I have often lamented on this blog and in private, my tunnel vision for reversal plays. Call it fading the trend, call it mean-reversion trading. And I have written of my frustration that doing so exposes me to nasty losses when I am wrong.
About an hour ago, I felt a shift in momentum in TNA and decided that a short was a solid play for my first practice trade of the day- I entered 10:49 am at $74.45. I exited 10:52 at $74.26 for a winner of 19 cents. Following my cover, while I had stepped away from the computer, the markets tumbled deeply on more headlines from Japan. In the 10 minutes that followed my exit, TNA dropped an additional $3.58 per share. I turned a tremendous opportunity into a tiny morsel.
Since the inception of this blog, honesty has been a cornerstone as I document my journey from regular guy doing a blue collar job to trading the markets for a career. To my knowledge, I was the first to post screen shots of my trading results directly from my trading platform so that my successes and my failures were verifiably disclosed. And so this post is simply another in the trend.
At the heart of my inability to progress is an emotional need to be right. Protecting my ego is more important than achieving my goal of trading for a living, more important than being financially successful enough to rescue my wife from a job and boss who chip away at her self-worth every workday. It is more important than financially helping a beloved family member near retirement from having to suffer 70-80 hour work weeks with no end in sight. And personally, my opportunity to trade for a living has an expiration date because there is a point where the money from the sale of my business will run out and I will have to find a job to support my household. So, I can say that my fear is more compelling than my own personal financial ruin.
This is the cost of protecting a fragile ego; one that can't bear the feeling of being wrong.
And there you have it, the reason I know that I cannot trade real money now, even though my technical skills are sufficient to do so. It is the reason I average for better price by adding to losing trades instead of stopping out. And without a firm stop loss in place, I have to protect myself by taking winners quickly before the chance of reversal and potentially a losing trade. This reinforces the dysfunction because with my small winners, I get to feel terrific about myself for having a 90-95% win rate in my simulated trading. Hooray for me!... if I play this all "correctly," I will have the honor and distinction of being one of the best paper-traders on the blogosphere! (sarcasm intended) And, I will never earn a dime and never get any closer to real trading.
I believe I can beat this internal demon because I am aware it exists and I am not afraid to admit it. But it is going to take a lot of work to break down a wall that has taken a lifetime to build. I have to figure out why being wrong is so corrosive to my inner self. My entire future comes down to this very thing. And beating it will mean that I will be a much better person for it, and I am not refering to money and trading. Inner strength is its own reward.
So here's a question: How honest are you with yourself in pursuit of your goals? Do you REALLY know what lies between you and success, as you define it?
Today's post by Mike Bellafiore at SMB Trading blog brings it home. I have included his last paragraph below, and emphasized in red the part that really hit home and prompted this post in the first place.
Follow the Trend?
March 15th, 2011
...The angriest I have ever gotten at a trader was the one who constantly fought the trend- he faded everything. Great trading skills, very bright, loved the markets, but just had to fade everything. A few thoughts on fading. 1) If you learn which stocks not to fade you can do very well fading stocks as an intraday trader. 2) It is easiest to learn by just following the trend and building your skills trading.3) There are some personalities that are better suited to fading everything. 4) Do you fade because you would rather show you are smarter than everyone in the market and not more interested in making money? If this is the case I have a few phone numbers for you. 5) Fading is the best strategy in a range bound market. We are in a trending market and have been since August of 07 so any study will show this system works best during the past four years. This will not always be true.
