Took a Giant Hit

I have to get this off my chest because I know this will linger in the back of my mind until I do. I took a huge hit on Thursday. I lost 5 times my average loss. First two trades I got caught on the wrong side of the order flow big time and then the third time I got caught just as the market started to decline at the end of the day. The third one was revenge trading for sure. I wasn't paying attention to anything and saw a stock running and I wanted to jump on. I did, and lost big.

 

I think I needed this though because I've been pretty careless with my trading. But now I have this huge hit which is probably officially my worst loss I'm starting to feel a little more cautious with my selection. I need to wait before diving in right away when I see a possibility instead of seeing the probability. Just be aware of my surroundings (market conditions) before getting in.

 

Also, I need to know when to fold' em. For example, Thursday morning when I sat down I looked around, checked the conditions and even told myself, I probably shouldn't trade today and actually had a...I don't know if you'd call it intuition or instinct or what but I got a flash in my head saying go short and it quickly disappeared and I ignored it. Missing out on a huge decline that day. So, I really need to start trusting myself, pay attention to what I'm telling myself and follow it.

 

Man, this is so much easier said than done. It's like you need a thousand different scenarios running in the back of your head and pick the right scenario when you see certain conditions. Also, I need to realize I'm still going through the learning process. I can't expect to be pro after 6 months of hard trading, learning, and research. I just hope I have enough cash to get me through this phase.

 

Anyway, I feel better now. :)

JRJC Caught Off Guard

Got caught with my pants down on this one. Right after I got in the entire market was selling off because of the Assassination yesterday I'm assuming. Anyway, it fell so hard and fast I didn't have time to put in my stop after I got in and sold out at market level for 24.83 Entry was at 24.50

 

CTDC Trade

I saw CTDC at the open and it didn't look too hot. What I overlooked was that it was way above R2 at the open. Which should of told me, Hey, this is gonna break out. Well, I didn't get in until I kept hearing my audio alert going off like crazy and it was CTDC that kept going off. So I finally got in which I wasn't planning too. I was actually playing some madden and I was watching CTDC out of the corner of my eye and got in at 8.69 and got out at 9.

 

I got out at 9 because I thought the round number might be some kind of barrier which it was at first but the buyers stepped right up and ate up all the shares and it blew by. There was no reason to sell and what I based my sell on was stupid. It had great momentum, the EMA's were increasing and volume was great.

 

SOLF Two Trades

Made 2 trades this morning in SOLF. I got in at 39.93 after I put in a limit order for 37. Which was good, lower the better as I knew this thing was going to move more. It had a nice rally with huge volume and this pullback was expected. I wanted to get in low because the selling volume was very very weak compared to how much buying volume was going on. Well, what happened was I had an order to sell all ready and I decided to cancel and I hit send order. Zecco has recently changed their layout and I don't know if they changed their send order and cancel order buttons or not but I could of sworn they were in reverse order. Anyway I sold at 36.35 on accident.

 

 

 

 

Once I realized I was out of SOLF when I thought I was in, I put in another order to get back in on SOLF. I got back in at 37 and sold out at 37.30 not quite as much as I was looking to get back but I rode a small move that I was expecting and got out 37.30 making half my loss back.

 

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.

 

Went Short While Sick :(

I felt myself getting sick about 4 days ago. The day after I felt ok and thought I might of been a false alarm but it came back it hit me hard yesterday and then harder today. I guess it's some kind of head cold that's been going around here in Southern Cali. It's all of the place..

 

I woke up about 30 minutes after the opening bell which I've never done. I'm usually up around 6:15 or so ready to watch the flood gates open. When I wake up late I'm usually pissed but this time I didn't care, I was sick and probably shouldn't of traded anyway. I came over to my PC just to see what the market was doing and I noticed QT lost Internet connection and wasn't recording any of the data for this morning. So that kind of bummed me out but not enough for me to get pissed. I shut it down and restarted and then starting getting data. Watched it for about 20 minutes or so and saw QID running up during that time. All my other data was pointing to go short, so I went short. I got in on QID at 40.76 (green arrow).

 

One thing I didn't realize though was that when I fired up my position size calculator, I set my risk to 1% instead of 0.5% so I put on a bigger trade than normal. Didn't realize that until I started seeing QID fall right after I got in and saw how much I was losing and wondered why it was so much haha. Anyway, once it flattened slightly right above my stop. I set my audio alerts to let me know if it was close to my exit point or if I got stopped out. Did that, and went to bed and flipped to CNBC to watch the ticker every 15 minutes or so to see how the Q's were doing. Oh yeah, stop was at 40.30 and then moved it up to 40.80 when I sold my first lot.

 

Finally came back to my PC to see what QID was doing and it was making higher lows. I was stoked and that when I sat down because QID was taking off like a rocket and I had to be their to bail on my first lot of shares. Sold my first lot at 41.45 which is 10 cents lower than my target but since it was around resistance I got a little worried and lock in some profits early. It did hit my target and then some, saw it ride back down, bouncing around and all of the sudden, it stopped. The price just froze for about 2 seconds and I was like, "Shit, here we go, were gonna decline" So I sold the rest of my shares and went back to bed. Came back right now and see that QID went on a nice down trend since then.

 

The feeling that I felt the most throughout all of these was that I really didn't care what happened. It's like I put on my objective glasses when I don't care and I almost got caught going long but thought, "no, I missed it, do something else" Went short and thought I blew it because it declined right away but I didn't get stopped out and just reinforced myself, "either get stopped out, or hit 2%" and walked away.

 

Some Observations

Watched the VIX index go into a steady downtrend while the Q's were also working its way into a downtrend. At about 6:50am PST I went short because I saw the markets breaking down and getting weak. What I did was I went long DXD which I believe is a Dow short fund. Such a stupid idea. Why would I short the Dow when I'm watching the Q's? lol, so I bailed out of that one for a tiny loss after I realized what the hell I did. I had the right idea to short the market I just chose the wrong vehicle to take me there.

 

I've been taking some multi vitamins and some Omega 3 vitamins which I used to take a lot when I was lifting and remembered how great I felt. I stopped for some reasons and started taking them again for the heightened sense of being which I'm hoping will ease the slight fear/anxiety I have sometimes when watching the markets right at the open. I did notice a change already, maybe it's a placebo effect but I do feel better overall. Maybe these helped make my decision to go short? I felt confident, calm, had a healthy dose of fear but not enough to debilitate me, leaned back in my chair for about 5 minutes and said out loud, "I'm going short, it's perfect".

 

I'm still keeping an eye on the correlation between the VIX index and QQQQ to see if there's any significant patterns between the two. Last week I did spot a significant situation between the two that have been yielding my momentum stocks. VIX has to be in a downtrend while the Q's are in a steady up trend. Today we had the VIX in a downtrend in the morning but the Q's were also in a downtrend. So, like I said, I'll need to keep an eye on these and see what happens.

Picked up some new Books

I guess you can say I went on an all day shopping spree and picked up about 8 books between Borders and Barnes on Noble yesterday. I picked up some awesome stuff and can't wait to finish them. This is what I picked out:

 

Trade with Passion and Purpose: Spiritual, Psychological, and Philosophical Keys to Becoming a Top Trader by Mark Whistler (if you liked the books by Mark Douglas but wanted something a little bit deeper, pick this up, it's amazing. I can tell this will be in my top 5 already.)

Pit Bull: Lessons From Wall Streets Champion Day Trader by Martin "Buzzy" Schwartz

Millionaire Traders: How Everyday People Are Beating Wall Street at it's Own Game by Kathy Lien and Boris Schlossberg (It's like Market Wizards but average people)

More Than You Know: Finding Financial Wisdom in Unconventional Places by Michael J. Mauboussin

Inside the Investors Brain: The Power of Mind over Money by Richard Peterson

Techniques of Tape Reading by Vadym Graifer and Christopher Schumacher

The Disciplined Trader: Developing Winning Attitudes by Mark Douglas (I read Trading in the Zone and had to get this also)

Come Into My Trading Room by Dr. Alexander Elder (I'm familiar with his work and thought I'd check out his book)

 

So far I've only read started the top 3 and I probably won't dive into more until I finish these but so far so good. I like what I got.

ONXX- Slow

Had a loser today but it was less than 1R because I was moving my stop up slowly as it was gaining in price. Only down side was that I moved my stop right onto a support level and once I got stopped out finally, it rallied right after lol. I need to keep an eye on that.

 

After I got stopped out I wanted to see if I could spot a pattern between what the market conditions are like and my winners. I found that when the VIX is up I usually have more success and when the VIX is down I have some losses. To me, when the VIX is increasing implies that people are afraid of losing money and when the VIX is up implies that people are afraid of missing out on money. The latter is what I'm looking for which is the driving force of my momentum stocks. So I'll be making it a rule now to only trade when the VIX is up at least 2-3% but ideally around 4-5%. I'll see what kind of performance I yield with that new rule.

 

So back to ONXX I got in at 56.97 with my initial stop at 56.25 Once I got in it started to move and pulled back a little but I felt ok with it and let it ride out. Started moving up again and I had a feeling it might reverse right under that resistance level and it did but I still held on because I felt that the buyers were all over this. Plus it wasn't at my 2% target yet. On a side note, I also noticed that support and resistance are so much more effective when the VIX is down. Anyway, it reversed and I let it go all the back down to my stop and got out at 56.50

 

Mission Statement

I've written up a business/trading plan for my "how" of what I'm doing but I'm currently reading a book called "Trade with Passion and Purpose: Spiritual, Psychological and Philosophic keys to becoming a Top Trader" by Mark Whistler, and he mentioned you need to know "why" you're doing this. Why do you trade? So when you go through a series of losses for example, and ask yourself, "what the hell is the point of this? Why do I keep trading?", you can go back to your mission statement and be enlightened as to why you keep on going.

 

This is my Mission Statement/Purpose:

 

My purpose is to be profitable over the course of my trading career. I trade because I love trading with a passion. I am trading so I can financially liberate myself. So I can have the time to develop myself as a person as well as pursue other interests. While giving back and donating to local charities to help younger generation kids who aren't as fortunate as I am to be doing what I love. I am a trader because I love the mental stimulation, self growth, and the personal battle towards success. Anything is possible in the market, and if someone else can succeed, so can I.

Why do I trade? Someone asked me the other day why I wanted to get into trading. I thought it about it and this was my response.

 

Well for the most part, I really really love the challenge. I like knowing that there's only an elite 10% that survive and I know I can get there. I'm driven by passion and the desire to succeed. I've dedicated everything to becoming a consistently profitable trader. Trading is just,...it's the ultimate in personal development and I love being tested and I love beating expectations. I love the process of trading, the ups and downs, constantly striving to better myself each day. I love that and I can't imagine doing anything else..It's just one of these things that clicks with me, this is what I want to do.

Pattern Examples

I probably shouldn't be posting these to the public but since this is a public blog and I use it to post my thoughts and progress and I'll do it anyway.

 

The charts below are examples of what it is I'm looking for. All these charts were from today's action. One thing I noticed which I blogged about earlier is that the wicks are very long on almost all of my losers. For the most part the candles below in my examples from today are tight and concise in a steady trend. Volume and momentum are both increasing. My PRGO trade today had a pretty crazy quick trend which I mistakenly took as a pattern I thought would work out. It had some pretty long wicks. So anyway I wanted to post this so I can come back and get a refresher on what it is I'm looking for.

 

Below is VDSI

 

Below is SCON

 

Below is TIVO

 

Below is INCY

PRGO- Fine Tuning Selection

Had a failed trade this morning but I noticed something about my losers and winners. A lot of my winners have the same characteristics as my losers but the one thing that's different is that my winners don't have very long wicks. The candles are really tight with short to almost no wick. Yet, my losers will have very long wicks and are a little bit more volatile as their increasing on volume and good momentum. So, I'm going to add another rule to my plan and only trade stocks with short wicks while on the rise. We'll see what happens.

 

Got in at 33.26 with my stop around 32.80 Basically died, again, right after I got in and got stopped out at 32.83. It now looks to be heading up now that I'm out. I seem to be good at picking bottoms, haha. I get stopped then it decides to move without me.

 

PSS- Failed Pattern

Saw a pattern on PSS that I've made some decent cash on so I took the opportunity and bought in at 18.79 It was making higher lows and then blew through resistance and shot up which I've seen before waited for it to dip and then got in. It struggled to keep the momentum and died just before it fell hard. My stop was at 18.69 but didn't get filled until 18.66 which caused a 1.3R loss. Which isn't too bad but not ideal. Worst case scenario I can handle about 5 2R losses in a row but ideally I want to see them under 1R.

 

Looks to be rallying now that the Q's are starting to take off as well. There's always tomorrow.

 

KBH- Wrong Exit Plan

I've noticed something very interesting lately about my exit strategy. I haven't been scaling out like I used to and according to my log my performance has take a huge hit because of that. Before, I'd sell half my shares at a 2% gain, break even and let the rest ride. Reason why I stopped because the cost of doing business with Zecco will kill me in the long run. So I stopped that one extra sell so I could pull in a higher R multiple. Not doing that scale out method has cost me a lot in profit not taken. I need to be able to lock in some profit and break even because I don't know of any other way that will work for me. I just need that ability to sell for a gain and then let the rest ride.

 

What I'm going to be doing is use the rest of my free trades at Zecco and then start moving over to MB Trading where I'll be charged 0.5 cents per share. Which something I can work with. Plus it'll be integrated into Quote Tracker which I use and love so that'll be awesome.

 

For my trade in KBH this morning. In hindsight it's a perfect trade. I got in at 21.73 early this morning. I hit my 2% target but didn't take any profit and I let it dwindle down because without scaling out I don't know when to sell so I'm basically deciding to sell on the seat of my pants. I sold at 21.92 which looking back now was a horrible place to sell consider the stock is now around 23.10 which would of been a roughly 12R gain.

 

This same situation has happened in the past. In fact I think it was a few days ago. I sold out early because without being able to scale out I don't know when to sell and I sold early and left a 18R gain on the table. I have to be able to scale out and Zecco won't allow me to on a financial front so I'll be moving to a place where I can employ my strategy at a cost I can afford over the long run, which is MB Trading.

 

SOLF- Can't Control the Cash Flow

Man this was an intense trade. I couldn't help notice the extreme amount of buying, strong momentum and the fact this thing has gone up about 4 or 5 days in a row now. So I got in at 23.08 I could of got a significantly lower price but it was moving so fast I couldn't even calculate my position size so I said screw and and adjusted my risk after. You'll notice I don't even have my black stop loss line on the chart because I didn't have time to put it on haha.

 

I immediately sold half my shares after I saw a 5R gain in the next few seconds. My account drained of all its profits and actually went red for a few seconds and that got me a little worried. I held on and watched it move back up pretty fast and decided to unload my last lot at 23.37

 

I basically got freaked and should of held out and waited as it's now up about another 30 cents or so, but I'm still working on the psychological fact that I could see a huge amount of cash flow in and then flow out. I need to get used to that because it will happen.  But this was a good start for the day.

 

The chart might not look like anything but keep in mind it's in 50 cent intervals and I usually deal with 5-15 cent intervals.

 

TPX- Nothing Exciting

Bought in at 30.39 everything was looking good. It stayed solid while the Q's were falling and once the Q's made a turn around TPX started to stall and do nothing. I look away for a few seconds and look back and see that it's now down to 30 bucks. I'll admit, I was pretty damn scared so I sold half my shares once it got back to ground zero at 30.41

 

For the next hour it did nothing. I contemplated selling the rest of my shares but I last time I did that the stock rallied like crazy. I held my ground, stayed patient and moved my stop to 30.30 from 30.10 Next thing I know out of know where it shoots nicely but not quite to my target of 30.99 so I still held my ground and didn't sell yet. It started declining right after it peaked which told me there was a lot of fear and so I held a couple more ticks and finally sold out at 30.48

 

Not a good trade but not bad either. I was watching CCC at the same exact time I got in on TPX and I actually pulled up CCC before I saw TPX which is the one I should of traded. But hey, what's done is done. I don't second guess myself but I do make observations. We'll see what tomorrow brings.

 

Positive Expectancy

My sincere advice to people who are contemplating trading, or who are even trading at the moment, and who are not familiar with the concept of positive expectancy , is to make it their priority to fully understand its meaning and importance to successfully trading. 

From my experience positive expectancy is an idea that is least understood by the majority of people who are planning to, and who are actually, trading. When I have been invited to present I always ensure that at some point during my presentation that I ask the audience whether they understand the term "positive expectancy"? Rarely would anyone volunteer even a mild grunt of understanding. And yet these audiences are people who have an interest in trading, and yet are not aware of what I believe is trading's "Holy Grail". and that is the pursuit of a trading methodology that produces a positive expectancy.

 

This is taken from a web page that has an article about expectancy, what it is, why you should understand it, and how to apply the concept. I highly, highly recommend everyone read the article and try to integrate it into their log.

 

 

Read Article: http://www.stator-afm.com/positive-expectancy.html

Key Elements to a Successful Trading Model

 

Found another chart. This one is by Van Tharp and I think it sums up what it takes to be successful and to truly view trading as a business.

 

 

Risk of Ruin- Chart

Found this chart earlier. It show's the probability of Risk of Ruin. Which is a concept that every trader should know and follow. It's a fairly straight forward chart, however, you won't know your Risk of Ruin unless you keep a detailed log of all your trading data. Without that, you're blind and keeping a log of your data in itself, is the best book you can read on trading, your own.

 

The left hand side shows the ratio between your average win and your average loss and the top row shows your Win Percentage. Right now I'm about 1.5 and I'm hitting 50%. So my risk of ruin is about 4%. My odds of me blowing out my account by 50% net capital loss is 4%

 

At the moment based on my current data, those are good numbers to have. Plus, the fact I have a positive expectancy should tell me that over the long run I'll be profitable while keeping the odds of a Risk of Ruin to a low odd.

 

A side not: This is based on if you do 100 trades (strong statistical data to represent the long run) and Risk of Ruin is 50%