A Trade A Day

I wanted to bring your attention to a concept that the wild1 wrote about at his blog. The article is entitled Shave the Losses and the key sentence that still is in my mind is “If you are holding on to an investment/stock and you aren’t making any money off it, then why are you still holding on?”

The Wild1 made some good points about not cutting loses and that it’s important to work with losses within the context of a plan. Not cutting losses is a common problem. We all want to be right. But here’s something just as insidious. Stocks that break out and go no where. My method has a lot to do with breakouts and momentum plays. So volume and price acceleration are all critical. If the stock isn’t moving I don’t make money. If our trading capital is inventory, we need to turn it over!

The solution is as simple as adding a rule to your plan that states that X stock must move X percent within X timeframe or you exit the position. The hard part is coming up with the X’s. Testing is required. You could arbitrarily throw some numbers out there and “see how it works”, but that would be gambling.

Another way to combat a lazy breakout is to implement a rule that you will sell if the stock price touches your breakout price. A more sophisticated and potentially more effective rule might be to allow the stock to drift back into your breakout price and then add to your position when the stock reverses and heads higher. Again testing is required to come up with the best rule for your system.

The wild1 has an excellent blog that deals with investing, personal finance, and he’s even doing videos!. Make sure you check it out.

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1. I consistently make money.

I roll my eyes when I hear or read this statement. If there’s anything I’ve learned it’s that the market is not my personal ATM. Sure, over the course of a career I’ve become net positive, but its had some ups and downs. When someone says they’re consistently making money, are implying they always make money? I believe you can be a consistent trader, but if you told me you consistently make money, I would call you a liar.

Consistent trading and consistently making money are not one in the same. Good, consistent trading is not always a money maker. Trading at its core is a losers game. The objective is to be the best loser. If I can lose 6 times or less out of 10, I’m consistently making money, but I’m not making money all the time. Learn to make the distinction.

When you hear a statement like “I consistently make money”, be sure to look at the context. If they’re trying to sell something, chances are they’re full of shit.

2. It’s easy to make $/month.

I’m sure at some point a trader can gauge how much they can pull out of the market. I’ve been trading for 13 years and I still can’t tell you exactly how much I’m going to make in a year. There are too many unknowns. I trade the same setups and manage my risk with the same method, but I don’t know how well it will work in the future. When someone tells you how easy it is to make $3 to 5K each month by trading , be cautious. What is the context? How much would I need to make that, $3K or $10 million? What about the system? What’s the best market to trade it? Are we in that market cycle now? If you can swallow your greed, you’ll be able to clearly see the lie in the “It’s easy to make $/mo” kinds of statements.

3. My system makes money in any market.

Wrong, they only system that makes money in any market is a savings account. Each system has it’s own ideal set of criteria. Anyone who has spent even a little time trading knows that the market changes and setups that worked over the past 6 months, may not work as well over the next 6 months. This kind of phenomena is due to many factors from market direction to trader effect. The point is that to say your system makes money in any market flaunts your ignorance and makes me laugh.

4. Trading is easy money.

Trading is the hardest thing I’ve ever done. It’s a constant battle every day to keep my emotions in check. To exercise discipline in my trading decisions and in how I spend my time during the day (Do I trade, play video games, research or blog. See how this could be a problem?)

5. I can teach you how to trade in two weeks.

This is actually true. In fact, it was the exact same time frame that Richard Dennis used to teach the Turtles his trading methodology. Maybe I should have called this article 4 lies and one truth traders tell. Anyway, Good, profitable trading doesn’t have to be complicated. Now consistently making money after two weeks? That’s a different story.

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Just looking at the Dow I saw some potential trades. Let’s look at the index first:

The Dow taking a rest before moving higher? Or at least hope we aren’t range bound.

I like AIG over 47.70. It just needs to get over the 50 sma.

I may buy some C here. It’s over its 50 sma and showing strength.

Bull flag here. It’s gotta break in a day or two because it looks like it almost wants to go sideways.

Ok, it’s not in the DOW, but it should be. GOOG is the internet company. When I think of internet success story, I think GOOG.

VZ also had a nice chart worth a look.

See you tomorrow!

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Why is Trading So Difficult?

Is Your Game Over?

Trading Fibs with Toni

Brandon Fredrickson discusses his TUP Trade. What’s really interesting is he discusses the application of short term time frames for longer term setups. Something I learned from TradingfromMainStreet.com and apply to this day.

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Trader Death, by my definition, is when a trader’s career is ended financially. This can happen many ways, but typically it’s a big blowout ala my first big blowup. Or the “death by a thousand paper cuts” mode which seems to have claimed another casualty in Trader Bubs. Whether voluntary or involuntary, trader death sucks.

If you have experienced trader death or are close to experiencing it, what can you do? Here are 3 steps you must do.

1. Stop Trading: What you are doing isn’t working. You need to stop the bleeding. For whatever reason, the system you have chosen is not working. It might not even be you. It could be the market you have decided to trade no longer “works” for your system. The problem could be psychological. We’re all vulnerable to cognitive biases that can wreak a perfectly good trading strategy. The point is to protect your capital and live to trade another day. But what if you’re already “dead”?

2. Get a job: Ugh, I know. No one wants to do the 9 to 5. Working in a cube would be ultimate failure. Firstly, if you treated trading like a 9 to 5 job, then that’s part of the problem. To be a successful trader, you must be the worst boss you ever had. Trading should have been a 14 or 16 hour job when you’re learning. I’ve been at it over a decade now, and I still spend ungodly hours in front of the screen. Researching, studying, analyzing my mistakes.

A job outside of trading doesn’t have to be seen as failure. There are many fulfilling opportunities out there. Besides, this job will help you fund your next attempt at trading which brings me to my next point.

3. Never give up: Have you ever heard the story of Thomas Edison? How he failed 9,000 times before he created the light bulb? The only thing that made him successful was tenacity. Think about this: How many opportunities do you allow a child to learn to walk? Do you let the kid try once then give up? “Nope, that’s it. Sorry kid. You tried it, you failed. I guess walking isn’t for you.” That would be ridiculous, wouldn’t it?

The point is that you should never give up. Each trade is an opportunity to learn and do better. Look over your trading journal or your blotter and do an analysis of your trading history. Where you went wrong and why.

So in conclusion:

Step 1. If you’re still trading and close to death, stop trading to preserve whatever capital you have. Or if you’ve already died then proceed to step 2.

Step 2. Get a job. It doesn’t even have to be in an office. Try something different. Go back to school. Instead of focusing on a job that pays well, how about a job that pays the bills and helps others?

Step 3. Never give up. Never, ever stop. Review your trading history and learn from your mistakes. That should give you some time to save some capital and get back in the game, at least in a small way.

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