and other traders. His most recent book, Trading Psychology Playbook, (I have a signed copy) enlightened me further. Although written for elite traders and portfolio managers, I have taken much of what he has imparted and translated it into what I share with the retail trading members of my chat room.

  boobs  Yes, I have a chat room. But my goal has never been to sell a fish or my supreme trading strategy. And it certainly has not been to pump up my ego or puff out my chest. Believe me, my chest is big enough already. My goal has always been to teach others what I have learned, to fish, keeping in mind that the psychological aspect is 90% of the game. I keep my strategy simple. I don't add too many indicators and variables that could only serve to confuse the student. A very simple set of parameters to cover the 10% allows a trader to have confidence in his strategy. Too many indicators can spoil the set-up as do too many chefs spoil the soup. 

There are some wonderful traders in my chat room of various levels from beginners to veterans who trade with aplomb. Sometimes it is hard for any one of us to draw the line between ego and confidence. We are emotional beings and we need a set of constructive rules to help us stay the course and sometimes we need the gentle support of a fellow trader to help us keep the emotions out of our trades.  

We all blurt things out that may not be constructive sometimes. I am guilty of doing this myself now and then but the rules help me to keep in line. I am very careful not to use words that attach emotions to trades. Words like "fear" and "anger" are two that I believe do not belong in the same context of a trade. Psychologically, just putting those words in the same sentence with your trade will attach those emotions to it.

I also make an effort not to knock down a trade that a trader has just made. When a trader asks me about a ticker in the context of considering a trade, I happily give my two cents, but when a trader states that he has already made a trade, I try to look at his position constructively rather than knock him down the way "Bill" did with me. I don't see the point. After all, he is not going to get out of the position he just entered into. This could become a nightmare of overtrading and serves no purpose. If the trader had a reason for entering the trade, say at a support level that may not be an entry that jives with my strategy, I hold off making comments until I can be constructive in a way that is helpful. 

And so I say to all of you retail traders, young and old, newbie and veteran, be supportive of one another. Share your wisdom and experience if you have it but stay constructive. And for those of you who are newer to the game, remember that the best traders are only right about half the time. Those are the statistics. Look for a mentor who can give you a strategy for keeping the odds in your favor and don't send hateful messages when they get a stock pick wrong. Every trader gets stock picks wrong. What makes a trader great is his ability to be profitable over time. It serves no purpose to try to knock another good trader down. And for those of you who are tired of being insulted, stop rewarding those who insult you. It will not help you to continue to pay them. I am sad to say that I was inspired to write this essay because I came across a post by "Bill today. "Bill" has taken to blogging on one of the trading guru sites, and the theme of his game remains the same. He insults his readers for not being as good as he is. Poor Bill!

For more on Dr. Doug Hirshhorn, check out his site at http://drdoug.com/

And check out the FREE trial to my chat room HERE.

 

19
Nov

My Rules - A Preview

Each and every trader should devise a set of rules that is unique to that trader. Those rules should keep your emotions from triggering while you trade. We are innately emotional beings and the key is not to deny those emotions but to learn how to keep them out of your trading.

Your rules should also reflect your trading strategy and keep you on point. I have spent some time trying to figure out how to create a post on writing rules but I have finally decided that the best solution is to just share my rules with my members. 

As such, I have decided to send them as an email to all current premium subscribers of thetradingwife.net. Here is a preview for the rest of the world.

My Rules

#1 Check Emotions by following the rules without question

rules

#4 Trade with the Trend - Ask yourself if today is a day to make money, lose money or limit losses

#13 If life events trigger emotions unrelated to trading, set hard stops in any current positions and stay away until emotions subside

#15 At the end of the day, ask myself the questions in my daily eod daily journal.

Zeus-blog-post-keep-calm-follow-the-rules

 

23
Sep

Wife's Equity Strategy - The Basics

This post is a long overdue outline of my equity trading strategy for those of you who are interesting in better understanding my equity style. 

SWING TRADING:

I am a swing trader. This is to say that I buy and hold stocks from a few days to weeks or months. However, I will not hesitate to drop a position the same day I have entered if it no longer warrants holding. I use mostly technical analysis in my swing trades, but I do have a background in fundamental analysis and will incorporate some fundamentals when appropriate. I also use primarily fundamental analysis in my longer term investments. 

TECHNICAL ANALYSIS - INDICATORS AND TIME FRAMES:

I use a combination of Candlestick signals, Moving Averages, Chart Patterns, Stochastics and Volume at Price. I use the 8 exponential moving average as my trigger line. I only go long when a stock is above the 8 ema and will close a stock that closes below the 8 ema. Most stocks tend to go up when above this moving average and down when below so it's a no-brainer for me. The other MA's I use include the 50 and 200 simple moving averages. These are my primary indicators.

Secondary indicators I may use include Fibonacci retracement, MACD, Bollinger Bands, Donchian Channels, VWAP, & Pivot Points as well as the 21 sma and the 34 ema. 

My general theory is that too may indicators spoil the chart as do too many chefs spoil the soup. I keep it simple and generally stick with my primary indicators only checking the secondary indicators for confirmation should I find the need. Often traders will become overwhelmed by too many indicators which begin to contradict one another, often causing the trader to lose confidence and question his resolve. This leads to hesitation and fear which only hampers the trader.

As a swing trader, I chart the daily chart first and foremost and I make most of my trading decisions based on the daily chart. I then move on to the weekly and even longer time frames to get an idea of how the chart looks on longer term. I will look at shorter time frames, mostly for exits but also to get an idea of where a chart is going intra-day. 

BUY SIGNAL / SELL SIGNAL

I go long or short based on candlestick buy and sell signals. I use stops mostly as a marker as I try to give positions to the end of the day before deciding to close them out. (Note: if I have to leave my office for an appointment and am not able to watch my positions, I do set hard stops.) If a position is selling off with volume, I will close it early to avoid further losses but I try not to get shaken out of a position that is only seeing some profit taking but for which the bullish trend is still in tact. How the candle closes determines the signal. A candlestick is not a sell signal on a daily chart in the middle of the day.  The 12 major signals are listed below. Each signal is linked to a page that will provide a simple description or image of the signal. Once you are able to recognize the major signals, you can continue your education and learn the secondary signals.

Doji Signal
Bullish Engulfing Signal
Bearish Engulfing Signal
Hammer Signal
Hanging Man Signal
Piercing Pattern
Dark Cloud Cover
Bullish Harami
Bearish Harami
Morning Star
Evening Star
Kicker Signals
Shooting Star
Inverted Hammer

CATCHING THE TREND

I am a firm believer in respecting the trend. That is to say, I will tend to go long in a bullish environment and either stay on the side lines or lean short in a bearish environment. Longs have a harder time working in a distributive environment and vice-versa, so if I determine that the overall indices go into a down-trend, I will refrain from adding longs. I often refer to this as my internal Market Timer. When it is green, I will add longs when it is red, I will refrain. I do not, however, close all longs in my port the moment I believe the market to be reversing to the downside. Once I am in a position, I manage it on its own merit, individually. I may start adding shorts once I confirm that the market is in a downtrend. 

POSITION SIZING

A full sized position for me is 10% of my portfolio. I will sometimes take a half-size or starter position in stocks that have not yet confirmed then add to them as they do or I may take smaller size while the markets are turning bullish but have not yet confirmed. I will also often scale out of a position to lock in gains along the way so my portfolio is rarely filled with only full-sized positions. I try to never take more than 12 positions at any one time as I find more that 12 is difficult to manage. But I do try to have several positions on because too few and I lose diversification.

All that said, if I am struggling or in a slump, I don't hesitate to go very small in position size, even paper trading for a couple of weeks until I get my mojo back. Likely I am struggling due to some emotional trigger that I have not kept at bay. More on that later. But going smaller size, even a quarter of my normal size, can often keep those emotions away by reducing my risk to a point where losses are less painful and I trade objectively. 

KEEPING THE ODDS ON MY SIDE

Trading is a numbers game. Everything I have mentioned thus far comes down to one thing, keeping the odds in my favor. I just mentioned that having too few positions can keep me from being diversified and diversification helps to keep the odds in my favor but statistics are also a factor. The best traders on Wall St., statistically, only get their picks right about 50% of the time. Somehow they manage to be profitable even though half of their picks are losers.  In other words, how they trade is more important than what they trade.

If I know that I am statistically likely to only be right about my stock picks half the time, then only taking one position will give me a 50/50 chance of having a winner. This does not keep the odds on my side. However, if I take two positions, I know that chances are that one of them will work while the other one doesn't. As soon as I recognize that I have a loser, I can drop it early and let the winning position ride, taking more in gains than I do in losses. This keeps the odds on my side. It's like being the casino, the house has the odds. Fortunately I also have my knowledge of candlestick signals which tends to give me better stock picking percentages and also helps to keep the odds in my favor. 

RULES RULES RULES!!

This is the most important section herein. None of the ideas I have described above would do me any good without my rules. I keep them in bold black ink on 8x10 sheets of paper on the wall of my office and add new a new rule whenever I make a mistake that is not already covered by a current rule or I adjust them as needed. If I don't keep my emotions at bay, I will never be profitable. This speaks to the idea of how I trade being more important than what I trade.

I have been working on a Power Point presentation for weeks now about writing rules but I find it is a complicated task. Each and every trader has to derive his/her own set of rules that addresses his/her own risk profile and emotional triggers. You may get upset when you lose $1000 or you may get upset when you lose $100 or maybe you have no issues with losses until you lose $10,000. Perhaps it really bothers you when your gains turn to losses or maybe you can't stand it when you leave money on the table.

Whatever YOUR individual emotional triggers are, you need to have rules to keep them at bay. Emotions are important in our daily lives. They keep us safe but they can be detrimental to a trader. And this includes the emotions that may be affecting your personal life. You are in no position to trade when you are fighting with your boyfriend or your wife is having a baby. Stressful situations can hinder your ability to make objective, unemotional decisions. I am the most emotional person I know but I manage to keep those emotions out of my trading with my rules.

 

ACCOUNTABILITY

I also keep myself accountable by sharing my positions and performance with the world on my site. My site is my trading journal and every trader should have one...a journal not a website. You don't need to share your trading ups and downs with the public but you should write it down in a personal journal at the least so that you can catch your mistakes and create the rules that will keep you on the right side of the tape.

For more on Trader's Psychology, be sure to check out websites by Dr. Doug Hirshhorn who is an elite Wall St. trader's coach at www.drdoug.com AND Norman Hallett who's 4 minute drills are a must listen for any trader at www.thedisciplinedtrader.com. And stay tuned for my Power Point on rule writing. I promise to get it out before long. 

 

6
Sep

The Morning Report - Luck

 

thomas-jefferson-luck-wallpapers_18165_1024x768

A great saying from Thomas Jefferson. "I am a great believer in luck and I find the more I work, the more I have of it.

I often wish traders "good luck" whether that be for other endeavors or in their trading. This is not to say that I am wishing them luck in being profitable. Sure we all get lucky as traders sometimes, but its not something we can count on. More accurately, I wish you luck in your approach and in being disciplined. Because that hard work will indeed bring you more luck in in your profits.

I am not one to look a gift horse in the face and I admit to getting lucky now and again. Once in a while I will be in a position that has some great announcement that sends my position up higher and faster than anticipated. It can work the other way too. I neither pat myself on the back or chastise myself when it happens. I do not have a crystal ball and I can't change these types of outcomes. To think of profitability in trading as luck  sets up a gamblers mentality. If I am making money gambling, that is pure luck.

But when I make money trading, 99% of the time it is due to keeping the odds on my side.  All I can do is stick with my strategy and remain as disciplined as I can. This is how I stay profitable over all. I stick with my rules. This includes respecting the trend and taking advantage of opportunities when they arise by reading the candlestick signals and not being deterred by a pull back in my position. This includes holding the winners and dropping the losers and knowing when they are winners or losers.

As I read the market signals earlier this week, I saw that the market was making a turn to the upside and I looked for good opportunities to start dipping my toes into the market with my long strategy. It is working and my positions are doing well overall. It is not because I am gambling but because I am using my same strategy and adhering to my signals. It works consistently to keep me in profits overall. As nice as luck is to have on your side, it is not a strategy for trading.

Markets continue to look bullish this morning as we start the morning with higher prices. I will put out some charts as the day progresses.

Good luck!   wink

7
Aug

Marty Schwartz at Amherst

Wonderful,  rare Marty "The Pit Bull" Schwartz video speaking about trading at Amherst. Thanks to @grove_under for sharing. Many take aways including,

"Don't trade during periods of family stress. If your wife is having a baby....

Marty Schwartz at Amherst video.

2
Aug

The Morning Report - Life Changing Events

Oh men!

 

Paul Tudor Jones recently caused a stir when he spouted that women cannot be successful traders once they become mothers. His chauvinist view is skewed because he is a narrow minded old codger who thinks wives give birth and raise babies in a different part of the mansion aided by a nurse while the men focus on making money.

 

Okay, yes, I took his remark personally!

But these are are very different times, Paul. Fathers today are just as encumbered by sleepless nights and 2 AM feedings.

 

But I digress. baby

 

Paul tried to cover his tracks the next day by saying that he was referring to stressful life changing events.  He claimed his message holds true for a man who is in the midst of a divorce. In this regard, I cannot disagree with him.

It Happens to Everyone!

 

I know a successful portfolio manager whose wife gave birth to twins this past year. It's no surprise that he gravely under-performed as he was waylaid by sleepless nights and 2 AM feedings.

 

Sadly in the crazy business of money management, he cannot accept the blame or risk losing his career altogether. He cannot bring himself to admit this life changing event affected him. He will need to blame other factors or some poor sap analyst to take the fall.

 

 

It's Okay to Take Time Off!

 

I so often tell traders that they should take time off when life throws them a curve ball. Set hard stops on current positions and take some time off. If your wife files for divorce, or your husband loses his job or a parent goes into the hospital, you will not perform well. You will be distracted, probably sleep deprived and naturally stressed.

 

Check That Ego

 

Don't have the ego of the PM who thinks he can have a baby while building out a hedge fund. You will not be on top of your game. 

 

My performance this week has been abysmal. Why? You guessed it - a stressful life changing event. 

 

Reminding Myself


I have not taken time off because I have a service, a chat room with traders who rely on me to give them good advice. And I already have scheduled time off. We have a family vacation planned the last week of this month. But these are excuses and  I must take time to regroup. I am no good to my community if I am off my game. 

Dropping The Losers

 

I look at MOTR and I am stunned that I am still in this stock. A shooting star signal in overbought territory followed by a bearish engulfing, also equating to a bearish left/right combo is a definite sell signal but I still hold the position. I should have dumped it yesterday. It must open positively today for me to stay in. As for the rest of my positions, I will be setting hard stops after the open and taking the rest of the day off.

 

Did I mention Sleep?

 

I have not slept for a week and the Tesla Software Ambi-science sleep technology that was recommended to me and that is very cool, sadly, did not help. I have still been awake since all hours of the night.

 

The market is quite bullish after SPY broke out yesterday. Follow the signals and stay disciplined and if you are distracted, take the day off with me.

The market will always be here.

Good Luck!

Back to Top

Password Reset

Please enter your e-mail address. You will receive a new password via e-mail.