Two Kinds of Fear

There's one root emotion that drives the market with two outcomes. It's either Fear of losing money, or Fear of missing out on money. Now, greed, one might say, is an emotion that drives the market as well, which it is. But at the root of Greed, lies Fear.

 

During my first few months as a new trader, I developed an extreme fear of losing money. That idea is what's kept me in the game so long, especially as a new trader. I'd always cut my losses immediately because I didn't like losing money. Doing that has prevented huge losses and at the same time it's also prevented me from being in a stock that rebounded.

 

I started following a strategy that I believed in and at the same time had the patience to follow that strategy. Once I became consistently profitable, I started developing a fear of missing out on money. At that point, I lost respect for the market and it let me know.

 

Having the patience and discipline to follow a specific pattern that you trade is one step needed. But the kind of fear you have determines where you go. Having a healthy fear of the market is natural and should not be lost in your mind. When I started becoming very profitable in Jan and started losing my fear of the market, I got my bottom handed to me twice.

 

I feel I've developed the discipline to trade highly favorable trades but at the same time I need to regain my fear of the markets. I need to know that the market is the boss and if I lose respect for the market I'll fall apart. Regaining my fear of losing money is what I need to get back.

 

Combining a healthy fear of the market with the discipline and patience to trade your game plan I think is the next step for me to take and is also a winning combination of long term success. I'll probably miss out on a lot of money that I could of made by getting out a little early, but the idea of trying to extract every cent out of a stock, every time you trade, is very unlikely. I'm not here to pick tops and bottoms. I want the bulk of the move and be happy.

Trading Plan- Residual Morning Momentum

This is my latest strategy and the one I've been using since the first few days of January 2008. I'm up 13% for Jan and have probably cut the amount of trades I do almost in half. This strategy requires extreme amount of patience and extreme discipline (still developing both of those myself)

 

The idea behind this strategy is that the stocks I pick I expect to continue the momentum from the day before and spill into the opening bell. I'm basically trading with the public because the stocks I trade I want to attract a lot of attention. I want there to be market orders to be placed at the open and have the previous days momentum continue into the morning, where I'll be waiting to ambush. I'll be in a trade for about 10 minutes at the most because the opening spike will probably fade away quickly once the public is in.

 

I don't have a set gain amount I'm looking for. Basically trading off of price action and when I feel is a good time to get out based on the amount of volume is being traded and how active the price is moving. I'm not looking to get out at the top but I am looking to get the bulk of the move if I feel it can continue to move.

 

Selling Criteria

 

edit: When determining when to exit a trade. What alerts to the possibility of selling is when the bottom of the most recent candle is starting to significantly run away from my 7 EMA I should look to either sell half or all of my shares. The gap between my EMA and the bottom of the candle creates a vacuum and the price will get sucked back down to the EMA. When it runs away from that value line, look to sell.

 

If the price is running tightly with the 7 EMA, you're in good shape, but as soon as it moves away and starts taking off. Be cautious.

 

 Stock Selection Criteria

I first go to the scan http://stockcharts.com/def/servlet/SC.scan?s=TXA[T.T_EQ_S]![AS0,20,TV_GT_40000]![TV0_GT_AS1,20,TV*4]![TC0_GT_TC1] and I look at all the NASDAQ and NYSE stocks. Once I see what's available. I go to www.stockta.com and enter in all the available stocks and see what I like. I'm looking for a stock that has shot up in price very high and backed with huge volume. Ideally there should be about 1-3 months of consolidation before the spike. The tighter and more consolidation the better!

 

Once I've picked out all the stocks I like (if there is any) then I put them in my watch list and look at them again with my chart setup (quote tracker). From here I'll narrow it down even more and get rid of the ones that don't look right.

 

I'll go to Google Finance and see if any of my watch list stocks are up after hours and get rid of the ones that are down big. Once I narrow it down again. I'll wait until pre market the next morning. I'll see what's stable and what's up pre market and get rid of the ones that are down. Once the opening bell rings it usually takes about 5 minutes to really see if the stock is going to take off or not. I'm looking for a stock that has a nice sized volume backed behind it and making higher lows.

 

That's all there is to it. It's pretty easy actually. Making money is easy, keeping it is the hard part. Constantly work on improving yourself every day. Doesn't matter how big or small the improvement is. Whatever it takes to get better bit by bit, every day. Whether it's a mental adjustment, a strategy tweak, skipping every other day to trade. Whatever, just improve!

 

Good luck.

Accountability Idea

I'm sitting here thinking how I can stop making these stupid mistakes. I want to get an alarm clock and set it for 6:35 am which is 5 minutes after the opening bell. In that 5 minutes I can usually tell whether I'll trade the stocks I'm watching or not. I've been pretty good with closing my charts after that 5 minute period but I think what happened today was me getting impatient. It's been 4 days since I put on a trade and I probably felt like I had to be trade something.

 

So, I want to get an alarm clock and have it across the room or something so when it goes off, I have to get up and walk away to turn it off. That might help with me walking away from my potential losers.

 

 

EDIT: I went looking online for a really good alarm clock and I found one. Click the picture to go to the site if you need an alarm as well. I have it go full screen after 6 minutes of the market being opened. It then shows a message I made saying: Stop Trading! Do something else!

 

We'll see how that helps with my discipline

 

First bit of Self Restraint

WOO! I'm excited. I didn't go chasing after rabbits this morning. I sat back and watched a few charts that I was alerted too. Watched CELG, ONXX, EOG and OII as they had really nice runs. I'd keep repeating to myself over and over, "you don't have to trade today", which seemed to open my eyes a little and see more of what was going on. Like some pressure was relieved.

 

Now for tomorrow, I don't think I'll trade either. Nonfarm payroll and unemployment rate will be released 8:30am ET and I don't even want to know how rocky the market will be. I'm starting to like the low volatility days. Seems to be favorable for trading steady momentum stocks like the ones I mentioned earlier.

 

This is good though. I need to practice some self restraint and tell myself I don't need to buy everything that moves and it's ok if I miss a move because there will be more. Patience and Discipline, I've said it before but those two traits are so key yet so hard to implement in a trading environment.

 

All in all, Good day.

QID- Went Short Again

Still sick, and still going short. I didn't trade yesterday because I felt I just needed to break away from the pattern of me making a trade everyday which I think might be making me a little gamblistic, if that's even a word. If you don't know what my new made up word means, means I might be getting in a gamblers mind set. So I had to stop for a day, take a breather, and realize what the hell I'm doing. I focus way more on the possibility of something happen and not enough on whether the probability is even likely. Also, I'm going to focus more on perfecting my decision making process instead of trying to perfect my outcome.

 

I went short this morning. Main indications that gave it off were, before we opened the Q's were already up in R2 land. The Q's will get there but rarely and even more rarer that they get there pre market and continue to rally. So I went short when I saw that. TRIN was in an up trend and VIX was declining which told me that support/resistance would of held up more. I should of bailed once QID touched that support level but I didn't and held out for a decline before I bailed completely. I'll try not to make that mistake twice.

 

What else, well, I got in at 39.31 about 5 cents higher than when I saw it but logging in to my broker, filling out the order form, haha you know, excuses, excuses. My stop was at 39 even and my exit target was 40.00 which I thought was do-able maybe even more so if the VIX was running wild. For the first time in a trade I asked myself if I was wrong about the trade. This was after I saw it peak and then decline a little, looked a few indicators and said, probably, and sold out at 39.39 nothing exciting but better than taking a loss. Seems like I've been making one step forward, two steps back.

 

DSX, Nice Execution

I've been following a pretty tight criteria for picking my stocks I made about a week ago and what's even better is I've had the discipline to stick to that criteria and it's paying off, more ways than one.

 

Got in on DSX at 30.86 just before it broke through resistance as it looked like it would. It was showing a small ascending triangle. I started unloading my shares pretty fast as it blew by resistance and started raising my stop after I unloaded. Stock kept rallying and what I was impressed with is that when the Q's started to make that first dip DSX held it's ground and went neutral by showing us some Doji's. I'd like seeing that, left for a few minutes and came back and saw it was up around 32. At that point I started trailing my stop pretty tightly. I knew I was going to get stopped out at 31.75 which I did and then I'd see it rally again lol. It's funny how those guys will try and wipe out everyone they can before they take off again. It's cut throat out there...

 

I've been very happy with my performance lately. I like the fact that I'm staying discipline and sticking to my guns, however I'll still need to tweak how I trail my stop but I'm happy overall.

 

TWM Trade Complete

After I got in on TWM I raised my stop to 70.90 and left do something and started thinking about why my ordered took so long to get filled. I realized that it had to of been the post market news and decline yesterday about wachovia or something. I'm sure people got freaked and put in market orders to sell at the open of today. At the same time people were putting in buy orders for TWM. Once the market opened everything was getting filled at once and would explain why it took 15 minutes for me to get filled. Once the orders got filled we started rallying back up. Today will probably be flat for the most part maybe even a close higher than the open but I could be wrong.

 

I got out TWM when I got back and realized I was in a bad trade and sold before it hit my stop. Which I'm glad I did because I would of gotten stopped out anyway so I saved my self some moola.

 

ONXX- Beautiful Trade

Very pleased with with my performance and how I handled ONXX. I watched to see which stocks were being accumulated right at the open and ONXX shi9ned right away up about 50% in daily volume in the first 5 minutes of the open. Pulled up the chart and saw it had some resistance to break through at 52.50 before I'd get in.

 

A few minutes later, the next thing I know it's up at 53 and jumping around higher. I waited for a small pullback and got in at 53.05. Saw a nice move right after that as the buying volume kept pouring in and sold half my shares at 53.71 and raised my stop to 53. I let the last bunch of my shares ride it out until it either looked like it might reverse or hit my imaginary trailing stop. It kept rising and when hit it 55 I raised my trailing stop to 54. Right after that It seemed to pullback pretty hard and got down to 54.02 not exactly my stop point but I sold when it hit that point and got out at 54.12

 

Right after that it looked to jump higher. I should of held my ground and waited for it to really hit my target of 54 instead of chickening out and bailing when it was only 2 cents above it. Could of extracted a little more but overall, I'm very happy with my performance.

 

CROX, Stopped out but Happy

I got stopped out of CROX but I'm happy with the overall trade. CROX was up on some really good volume. I think around 90% of their daily volume in the 30 minutes. That got me interested so I pulled up the chart and watched the rally. Saw it pullback which I was also looking for and got in. Once I was in it established support which I liked. I had a target of 43.40 to sell 50% of my shares. Once I sold half I was going to raise my stop to break even so I could have the rest of my shares in a risk free environment.

 

CROX was following the market very closely and started falling as the Q's were heading down and the beginning of the sell off started. I got stopped out around 62.20 and I got in at 43.05 My plan was executed flawlessly. Once I got stopped out subconsciously I'm sure I was mad that's probably why I went to go chase QID on the rally.

 

WCRX Stopped Out

WCRX had a nice volume increase about an hour or so after WIND and ERES did. It peaked above some resistance I believe that turned into support and I got in at 19.01 It stayed steady for the most part for about an hour almost. The market had a wide spread sell off which caused WCRX to finally break its steadiness and dip a little down. I got stopped out at 18.90

 

As I'm writing this it seems to be hovering around 18.87 and on very low volume. Could see a comeback after this dip now that the market seems to be rallying back up a tad bit.

 

Stopped out of CPHD

Unfortunately, I decided to go long just before this wide spread sell off started, haha. Everything looked good, right when I got in on CPHD at 25 everything started to fall, I was a little annoyed. I got stopped out at 24 and it looks to be hovering around it for now. I wouldn't be surprised if it starts to rally right now lol. Isn't that how it usually works? Get stopped out just before a rally? Oh well, I should of put my stop at a better spot.

 

Went Short During Cut

I went short by buying the SDS Short Fund about 2 hours before the announcement. I had a feeling they wouldn't cut because I didn't want them to cater to market expectations. But, they did cut rates on par with what the market was expecting and everything sold off. Which doesn't quite surprise me as we already had the "cut rate rally" before the announcement so now that we know the fed did what we wanted, the rally isn't there anymore. Expectations have been met.

 

Anyway, I got in at 49.92 I told a couple people I was going short and everyone laughed at me so I knew I was doing the right thing. I sold out at 50.44 and SDS continues to climb as I'm writing this. Just under 50.80. It's really volatile though huge jumps and then comes back down. But I'm happy with my decision.

 

Traded CPSL

I originally saw CPSL a 9.50 and went to put in an order but I got distracted by someone and then I had problems putting in the order with my broker and by the time I was about to submit the order I missed the first move. Then it broke resistance and it I missed the second move and thought I'd get in even though it could of been too late.

 

I tested the waters with a small amount of shares and increased the amount as it started showing me a profit. It stalled out at the top because some news came out about CPSL reporting a 1% loss in revenue, I think. At that same exact time, the stock basically started stalling out and slowly coming back down. Established new levels and it couldn't break 1.90 so I got out.

 

I feel really good about this trade, even though I lost some cash. I was extremely objective. I could totally tell a difference on how I was acting compared to my last trades. It felt good when I sold the shares. I had this weird, calm, confident, good feeling.

 

Yellow boxes on the left are my entry points as I kept buying on the rise and sold on the right yellow box. Looks like I caught it on it's last legs up.

 

Still working on my impatience problem. But I'll get there.

 

Traded DRYS

Bought DRYS at 117.00 It was touching the lows of the day. It made a double top and fell and I thought it might turn around at the low of the day. I set a stop at 115.90 and got stopped out a few seconds later. It continued to fall which it probably will for a while since it break the lows of the day.

 

It's funny how I've been watching this stock since it was around 85 bucks and the one time I decide to buy it I lose money on it. I'm weird..

 

I was trying to catch a falling knife and I got what I deserved but I felt good about the trade, it just didn't work out. I didn't fully wait for the 3 minute candle to fully develop, I saw a doji at the time and it went bullish but finished negative. I need to fully wait for the candles to develop before making a decision.

 

Green arrow is my entry and red arrow is where I got stopped out.

 

I'm a Consistent Profitable Trader because...

 

1) I objectively identify my edges

2) I predefine the risk of every trade

3) I completely accept the risk and/or I am willing to let go of the trade                                                                             

4)I continually monitor my susceptibility for making errors

 

I understand the absolute necessity of these principles of consistent success and therefore, I NEVER VIOLATE THEM!

 

I have this taped up onto the side of my monitor. I pulled it out of a book but I can't remember which one. Just some good words to follow and to live by as a trader.

Objectivity

After I made that complete trading plan I waited until after hours so I can start finding stock setups for Monday and I quickly started noticing something. Once I got down to the 3 stocks I liked out of 80 or so, I realized that I setup high expectations for the stocks. I didn't notice it until tonight. That would probably explain why I've been on so such a crazy losing streak. When it comes time to look for entry points, I'm so focused on my target and exit prices that I can't objectively see the market as it's happening and I'm missing the true opportunities as they're unfolding.

 

I should be able to keep a plan, but adapt to the new situations, which I can't do. Paralysis by analysis. Before I'd wake up not knowing what I was going to be trading that day. I'd have a real time scanner going picking up opportunities and since I didn't have any expectations that morning I could easily and objectively spot opportunity after opportunity and take them as they happened without fear. Once I got in I immediately put in a stop and let the stock unfold.

 

The thing I didn't do however was get in using an edge or something that would help with identifying good entry and exit points. I kind of winged it so to speak. That's when I started looking to setup a plan to find stocks the day before, which now I've tried, I can't do. I just can't focus on the market when I do that. I wake up with all these expectations of how my stock should unfold but when it goes against me I don't mind, I know it's part of the business. My problem though is I can't identify the true opportunities like I can when I wake up with no expectations.

 

So, I'm kind of in a weird mental state right now. I'm going to spend all next week with no expectations of winning. I'll scan the market, if an opportunity comes up in real time, I'll pull up the chart and see if I can spot an entry using a 9 and 21 day EMA setup. I'll get in if I can, set my stop and let it unfold. If the stock starts providing profits then I'll look to start raising my stop to break even then eventually raising it capture profits.

 

Only down side is. I don't have the necessary requirements to day trade. So I'll only be making 3 full trades at the most a week. Which is nothing, but it'll be a start to test my mental state in this new modified environment.