February 25th

The weather in Northern New England has been horrid since Thursday... torrents of rain and high winds. Some folks still have no power. We just got our internet & cable tv back today. As such, I was unable to post this on Thursday and couldn't practice trade on Friday.

February 24

Done practice trading for the day. Spent the whole time working with FCX and I seemed dialed in on it. I have no idea why... I just felt tied in, even when I was down on one trade, I felt like I knew why and that it was coming back to me. It did, and I doubled up on it after it went positive. I did get out too early... actually I left a ton of paper-gains on the table. But, that is the mind working against me... after having been down on the trade and not trusting that I was ok in it at that point. I took a short afterward to get my head back into the stock, fading the huge pop at 1:15. I covered it for a gain and decided I have to get to my home construction duties for the rest of the afternoon.
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As I see my technical skill improve, I still have trouble fighting my emotions. Practice, practice, practice. It doesn't matter that I put up six paper winners for over a $1000. I felt weak at points... where I didn't listen to what my senses were telling me to do. I feel what I should do, but sometimes I don't act on it. And that is why I do not trade real money now.

GILD update from last week's idea...

It is 1:00 pm on Monday and I just signed into the market for a look. Up came my chart of GILD because it was the one I had left on the screen Thursday when I was last signed in. Just as I had anticipated, the big run-up led to profit-taking by the traders. Friday was the day the steam came out of the move and today, the fall back. The chart on the left is GILD dating back to just before my short was initiated. Chart on the right is Friday and today.
Of one thing I am certain, I am not an oracle. I just know that the reason stocks run up is because there are more buyers than sellers. At some point, the buying will cease and the selling will begin because many buyers want to take their gains and move on. These are the short term traders. The long-term folks are still in and that is why the stock does not fall all the way back to where it started before the news hit. The news that sent the stock up was legitimate and so there likely are future gains to be reaped as Gilead realizes the potential of its positive mid-term trials. The investor types are holding for those gains. If late-stage trials counter this latest news, look for the same thing to happen in reverse as traders jump in on the short side and some of the investors get out.

Such is the ebb and flow of the market. Very few get the entire move. Some are in early, some are in later. Some exit very quickly, some hold on.
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I had the same thoughts when Toyota plunged to $71 off the recent news. I knew the shorts on that one would buy to cover and take their gains. And they did, causing the stock to bump up 8.5% off that support level. Was it a premonition? Of course not, nothing supernatural about it! It is just the waves of the market, pulling back to sea, then lapping back up to shore. To and fro, to and fro. The more I study it, the more I find that the song remains the same. And that is my last mixed metaphor of the day.
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And there is comfort in the familiarity of it. And familiarity is an ally of confidence.

Simplicity...

No trading last Friday.
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Remember the five simple rules to be happy:

Free your heart from hatred - Forgive.

Free your mind from worries - Most never happen.

Live simply and appreciate what you have.

Give more. Expect less

Slightly Different... resolution

Not the big drop I thought was going to happen, but there was an opportunity to make a paper-gain of up to $400 at 3:25 pm yesterday. I was busy with some work on my apartment construction. It really took off this morning so I averaged to keep up with price until I felt momo had stalled. I cashed out the gains during the 10:25-11:20 am pullback.

I still think GILD will have a bigger pullback off this run-up. But who knows when? It has been upward trending since 10:30 am Tuesday.

Day job got in the way of any continued market time today. I was off the computer by 11:30 am.

Slightly different timeframe...

I saw the chart of GILD and thought that it had made a day and a half run-up without much profit-taking. Basically since 10:30 am yesterday morning it has been running up based on a press-release that its HIV drug has been successful mid-stage. That's good news, for the stock and for the patients, but some profit should be taken off the move, I'd say. I took a double position short and right now I'm getting my head handed to me in the short-term... down $300. But, I have a slightly different timeframe on this paper-trade. More than my normal few minutes! Right now, I'm about to see if it will double-top or bust through to HOD. I'm curious if my instincts were correct for a swing-trade here.

It took a while to get this typed and uploaded... the stock did hit HOD but is hanging there, down roughly $350 to $400. I can't sit here and watch it because I must attend to a construction issue here at the home. If it drops, I will just assume I would have taken profits. If it surges, I'll assume I got crushed in the short-term and will hold to see what happens longer term

February 16th; AIG & ERX

The one thing which stands out most about today is the reminder of how slow to fill are orders placed at or near the open. My first paper-trade was a buy eleven minutes after the open and the trade price was approx 27.28 when I clicked and by the time the order filled, the fill price was 27.382. Ouch... there's some slippage fer ye! Still, a gain is a gain is a gain. For the most part, my reads were correct but just slightly early or slightly late on some occasions. Not bad overall. One trade at the end averaging for a better price.

More Thick and Tasty stuff...

Found links to this post at Dr. Brett's:
This is a great post...

Wednesday, October 25, 2006
Inside The Trader's Brain: Decision-Making and Emotional Arousal
For years, behavioral finance researchers have been aware that people's decision making is greatly affected by how choices are framed. For instance, the same monetary bet framed as a choice between a certain vs. risky gain and a certain vs. risky loss elicits very different choices. (We tend to take certain gains, but will seek risky losses to avoid certain loss). Studies using functional magnetic resonance imaging (fMRI) find that we expend less cognitive effort in taking a sure gain than in choosing risky gains, sure losses, or risky losses. It may well be that traders don't let their profits run simply because they take the easy way out cognitively. Conversely, traders may be reluctant to set and follow stops because of the greater cognitive effort required.

It turns out, however, that this taking the easy way out and avoiding difficult decisions may not be a function of laziness. A very interesting investigation coming out of the Institute of Neurology at University College London finds that the framing effect on decision making is mediated by an emotional center within the brain: the amygdala. This is the same brain center that cognitive neuroscientist Joseph LeDoux has linked to our response to stress and trauma.

The implications are significant. When blood flow is directed away from the brain's executive center, the frontal cortex, and the amygdala and associated emotional centers are activated, we are likely to underutilize those executive functions--reasoning, judgment, planning--and respond to our (emotional) framing of choices with a lack of effort. Going with our feelings might just be the reason we don't think through our choices.

It is also likely that we frame our choices differently during periods of focus/concentration vs. emotional arousal. Stressful episodes in the market, activating the amygdala, are likely to elicit a framing that is different from the careful trade planning we conduct when we are cool and calm. Research, for instance, finds that fear and anger color our decision making about preparing for terrorism-related risks. Emotional factors have also been found to color decision making about economic choices.

This helps to explain why I have found biofeedback to be extraordinarily helpful for traders who experience emotional disruptions of decision making. By working with traders in stressful situations and having them control their level of arousal during these episodes, biofeedback enables them to retain access to their executive capabilities. In a very important sense, successful traders train their brains for accurate decision-making under stressful circumstances.

Sometimes, looking back on our trading decisions, we wonder if we were in our right minds. How accurate that concern turns out to be! Some of the best trading psychology interventions are the ones that keep us in our right minds as we make decisions under conditions of risk and uncertainty.


Also found this paragraph from his August 4, 2007 post:

...If you're going to trade, do it the right way. Don't traumatize yourself. Observe and research before you trade; practice trading small and in simulation mode before you put your capital at risk. Don't abandon your day job until you have a track record of consistent profits across various market conditions. Trade less, not more: emphasize the high probability trades and keep your capital safe in the interim. Forget about riches and don't put yourself in a position where you need to trade large and often to make a living; work on covering costs consistently and managing risk. If you don't see objective evidence of an improving learning curve after a year or two of consistent effort, consider the possibility that your talents lie elsewhere.

Trading may or may not produce gain, but it should not be a continual source of pain. No one has ever traumatized themselves to success.


And this from today's post:

Traders don't fail because they lack the right setups or because they weren't born with the right trading personality. Traders fail because they do not survive their learning curves: they put their capital at risk long before they have developed necessary skills and expertise. Simulation-based learning is a way to accelerate that curve and reduce the costs associated with the inevitable mistakes made by learners.

Dr. Brett's Blog- Thick and rich and tasty...

I continue to mine Dr. Brett's blog for wisdom and guidance. However, one doesn't have to mine when the treasure is laying on top for you to see. Such is the case with today's morning post. I won't recap or offer commentary, it stands on its own. From it, I am clicking on his recommended links at the bottom. I just finished the "Implicit Learning and Trading" link to his August 27th, 2008 essay entitled, "Implicit Learning and the Unattached Mind." It is outstanding. This ties quite nicely with Scott Farnham's blog post of August 3, 2009 ( http://www.fearandgreedtrader.blogspot.com/2009_08_03_archive.html ).

I'll be moving on to the other links after this post.

If you are not reading Dr. Brett, you are doing yourself a great disservice.

Saw it, liked it...

I saw a link to this Kirk Report essay ( http://www.thekirkreport.com/ ) at Dr Brett's blog ( http://www.traderfeed.blogspot.com/ ) and immediately thought of my recent hand-wringing over the inability to break my proclivity toward adding to losing trades to average a better entry price. This article is interesting... and no, I am not trying to rationalize my behavior! :-) But, it is food for thought...


Thursday, February 11, 2010
Consider The Consequences

I love the scene in the television show The Office when a woman standing in a long line asks Dwight Schrute to hold her place behind him because she has to go and use the restroom. "No!" he replied. "Did you grow up in a household without consequences?" After looking back at him with a mixture of both disbelief and disgust, Dwight then explained to her that he had taken enough time to go to the restroom BEFORE getting in to the long line and she should have done the same.
Those of us who follow the rules whether it be in life or trading, can sympathize with Dwight, especially when dealing with other people who don't follow the same rules you think are important and who impact you in some negative way.

I was thinking about that this morning after a few things happened this week that illustrate again that not only do most people break the rules (even the ones they set for themselves in trading) but that most don't spend a single moment thinking about and considering the potential consequences that could follow BEFORE those rules are broken. And, I think that's an important point.

The truth is that as traders and investors, we all set rules for ourselves to follow whether we are conscious of it or not. Most of us in fact do a pretty good job of following those rules and, of course there are rare times the rules must be broken. No rule will work perfectly in every type of environment which is why some of the best traders out there are those who learn to be flexible when the environment demands it. A combination of skill and experience will help you know when those rules are not working to your advantage.

But, in those traders who are flexible and successful, you'll often see something very different which is that they also make absolutely sure that when they do violate their own rules, that they've taken enough time and have properly considered all of the most probable consequences both good and bad that could follow before violating that rule. They don't simply say, I'm not going to follow my trading rule today and at the same time not fully understand the potential consequences that could follow from doing so. As many of you have already discovered, that's a terrific way to get into a lot of trouble.

I've learned over time that when I am contemplating breaking one of my own rules (like chasing a stock that doesn't fit my low/risk high/reward strategy for example) I also require myself as a matter of habit to stop, think, and quickly outline the probabilities of what could follow if I break or abandon my rule. In doing so, more often than not, by considering those consequences, I'm reminded why I set the rule in the first place and just simply follow the rule. In fact, it is often much easier that way. But, there are rare occasions, where after I go through and outline the consequences that when I consider everything, I think the rule should still be broken in that particular situation.

Learning when that is the case is an important element of being a successful trader. In fact, it is often in the rule breaking and subsequent tracking of the consequences that follow from it that you learn more about who you really are and how to become more successful in the market.
Posted by Kirk at 2:35 PM in Education Bookmark Feeds Link Email This

February 12th

That was fun...

Lots of paper-scalps on FAS. Love the volatility, it makes trading much easier. I only had a small portion of the day to practice so I tried to make the most of it.

February 11th

Small gains again but no losses. That is the problem. I averaged down on my first trade of the day and it worked out in my favor. While I have become adept at it and some traders swear by the method (gMan at SMB Training calls it "paying for information"), I still loathe the idea that I cannot break my habit of doing it. I simply HATE to be wrong on a trade, as it is in other parts of my life and ever since I was young. It is why I am a perfectionist... I don't like to make mistakes. I don't like to fail and selling for a loss is a failure, even though it is the wise choice to do so. At some point, if I am to trade successfully, I will have to become comfortable with taking losses. It hasn't happened yet, and I am frustrated by it. If I were to go on a streak of 99 for 100 in winners, I still would not be happy unless I am doing it "cleanly" by not averaging for a better price to get those winners.
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My final trade was a good one but late in entry. I did peg the momo drying up and sold within 3 cents of the top of the move I was in. A small gain on a small move but an acceptable read of the price action.

February 10th

Three paper-trades, three winners. And, no adding to losers to average a better price so they were "clean" winners. Modest gains, as usual because I tend to run quickly with gains, often at the risk of leaving $ on the table, as I did with the first trade. I had pegged the top of the big move up at the 3:00pm candle and faded it short at the start of the next candle. The short stalled with a small gain... so I covered. Then, the price continued its drop. Feeling cheated by not holding until stop-out, I caught the bottom of the same candle and went long for my second winner. I sold that one near the eventual close price of the candle. A bit later on at 3:30pm, I felt like a long trade was in order so I took it... I was about ten minutes early so it was a small loser for much of the next ten mintues or so. However, it stayed within my hold range so I did not stop it out. I sold near the high of the move and ended for the day.
The market is closed as I write this and I notice that my last exit was a good one, considering how the last couple candles finished on MOS.

February 9th

Most of my day was spent working a large bid for a day-job project but I did take an hour or so at lunch to watch the markets.
I took four practice-trades, three in FAZ and one in ENER. all four were winners for small gains. I haven't much to add to this for analysis. Mostly, I was fading strong moves at opportune times.

February 8th

I had only a few mintues to watch before day-job and other duties called me away from the computer. I happened to catch FAZ in a consolidation area when I signed in... approximately 10:20 am to 10:35 am. I had a sense that it was going to drop so I took a paper-trade short at $21.14 and held nearly all the way through the next candle. Momentum had stalled so I bailed for small gainer. The stock did reverse and go up, reaching as high as $21.19 a few minutes later. At only 5 cents over my entry, this would have been within my stop zone. Had I trusted my instinct and held without the short-term bailout or not prematurely stopped myself out, I was one candle away the front edge of a nice six consecutive red-candle drop. Potential gain of 61 cents on one trade.

Ok, my trading needs work. But, I like the feel I am getting for movement. And, I like that my familiar indicators of direction reversal continue to show themselves.

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I continue to study and learn. Good trading to all.

February 5th

Made a lot of paper-trade scalps in FAZ and... made some judgement errors by averaging down on a couple of my entries. Still, I was 22 of 25 winners. My 3 losses totaled $17.00, the 22 winners totaled $797.
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My averaging down, even if rare, is troublesome; even as I am sharpening my feel for movement. Getting better at trading but still averaging down is a losers folly. A sharp trader can get away with averaging a losing trade for better price quite often, but in the end will still be punished on those rare occasions. Call it what you will: "Trading around a core position," "averaging in, averaging out," scaling in, scaling out." No matter the name, it is faulty trading and is a sign that more work has to be done to sharpen one's skills. A better entry will dramatically reduce the need to average down; use of a stop will be the safety net.
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If you didn't know already, this is the reason why I have not traded real money in many months and why I will not trade real money until I solve this mental shortcoming.

February 4th

I had only about 30 minutes to dip my toe into the markets for paper-trading today and I caught FAZ for a few small gainers in the short time I had available. I had some initial trouble reading what was going on but started to get a feel soon after I was watching. Both trades, one being a two-part position, were right but slightly early. Also, I sold too soon on both.
I am encouraged by my progress thus far but really need to "sharpen" my skills and try to determine why I tend to be early on both entries and exits.
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As of last Monday, this blog is 1 year old! My "year in review" will come soon.