Two Kinds of Knowledge

Very simple. There are two kinds of knowledge that can be acquired. One is General knowledge which is derived from schooling/college, etc. The other is Specialized knowledge that's acquired from learning a very specific skill.

 

General Knowledge, know matter how much of it you have or how much schooling you've been too really does very little for you in the long run as far as financial abundance. College Professors make very little money, yet they are considered very very educated human beings. They have learned a great deal of all around knowledge or know a lot about a particular subject.

 

Why is that?

They specialize in the teaching of knowledge, but they don't teach you how to use that knowledge. The idea is, "ok, here you go. I've taught you what I know, go make it happen" How do I make it happen? What do I do? All I know is what I've been told about what I need to know, I don't know how to use what I know.

Simply being educated will not produce financial results. You can be an Einstein but if you don't know how to organize your knowledge and direct it to a definite ultimate goal, you'll be floundering.

 

I'm sure back in elementary or even H.S. and College you'll see "Knowledge is Power" That's such bull crap I want to puke. Knowledge is not power.

 

• Knowledge = Potential Power
• Knowledge + Action = Power

 

Yet, no one will teach you anything about how to put things into Action. Institutions fail to teach students how to organize their knowledge and build a plan towards a definite goal. The missing link to creating Power and Financial freedom is putting your acquired knowledge into action and striving non stop towards a concrete end.

 

An educated man is not someone who has a huge amount of knowledge but one who has developed parts of his mind to the point where he may acquire anything he wants or it's equivalent without violating the rights of others.

The Holy Grail of Trading

Do you want to make money from the markets? Consistently? I'd suggest forgetting everything you know about the market. The more you know about the stock market the worse off you are. The majority of people when they first start out trading think it's necessary to know everything about it because the market seems so complex. The markets are complex only if you make them out to be. Trading is actually very simple but what makes it so hard is human nature, not the market.

 

 

Lack of confidence, second guessing, fear of losing money, being greedy and selling when you can, not when you're forced too all are human emotions and those qualities are the reasons it's so hard to trade. It's not the market, it's you. The holy grail of trading is inside you, not in some technical indicator, a newsletter or some book. Understanding why people make the decisions they do under pressure and being able to read emotion from a chart, is one step closer to the only thing you really need to know. Emotion and perception about what people believe the prices should be are the driving forces of the market.

 

 

I'm telling you, technical indicators all pretty much same. It's the same regurgitated bull crap derived from volume and price. It only tells you where the price has been, none of them tell you where it will end up. If an indicator did tell you where the price is going to end up, exactly and all the time, that indicator won't work very long because everyone will jump on the bandwagon and destroy that particular indicator because everyone is expecting the same thing. At that point it'll be a great contrarian indicator.

 

 

Plus, the more technical garbage you have on your chart, the more likely paralysis by analysis will spring up while you're debating whether to sell or buy. You have so much going on you start second guessing yourself because one indicator might be conflicting with another. Soon enough, you sit there doing nothing while the stock is declining. Having a game plan before entering a trade is so crucial because it prevents what I just mentioned. The game plan you create will include: when to get in, when to get out if it goes against you, when to get out if you goes in your favor. Knowing these before hand, I guarantee will take the fear and psychological load off you while in the middle of a trade.

 

Trading is about probabilities, the odds of something happening with the provided information. Creating a strategy you develop yourself or buying one if you have the discipline to follow it are ways to help push the odds in your favor. But, the hard part is following the strategy exactly. Following directions seems to be something people don't know how to do. Someone will buy a strategy, put on a few trades and they all end up being losers's so they completely scrap that strategy and find one that works. WRONG! You can't have 100% winners, it just doesn't work like that. You will have losers. Any strategy that doesn't produce losers, I'd be very afraid of. 

 

Another emotional barrier you need to get past is admitting your wrong while you're in the moment of a losing trade. This is something I have trouble with sometimes. Why? Because I think the stock will go back up. Horrible...the fact that the stock is declining is more than enough reason to sell it for the loss you have and move on. When you buy a stock, I'm sure you're expecting it to move in your favor. Why would you hold on to it if it's not doing what you intended it to do? Stocks will go against you, it's the nature of the beast. Again, why is this so hard to do? Emotion. We get so wrapped up in wanting to make money now that we won't sell it and hope it goes back up so we can say we "won".

 

Trading is something of an art. It's not something you can go to school for, learn and then start making money right after school. It takes time, a lot of patience, and passion to keep you driven to understand the language of the market. Which is why I think the market is similar to reading music.

 

To a musician, he/she can read the musical notes and tell if this is a master piece or work done by a 5th grader (not knocking any genius 5th graders or anything  but I'm sure you get my point). To the untrained and undisciplined person, that sheet of music looks like a bunch of mumbled up squiggly garbage. But anyone can learn to read music. Same idea apply's to trading. An uninformed person looking at a chart has no idea what's going on and wonders how anyone can consistently make money at this. But the to trader who understands emotion and can relate that idea with the chart of a particular stock, he can read whether he'll buy it or sell it or even walk away from the trade. He can read the probabilities and decide whether to pounce or not.

 

It's about only putting on trades where the probabilities are slanted in your favor. Trade these setups over and over, while cutting any losses that might result from a good trade turning into a loser, and taking profits that result from your trade, is the holy grail to trading. Keeping it simple is the best way to go.

 

 

 

Below are a few books that I've read and highly recommend everyone to read to help them on their journey. Go to amazon and read the reviews.

• Trade With Passion and Purpose by Mark Whistler
• Market Wizards by Jack Schwager
• Inside the Investors Brain by Richard Peterson
• Trading in the Zone by Mark Douglas

Non Trading Books

• Richest Man in Babylon by George S. Clason
• Think and Grow Rich by Napolean Hill (love this book)
• Rich Dad Poor Dad by Robert Kiyosaki (of course everyone needs this on their book shelf)

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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.

Thoughts on Exit Strategy

I was very quick to sell earlier out of VSCI. Again, in retrospect it was a beautiful winner. I bailed early because I saw the gap between my EMA and the price. I shouldn't be too quick to get out.

 

What that should of told me was, "hey, pay attention now because it might be time to sell". Instead, it was more like "oh crap, get out right now!"

 

Because of my impulse reaction to get out immediately, I gave up a loss that was higher than what my average loss is -plus I left a lot of money on the table. I've been doing fairly well with my discipline in regards to staying away from non performing stocks.

 

Whether I should give a little more leeway with the stocks I trade when they decline a little is something I'm debating. If I do come across a loser that keeps falling, I don't want to be stuck holding the hot potato.

 

I like my exit strategy but I think it would be a lot more effective in executing when the price has had a relatively long run instead of executing the strategy when it presents itself right after I get in.

 

We can also look at my entry. Was my entry really a good place to get in? I probably could of waited another candle or so to see how it unfolds but at the time I liked what it was doing. Saw an opportunity and took it. Unfortunately, my short term exit strategy isn't quite defined. What do I do when I enter a stock and it declines after I get in? At the time I thought it was wise to admit defeat and get out.

 

I don't know if I'm subconsciously trying to justify my mistake or if there is something I can really do to better myself in the future. I know I can't add every little detail from every trade to make the ultimate strategy which is something I seem to be doing.

 

This was one of those trades that got me by the balls and I didn't know how to handle it. I bailed in fear of losing more capital which I thought was a wise move. I need to protect my capital with everything I can because without it I can't trade.

 

In the end, I think what I need to do is just be aware when my exit strategy does present itself right after I get in. Don't be so quick to get out but be on the ball in case I do need to get out. At the same time, after I've had a nice run and my exit strategy does present itself after a profit has been accumulated, a wise move would be to exit. Exit based on my strategy with a profit.

 

After Thoughts:

My strategy isn't fool proof. It's not perfect and that's something I need to grasp. There will be times when I execute everything flawlessly and I don't come out on top. It's the nature of the beast.

 

I know I'll come out on top in the end. My discipline is what's keeping my profitable and I feel I've been honing in on those skills this year. We'll see what the market brings for tomorrow.

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Thoughts on Not Trading

Not trading on days that are bad for your strategy or not trading stocks that don't work how strategy defines them is very hard to do. If one can master that idea and execute that idea without hesitation, you've just found the holy grail of trading. By only trading on good days and/or good stocks that are defined by your strategy and at the same time cut on any losses that might result from a winner, you'll be profitable. You cut your potential winners when they turn out be to losers.

 

I've been cutting losers that turn into losers. I'd trade stocks that aren't apart of my strategy, for some reason thinking they'd be winners, and I'd have to cut them. Yeah it's good I'm cutting my losses but I'm screwed before I even get in the trade because the stock is a loser.

 

When people say, cut your losses. I think it needs to be explained a little more. The idea of cutting losses is key to becoming a trader, but don't trade losers and then be forced to cut it. If you always trade potential winners based on your strategy, your odds of success are boosted extremely. Sure, you won't be hitting 100% winners but that fact that you're trading all potential winners is great. This is when cutting your losers helps a lot. You're already trading all winners, and hey, a potential winner comes a long and turns to a loser, cut it and wait for the next winner.

 

This might sound so elementary or so simple but it's like I'm getting a little light bulb turned on in my head and I'm truly starting to understand WHY these people always say these things. It's different when you read it for the first time and try and do it, but when you finally begin to understand the meaning backed behind these ideas, it's like you can see behind the smoke and mirrors.

 

Today I traded a loser and had to cut my loser. That's what I'm pissed about. I don't care if I trade a winner and it turns into a loser, that I'm ok with. I have a post on my blog about 4 different kinds of trades.

 

-Winners

-Losers

-Good trades

-Bad Trades

 

Winners and Losers will always happen. But good trades and bad trades are totally different. I'm working on having Winners and Losers come from only Good Trades. A Good trade is one where you execute your plan perfectly, you trade a good setup, you wait for the wounded rabbit instead of running in the fields tiring yourself out chasing everything you see. A bad trade is one where you are chasing rabbits, you don't trade stocks based on your strategy, you're ignoring your strategy. Now, getting a winner from a bad trade is horrible because it'll only reinforce that a bad trade could work.

 

Good trade can come from not even trading at all. By waiting on the sidelines when your strategy says, "hey, there's nothing here for you, move along", you've just saved yourself from making a Bad trade that will probably result in lost cash. This is an idea I'm trying to grasp and I believe I have grasped it, but executing that idea is the next step. Truly not trading on days that are bad for you. If I can do that, I'll be another step closer to ending the week profitable.

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

 

My "Success Notes for Beginners"

I've had a stack of notes on my desk that I took from various books and seminars last summer. About 15 pages or so and I just condensed them down into a 6 page PDF document for anyone to download.  The notes are all well laid out with bullet points and highlights.

 

I can't even begin to describe how much is here and I'm sure you'll find at least one tidbit in here that you can use.

 

Download: http://www.mediafire.com/?ansdxysy3wm

 

 

Sample screen shot below

 

Some Thoughts

I need to report to someone/something to help with my discipline. I don't have anyone who can manage me so I'll have to report to this blog more. I'll come here and post the night before when I'm not going to trade the following day, after I've done my research. That way I won't leave it up to the next morning to decide what will happen because I will have made a blog post stating I wasn't going to trade.

 

I'll need to do it immediately after I finish going over my routine.

 

Also, I'm going to have to rewrite my trading plan because the one that's listed here is a plan that I haven't followed for about 2 weeks now. I've been developing a new strategy which I might post here, I don't know yet. I might keep it offline. So far all those people who like reading my business plan, you can use it if you want but just know that I haven't been following it recently.

 

• Report to my blog ASAP about whether I will trade or not for the following day
• Re-write business plan
• Don't force myself to trade losers. Trust my original judgement and never second guess.

More Preparation

I got up around 6:40am PST, 10 minutes after the opening bell and I'm a little pissed at myself and I need to look into getting an alarm clock or something, I don't know.

 

I had 3 stocks on my watch list for this this morning, USNA, HIMX and TITN. USNA, you'd be bummed if you bought it Friday or at the open this morning. HIMX is the winner that I missed and it's up about 6% so far. TITN is in a death spiral downward but is still showing a profit only because it jumped so high pre market.

 

Can't win them all but I should of been better prepared for this.

Got worked this morning

Well, where do I begin...This past week has been horrible in so many ways and I know 90% of it is because of me and the way I've been doing things. I'm not going to trade at the open anymore because a lot of it is the public either pushing or pulling the market one way or the other and then by around 8:30-9:30 PST it starts finding a direction. Maybe I'm just pulling this out my ass right now or trying to find some excuse as to why I suck at trading. But, I'll sit down to trade around 7-7:30 PST and let the opening quirks get worked out.

 

I'm way too aggressive with entering stocks. Problem is I feel like I'll miss an opportunity if I don't take it. Fact is, there's opportunities all the time and who cares if I'm watching a stock and it moves without me. I'd rather miss an opportunity than get into a stock and have it tank, haha, which has happened to me 3 or 4 times. I'm still totally new at this. One thing I haven't been doing is learning from my mistakes because I feel like I'm making the same mistakes over and over.

 

My entry and exit's aren't detailed or clearly defined. Which is probably contributing to my volatile equity curve. My mind seems to jump from one pattern to another, to one technique to another. I know there's no holy grail and I'm not looking for one. I'm just trying to find some edge in the market that's profitable over the long run, because what I'm doing now is basically throwing money away. Now that I re read that sentence it probably does sound like I'm looking for a holy grail. I almost felt like throwing my hands up and saying duck it, I can't do this.

 

I'm extremely under capitalized and I'm sure that's also destroying my odds of success. The profit I do make barely covers commission. The trade I made today would of made a profit but I didn't sell because I still would of lost cash even though my account showed a profit because of commission. Yada yada, just more complaining. I think I might paper trade and save what little cash I have left and use that time to develop a sound strategy and come back when I'm confident.

 

Again, I'm still learning and still trying to develop a strategy. I'd love to be able to back test my ideas but I have no idea how to program. If anyone's reading this and knows how to back test, let me know. I'd like to bounce some ideas off you.

 

Mhh.. what else. I read a book called Techniques of Tape Reading and I remember reading a small blurb about volume and price action. I came back over to my PC and spent about 5 hours looking over charts trying to find these patterns. Basically, I was looking for stocks that had a gigantic volume spike and price was in a downtrend. I was figuring that the public finally capitulated and gave up and would be a good time to get in now. Well, I found about 6 and 1 of these this morning ran up 14% (COSI). I was looking at LSI, HOV, UWN, CC, TARR. All had big spikes and were in downtrends. Yet, I didn't trade it, Because I got in on HOV early, like an idiot. I got sucked into all the morning hype and threw money away.

 

I wasn't planning on writing this much and I'm sure there's a lot of grammar errors but whatever, I just needed to get these thoughts out of my head.

 

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. :)

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.

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.

 

General Update

I figured I'd post an update of everything going on in the last couple days instead of making a bunch of posts for each topic.

 

First order of business: I bought a second 20inch widescreen monitor. This one will be solely for keeping charts on. It'll hold about 6 charts, each one being a decent size. I'm excited about this. I bought it because I'm getting to the point where it's hard to manage a couple charts, all my watch lists (about 6 of them) and manage my orders on one 20 inch monitor. This new monitor will allow me to keep my watch lists and my charts separate. I can manage my orders and watch lists on my current monitor and the second monitor will be dedicated to at the most, 6 charts.

 

I ordered this off Newegg.com I love this place for computer stuff.

 

Second order of business: I'm going to be writing up a detailed business plan for trading. I have it in my head but I feel it'll be better in the long run if I transfer my thoughts into a hard copy. That way I can go back and review it without having to remember it and I can modify it as I develop as a professional trader.

 

I found two sources with information on how to go about creating a business plan specifically for active traders.

 Trading-Plan.com and Tradingwinner.com are the two sites I've printed out and I'll be going over both of them and jotting down my responses to these questions. I'll then elaborate more on each response and organize them into a well defined business plan that I'll keep and modify over time.

 

Third order of business: This I'm a little bummed about. Basically what happened is today I made my 3rd trade of TWM this week which happens to be a 5 day period. I didn't realize that at the time as I put in my buy order of TWM at 63.88 I put in my stop at 62 but I didn't double check to see if it actually went through and waiting in que. When the time came around for me when I thought it was a good time to sell, I canceled my stop order and put in a market order to sell. Well, I double checked this time around to see if it sold or not, and it never sold. Said I had insufficient resources. Now, I'm stuck with a losing position until probably Monday when I'll try and sell it again.

 

I'm not too worried about the loss though. I adjusted my position size accordingly to where I put my stop and since I'm getting over a losing streak I've cut my risk per trade in half. So, even though I'm in the red, the overall loss is very minimal. If TWM breaks 62 I'll start getting worried but it looks like it's been hovering around 63. So, the situation isn't as bad as it seems, financially anyway.

 

Green arrow was my entry early this morning when I thought it would be a good move to go short. Which it turned out to be good but a few minutes before 9:30 when I wanted to get out, I couldn't. So I was stuck watching TWM go all the way back down and now we're hovering around 63. Needless to say, I was pretty pissed.

 

Stopped out of AAPL/Mental Stops

Stopped out of aapl earlier this morning. What I'm going to do from now on is still use a stop but I'm going to make it a mental stop. I'll draw out my stop and see it reacts to it. If it keeps falling then I'll sell but if it seems to stall out like it did here then I'll hold. There's been a lot of times I shouldn't of been stopped out but I did. CHNG for example, bought it at the dip on everything tanked and immediately got stopped and it rallied big time the next couple days. If I just kept that mental stop and watched it closely, I wouldn't of sold.

 

Not much else to say. Rallied in the morning real quick and fell and then stalled out. Stuck in another channel like Friday. Upper and Lower tredlines are starting to come to a point. Could see some serious action this week.

 

Going Over Trades

I went over my trade book to see if I can spot a common error. I'm impatient. I've been buying stocks before the opportunities fully present themselves, I'm jumping the gun basically and it's been biting me in the ass.

 

I have the right idea, I just force the trade. I'm impatient. So, this is my plan to help combat that.

 

I'll be looking for stocks making pre market highs. When the market opens I'll let it do it's thing and wait for a pull back and buy once it's fully established new support levels or current ones. I'll only buy if the market is rallying in the morning to help boost my odds. If it's not then I'll wait for the market to rally and see if I can spot an entry. I'm not going to be buying stocks in bad market conditions anymore. It's not worth the risk.

 

 

Strong Points:

- I can buy without fear or fear of losing money

- I can buy without hesitation when I see a potential opportunity

- I predefine my risk before I enter a trade

- I'm constantly monitoring my emotional and psychological state while I'm trading

 

Weak points:

- I'm impatient

- I'll force a trade without viewing it objectively

- I over trade

 

I need to work on eliminating my weak points. I'll try and come up with some ideas on how to do that.

Risk Management

Risk management in my opinion is so absolutely crucial that I'd like to share with you how I determine my risk. Determining your risk before you trade is something a huge amount of traders/investors don't do. Why don't they do it? Because pre defining their risk tells them that they could lose and we all know people don't like losing. Well, if your trading to sustain yourself financially as I am doing now and plan on too in the future then you need to realize that a lot of your trades will be losers.

 

Now, what we need to do is figure out how much we'll be ok with losing on each of those trades instead of letting them run wild before we feel like puking before we finally sell them for a loss. Screw that noise. If I see a loser I get rid of it ASAP and preserve my capital so I can trade to see another day lol. Without capital my business is done for.

 

Onward and upward, this is how I determine how much to lose on any one trade.

 

For example, let's say we have $2,000. It's easier to do in my head with this amount. Ok, the first thing I do is look at how much capital I have and figure out 1% of that. 1% of 2,000 is 20. The reason I use 1% is because it's what I'm personally comfortable losing on any one trade and if I'm on an 3-5 or more trade losing streak losing 1% isn't that big of a deal.

 

So now we know how much we can lose on any one trade, 20. Now I figure out how much cash I can use. Depending on how volatile the stock is, I'll either pick a 4% stop or a 2% stop, you can use a 6% stop if you really like those crazy volatile stocks. How much cash can I use in order the stock to go against me 4% yet, still maintain a maximum of a $20 loss?

 

6% stop you can use a maximum of $350

4% stop you can use a maximum of $500

2% stop you can use a maximum of $1,000

 

Notice that as the percentage amount we risk declines, we use more cash. The more volatile a stock, the less cash we put in. This idea of risk management is one of many out there you can use but I like this one because no matter what stock I get in, I already know how much I'll lose. Once I know that, I'll start looking for stocks that have maximum potential for an upward run. That's when looking for 3:1 risk/reward comes into play now that we know how much we can lose, how much can we gain?

Riding the Bus

I was in the shower this morning and I came up with an analogy on how I view trading.

 

I call it the bus analogy. 

 

Say you want to go from LA to NY riding the bus. You go to the bus stop and wait for the bus to come by. The thing about this bus is, it won't stop for you. It'll keep driving by so you need to jump on when you have an opportunity to get on.

 

Now, the bus isn't being driven by one person. Everyone on the bus is deciding which way we should go to get to NY from LA. When the bus decides that it wants to go back home to LA, why would anyone want to go back when their so set on going to NY? Get off the bus and wait for the next ride to come. Get on when you can again, and see how far it can take you before you'll have to get off and wait for the next bus.

 

At the same time once the bus starts turning around to get back, you don't want to be forced to travel more ground so you get off at the closest bus stop and wait for a new one to come. Doing this over and over, you'll eventually get to NY. It'll take some time but if you keep looking forward and waiting for the next bus to come by as you know it will since there are busses all over and at the same get off once it starts going the wrong way, you'll get to your destination.

 

There was more I wanted to say but I forgot some of it as I was trying to write out what I remembered. If it comes to me I'll edit this.

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.

Personal Development

I've been trying to find ways to use my personality as an edge for my trading. I back in HS I took a Meyer Briggs personality test to find out what my personality was so we could find out what jobs would match us based on who we were. I was an INTJ, which is A "visionary, architect of systems, builder"; who "works on ideas with ingenuity and logic"; who "learns by an impersonal and analytical process for personal mastery"; and who is acknowledged in organizations for contributing "strategies and analyses".

 

NT's -The Promethean Temperament. Comprises about 12% of the population and includes all of the NT personality types: INTP, ENTP, INTJ, and ENTJ. NT's must be competent at whatever they do. They look to skills, abilities and ingenuity to define self worth. NT's love intelligence and want to do well under a variety of circumstances. They are the most self-critical of all styles and tend to put high standards on themselves and others.

 

Judging by that, you can see why I love technical analyses so much and why I always plot out my plan before I trade, It's in my nature to do so.

 

I found an excerpt on my personal and how it relates to trading.

 

The Promethean Temperament: The Promethean Temperament comes into being when the qualities of intuition (N) and thinking (T) are dominant. The NT temperament (INTP, ENTP, INTJ, ENTJ) is only found on average in about 2% of the population. As a result, NT people must grow up in an environment full of people who are usually quite different from them. For example, about one family in 16 would have both parents as Ns and only one in a thousand would have both parents as NTs.

The NT personality is looking for power over nature: to be able to predict, control and explain realities. Thus, the NT trader would be one who wants to predict, control and explain the markets, much of which is the antithesis of good trading. However, since his ultimate goal is to be a good/great trader, the issue is simply how to get there. He has a strong drive to continually improve (as opposed to the SPs drive to simply act). As a result, I would generally expect this group to produce more good traders than any other. Our data suggests this to be the case! First, we have a lot of data on the NT personality types. Although they only constitute about 2% of the population, NTs constitute 45.2% of our sample population—a truly amazing statistic. Among our NT traders, about 10% show outstanding trading records—a higher percentage than any of the other temperaments.

The NT is very self-critical. He badgers himself about his own errors. He taxes himself with the resolve to improve. If his pushing is used as a learning process, then he is bound to improve. However, the NT can easily get caught up in the perfectionist trap, which can prevent him from getting anywhere. For example, if the NT's self-criticism is tied into his/her self esteem, then he can become frozen into inaction or into repeating the same task because he is not satisfied with the results. However, I have found that NTs show tremendous improvement when they go through my private consultation program.

The NT is likely to know that recreation is important to his health and overall well-being. However, his play has little spontaneity or fun. Instead, NT play is an exercise in conquest and being the best. He does not allow himself to make any mistakes, logical errors, and yet, paradoxically, requires that he have fun because that's what people are supposed to do when they're playing.

The trader who is an NT will live his work. If markets stay open 24 hours, he is likely to try to follow the market for 24-hours just because the market exists and missing something might be making a mistake. He wants to be the best possible trader, so he will do whatever he can to be successful. He is extremely vulnerable to the "all work, no play" syndrome and this kind of attitude can lead to a very out-of -balance lifestyle.

The NT wants to be the scientific trader. They are drawn to occupations that have a logical understanding, in which they can master some new concept about trading or design some great new trading system. He has an inquiring attitude and deals with others in a straightforward, albeit cold, approach.

 

The NT generally focuses on the future, trying to figure out what might happen next. And once he masters a challenge, he is very likely to move on to another one. Why? Because his goal is competency in every field. Thus, his goal might be to achieve greatness in trading, but as soon as he receives it or thinks he has it, he is likely to move on to something else.

To develop NT skills, spend at least one day a week reading everything you can about the markets. Make a list of 50 ways you can improve your trading and then work diligently to adopt each of those ways.

You can find out your personality types by going here and reading Van Tharps ideas on why it relates to trading. This was the same test I had to take in my English class in H.S. for our senior project. It's about 70 questions but it's very thorough and in depth. I think it took me about 45 minutes to an hour to finish. I took the test 3 months apart and they both came out as an INTJ, which is what I am.

 

I'll be spending a lot of the day today finding my weakness in my personality and how I can take advantage of that to benefit my trading.