Nasdaq Head and Shoulders

QQQQ trend lines:

For the reversal pattern: Volume is inconclusive, but the formation looks pretty solid:

refer to this post for rules on what forms an actual bearish head and shoulders pattern.

Head and Shoulders?

Rules on head n shoulders pattern:

A. A strong rally, climaxing a more or less extensive advance, on which trading volume becomes very heavy, followed by a Minor Recession on which volume runs considerably less than it did during the days of rise and at the Top. This is the “left shoulder.”

B. Another high-volume advance which reaches a higher level than the top of the left shoulder, and then another reaction on less volume which takes prices down to somewhere near the bottom level of the preceding recession, somewhat lower perhaps or somewhat higher, but, in any case, below the top of the left shoulder. This is the “Head.”

C. A third rally, but this time on decidedly less volume than accompanied the formation of either the left shoulder or the head, which fails to reach the height of the head before another decline sets in. This is the “right shoulder.”

D. Finally, decline of prices in this third recession down through a line (the “neckline”) drawn across the Bottoms of the reactions between the left shoulder and head, and the head and right shoulder, respectively, and a close below that line by an amount approximately equivalent to 3% of the stock’s market price. This is the “confirmation” or “breakout.

The only thing I'm not really sure about is the volume. Anyone out there have any thoughts on the possibility of this being a head and shoulders? Perhaps it's a bit of a stretch.

UPDATE: Check out Nasdaq's head and shoulders here.

Do You Really Thnk We're At a Reversal?

First off, know that I am writing from a short bias since I own SH.

Recently the S&P has shown several amazingly regular, straight trends:

A trend is an overall direction over a given time. Notice also that within those trends, there have been reactions which oscillate up and down mostly within the channel. The series of highs and lows move incrementally and uniformly over time.

From a classic text, Technical Analysis of Stock Trends, I present support for this premise:

“Stock prices move in trends. Some of those trends are straight, some are curved; some are brief and some are long-continued; some are irregular or poorly defined and others are amazingly regular or “normal,” produced in a series of action and reaction waves of great uniformity.” pg 56.

The text goes on to present an important point to consider now:

“Sooner or later, these trends change direction… when a price trend is in the process of Reversal, either from up to down or from down to up, a characteristic area or “pattern” takesshape on the chart, becomes recognizable as a Reversal Formation.” pg 56

(I would also add that breaking through key resistance (a ceiling which keeps a stock down) or support (keeps the stock above a certain price) is another tool in spotting and confirming reversals.)

Something which has helped me start becoming a more confident, disciplined investor is learning to spot reversal patterns and support/resistance levels. They will never be perfect indicators, but will shed light on what the market is doing, and where it is going.

Take a look at this chart again, and tell me : Do you think we’re reversing upward, or are we due for another leg lower in the current downward channel? If you do see a reversal pattern, let us know!

———————————————————————————————————————–

Shifting to a consideration about institutional buyers with respect to these market trends:

Sometimes I suspect that “smart money”, (aka Institutional buyer/seller, like mutual funds and hedgefunds) knows what to expect in this upcoming earnings season. If “they” do actually really “control the market”, here’s what I suspect has been going on:

Take all that as HIGHLY speculative, and probably ignorant.

Note: “Smart Money” keeps it’s focus on the longer-term trend, as it holds huge amounts of stock and cannot nimbly get in and out of the daily or even weekly action. They take advantage of reactions in the larger trends, making money all along as the stock market goes down:

Huge gaps up and down in the market could be a sign of manipulation by institutional buyers/sellers. If “they” do expect an up-side reversal here, they’re hiding that fact pretty darn well in market price action.

Please rate this post and leave some feedback! Thanks for reading.

iPhone photo

The street I live on

VFH

Financial outlook:

Short Term:

Long Term:

My opinion: Get short financials, via SEF (proshares short financials).

The Light Volume Pullback Myth

A widespread belief is that a light-volume pull back after a recent run-up is bullish, or at least, isn't something to worry about. I got this belief by reading IBD, and a major premise of Technical Analysis of Stock Trends is that "volume goes with the trends".

Thanks to Danny for pointing out this study: "Myth Busted: Light Volume on Pullback a Good Thing"

If you're not interested in reading, the basic idea was to backtest S&P performance after light volume pullbacks. Things actually, on average, got worse over the next few days.

Now that I reconsider my belief on volume, I looked at our current situation and realized Friday 3/27 was a light volume pullback:

• First, Know that aside from Friday and today, volume in the S&P has been averaging around 8 trillion shares since March 18th.



• Friday (3/27) volume was 5.6 trillion shares, with a 2% loss. This was a "low volume pullback", and I took that as a bullish sign. (Here's a short term chart showing what I'm talking about). This action then led to today:



• Today's (3/30) volume was 5.9 trillion shares traded with a 3.48% loss.

I'm tempted to say, "Well, today was a low volume pullback. The market's probably catching it's breath to rebound."

Well, it very well may be. However, it appears the "light volume pullback" is not as telling or reliable an indicator as I once believed.

What do you think?

Thanks for reading! Please rate the post and leave me some feedback

On a side note, here's my take on the market from this post:

Volume taken from yahoo finance.

Disclosure : Long SH

Hammy PT

P90X Chest, Shoulder, and Triceps, and Ab Ripper X

really tough, good workout!

off to Sam's to buy beer and meat.

SPY Resistance at 784

I'm short from 791. Look to crack 784 as support, but you might want to wait until 780 (as indicated by matt trivisonno, is the level of support whose break led to the 666 plunge. )

Hammy Trade: SH

Bought 90 SH @ 78.63:

Your assumptions: This is the next intermediate leg down in the bear market. I could keep this until a)the bear market signals a shift in trend to Bull, using the dow theory, or b)until it reaches the bottom of the channel again, at which point I could take a small long position.

Time Range: The down-leg will probably last for about 3 weeks, about how long each prior downleg in this channel has taken. The recent intermediate reaction took 22 calendar days. I'm looking at the same time-frame.

What invalidates your assumptions? Breaking back into the last up-channel would signal another trend-change. There is high possibility of sideways action, fake-outs. We've seen one lower high, and have now broken the downside too. To shift this trend, we'd need both a higher high and lower low.

Target Price: $85+

Stop? I expect some volatility and upswings. As long as my assumptions are still valid, i'm not going to put in a stop. S&P 820 is currently where I'd clearly be wrong.

Morning formation

Front gate

From iPhone

S&P outlook: Futures

I'm not really sure how the futures market works or if it's anything to give particularly heavy weight to, but here's where we stand as of 2:15 am on monday morning:

Short term view of recent rally:

Longer term view of bear trend:

I have formation at 8:30 tomorrow morning and won't be able to get rid of my SSO position. I think it wise to get shot as soon as possible, until the overall trend tells you otherwise.

S&P: the bear market so far

The indicators above are described in the first few chapters of the textbook. We're still in a bear market, folks. The volume at the recent bottom (at 667) indicates we are still in the 2nd phase of heavy selling. A key sign of a bottom will be:

• Low volume on new lows. Everyone who is going to sell, has sold. By this time, it's only the discouraged people who braved the whole storm, and are finally deciding to sell the smoldering remains of their RIA, to salvage a future of ramen noodles and deli ends.
• Higher lows after each successive intermediate trend. We've seen no such lows. Yes, it's possible the next low will be higher, but right now it's certainly too early to state that as fact.
• Breaking out of set trends. As you can see in the chart, we're still in an overall downward channel. If we break out of that, it will be a glimmer of hope that we are entering a new phase. Note, this "channeling" can be done on multiple time frames. On a weekly timeframe, we can see how the S&P broke out of a month long downtrend, and formed a new uptrend: http://4.bp.blogspot.com/_p6aF9Trg38U/Sc6X-3u4AtI/AAAAAAAADGM/aSH3zT4hufg/s1600-h/2009-03-28_1624.png But on a daily chart (thumbnail at top), our current rally is merely another oscillation in the larger, broader downtrend. Go long the short-term rally if you have the daily time and attention. But just remember to look at the big picture.

weekly habit review

This week I set out to continue replacing some of my worst habits with good ones. For some habits, this will be a quick turnover. Others will take a long time.

My last Habit Review was a week ago, in this post. Here's where I last left off:

Praying in the face of Stress/ AnxietyThe intent behind this prayer is to turn to God during times of anxiety or stress which would otherwise cause me to seek shelter in cigarettes, alcohol, lust, etc

Last review, this habit was: Improving.



Short term goal was: "I’ll pray before completing each task on my “To-Do” list, and thank God after I finish it. This week, I’ll consider the top 3 anxiety-causing things on my mind each day, and ask God for peace in them."

Did you accomplish your goal? Last week I was improving, this week started off well and ended poorly. The idea of prayer before doing something on my "to-do" list lasted as long as I was working off a "to-do" list. This was a few days. The last few days I've been hyper-focused on reading a new book, and researching stuff on the internet. I've strayed from a bunch of other habits, as we'll see, which got in the way of developing prayer.

How to stay in the fight this week: I will write my prayers on the bathroom mirror, and at least go over them when I'm brushing in the morning, and flossing at night. Brushing and shaving as a first thing has been consistent, and thus the strength of that habit will bolster this weak oneI will continue to pray about my To-do items, as I intent to start this week with a list.

No Swearing

Last review, this habit was: Improving.

Short term goal was: This week I will leave 15 minutes earlier than I’d need to in order to get to any given appointment. I will use the spare time to drive slowly, breathing deeply and enjoying the breeze.

Did you accomplish your goal? This week was a success in terms of serene driving. My attitude toward other drivers has definitely calmed down. Far fewer cusses are yelled out each day. I haven't been hitting 15 minutes spot on, but the spirit of the habit is being met mostly by choosing to listen to an audiobook or classical music. Being early to stuff is a whole other habit, and a great one, but that isn't the reason I'm leaving 15 minutes early. I did swear more at Florabama when I met up with my buddies and started drinking a little bit. This happened more and more as I drank. I didn't follow my drinking goal that night, but only had 3 small beers anyways before calling it a night.

What will you do to improve next week? Keep breathing deeply, and continue listening to classical or audiobook. I will also plan ahead and leave 10 minutes before necessary to be 5 minutes early to any meeting, in order to allow plenty of time to drive slowly and unwind while enjoying an audiobook in the car. I anticipate some trouble in New Orleans next weekend with my new buddies, and will have to be vigilant not to "fall back" into swearing when I'm drinking heavily with them. SHORT TERM GOALS: Do not swear at all, all week. Think of creative ways to express things without swearing. Stop thinking of swearing as an "ok" thing to do.

Hygiene

Last review, this habit was: Improving

Short term goal was: I need to get back into planning my meals for the week in order to solidify my morning and evening routines.

Did you accomplish your goal? Not at all. I didn't plan one meal. I didn't go shopping for any food besides a 12 pack of Schlitz. This didn't affect my hygiene habits at all though, but is still something I need to get on top of for fitness' sake.

What will you do to improve next week? I plan to continue to strengthen and mold my morning and evening routine. Certain elements therein have been gaining strength, and it's time to add in others. For the morning, I need to focus on saying my prayers. For the evening, I need to work on planning the next day.

Drinking with a Plan

Last review, this habit was: Not improving

Short term goal was: no alone drinking this week.

Did you accomplish your goal? I definitely improved this week. I drank a few beers at Tristan's house, and a few at the Florabama. I did imbibe the last few brews at my desk when I got back on friday night, but ended up hanging out with Brent, my roommate. The part I've been forgetting about is alternating between beer and water. This is key to pacing myself and not drinking anything too fast.

What will you do to improve this week? I'm going to buy a 12 pack and drink 2 beers a night, and focus on drinking water after each beer. This will prepare me for the weekend in New Orleans, when I'll be partying a lot.

Reading Well - Taking Notes, Quotes, and Summarizing What I read

Last review, this habit was: Static

Short term goal was: Create word doc for “The Case…” and also “Three Cups of Tea”. Read 30 pages on average of anything, each day.

Did you accomplish your goal?I can claim moderate success. I've been typing notes on everything I've been reading. This habit is really helping me learn and retain more information more.

What will you do to improve this week? Spend more time reading books outside, or in the living room. I need to get out of the office more, since the computer is such a distraction. It'd be helpful to find a time to read as a part of a routine.

Dedicating Internet Time

Last review, this habit was: NOT improving

Short term goal was: I will renew my efforts to plan time spent, aside from investing and blogging.

Did you accomplish your goal? Not really. I spent a shocking amount of time on the computer this past week. Most of what I'm reading, learning, and writing is on the computer. However, I haven't been keeping a "log" of everything I do on the internet. This is about the same as keeping a financial budget, which I think is unrealistic. The best thing to do is focus on scheduling my day, and sticking to it. If I have a block of free time and feel like watching youtube videos or studying technical analysis, that's OK as long as I get everything else done. This is a scheduling problem.

What will you do to improve this week? I need to work on sticking with my schedule better. This might be able to get done by splitting up my day: the first half is when I do all the stuff I need to on the computer: writing, investing, and watching some youtube videos. The second half will be other stuff like: working out, taking a walk, planning meals, cleaning the house, doing my daily reading.

Sleeping in too late

Last review, this habit was: improving

Short term goal was: I’m going to cut off all work and “To-Dos” at 22:00, and go to bed.

Did you accomplish your goal? This was a big failure. Worked the first few nights, then stopped. Even right now it's 12:10 am. I guess I tried to start one habit by starting another (going to bed early to get up early). I think one is certainly a prerequisite for the other, but perhaps the prerequisite should be the habit I'm trying to build.

What will you do to improve this week? I'm going to focus on getting to bed early as my "habit". The first goal toward this intermediate habit is: eat dinner at or before 1900 every night. Stop eating after that.

Bible Reading / Walking Daily

Last review, this habit was: improving

Short term goal was:  I’ll be doing my walk NLT 2130 on the nights of days I haven’t done one yet.

Did you accomplish your goal? I've spent some time in the bible, but haven't been doing it after workouts and not at 2130, either. This definitely should start to be a part of my routine, and I'm not sure how to get in fitted in the day at a fixed time. I'm going to go easy on myself this week, and take baby steps.

What will you do to improve this week? I will read at least one bible verse per day. Hopefully, I'll do much more than this, but I'd like to see consistency here in the easiest of goals before trying to do something overly ambitious. I need to find out if even this is possible.

Workout Daily

Last review, this habit was: improving

Short term goal was: Get fully back into P90X - Diet, weight recording, pictures, journalling, everything

Did you accomplish your goal? No.. I discussed mindset of habits here. I've been running each day, but not doing P90X. It's time to start that back up.

What will you do to improve this week? Monday - Friday will be full P90X workouts.

Daily Planning

Last review, this habit was: Improving

Short term goal was: Weekend : plan as much as possible for the week. Nightly: Revise, review, and request.

Did you accomplish your goal?Not particularly, but did pretty well. It's improving. The weekend routine has yet to manifest. That will come tomorrow.

What will you do to improve this week?Plan the week on monday. Go grocery shopping. Plan each next day the night before. Stick to the schedule.

Chart Addict's Wisdom

from a post in the PPT. this guy was talking about losing a huge amount of money in the stock market as an 18 year old, and the mental anguish which ensued:

"How could this have happened to me? Well, it’s simple. I was human. I did the humanly thing and I made every mistake that traders made. I don’t produce double-digit monthly gains (on most months) because I’m “good”. I came from a road full of disappointment, regret, and losses, and that paved the way for me to improve myself. I made the choice to become a professional trader long before I became one."



"Take the losses early on and learn from them. I like the whole blog idea or keeping a trading journal because it allows you to document what happens in the market and in yourself every day. If you don’t keep any record of some sort, then you are guaranteed to make the same mistakes over and over again. Keep a journal or writing in a blog should part of every trader’s after-hours review process."


"Improving yourself slowly bridges the gap between making trading a hobby vs. making trading a professional career and a business. It’s a process that develops over many years."


His public blog can be found here. Thanks Chart Addict!

Hammy PT

another 30 minute run today.  i swear, i'll get back to P90X tomorrow..

Trade Prediction - RNT

Technical Analysis - YGE

Bullish on YGE, the # 2 ranked PPT stock. Check out the charts for why. This is a potentially great buy if the S&P breaks out on Monday.

Long Term:

Shorter Term:

Game Plan 3/30 - On Second Thought...

Check out the longer term S&P trend here:

I made a bullish call when looking at the short trend term trend in consideration of this chart, from this post.

Look at the bigger picture. Longer term, we are still in a downtrend. My trading system (which I'm still developing) would state:

• On a short term to stay bullish since we're hitting resistance on the bottom of a recent channel, and we've had no evidence of losing that trend. There was some selling on friday, but on very light volume. Bet with the trend, get long.
• On a longer term, get short pretty soon. We're at the top of a long term channel, as well as sitting at some strong resistance. There's going to be a good amount of congestion to any upside, anyways.
• The Textbook even states that there is no "mechanical” index or combination of indexes which will always, automatically, without ever failing or going wrong, give warning of a change in trend; "such, in our experience, are often confusing and sometimes downright deceptive at a most critical juncture."" pg 9

I expect the market to break down from this top channel, as the stronger, over-riding trend. Fundamentals haven't changed (or at least, haven't changed for the better). Yet, we've just seen one hell of a rally.

I'm changing my outlook to monday to NEUTRAL. I will get rid of my long position and see what happens. If we bounce down again, I'll reconsider each time frame and make my decision from there.

Habits and Hammy PT

I've been considering my habit-formation effort in a few ways:

• I will have periods of great success, and then some "corrections" in how well my efforts work. As long as the highs get higher, and then the corresponding lows get higher, I'm doing well overall.
• Mindset really is the key. Example: I have made a habit of doing a pretty serious workout every day with P90x. On days that I'm particularly lazy, I find some "reason" to give myself permission to skip out on what I know I should do. Lately, I haven't been doing P90X, and I run 30 minutes instead. Previously on lazy days, I would just skip it altogether. I'm a a "low" point in this habit, but this low is higher than it used to be. 
• I don't really know the "perfect" number of habits to attempt to develop, but nature does. I shouldn't be disappointed if some effort falls by the wayside, when I'm doing very well with others. This is my mind naturally bearing all the effort it can. Instead of considering those dropped efforts as failures, I can consider them as my body and mind finding equilibrium.

Hammy PT

ran for 30 minutes

Ron Paul & Peter Schiff

ASIA check up

Chinese burritos have been doing quite well, extending about 100% in the last few months. I think it'd be a great trade if the rally holds up, though it's due for a bit of consolidation in its current channel:

Flickr Test

Game Plan 3/30

Check out some recent trends and observations on the S&P500 index, to the right. I'm starting to think that 

• The index develops trends in the form of rallies and corrections, and follows that trend until it hits strong resistance or support.
• Identifying and trading with the trend is key.
• A trend can be confirmed when it breaks through a horizontal line.

Side Notes:

• If I had made this chart a few weeks ago, I would have sold off my shorts around 670, the bottom of the channel. I may have reloaded them around 704, but then seeing a break from the trend, I would have gotten stopped out. Then, once the new rally broke through resistance at 736, I would have confirmed the rally and started getting long. 

• Perhaps anyone long going into monday /23 had some decent sized cojones, but perhaps they also were drawing trend lines, and saw a bigger channel overall. 
  

Verdict: 

Stay long for Monday. We've yet to break out of this channel on the downside, and the loss on friday wasn't on any kind of significant volume (see second pic).

Blogging To-Do

In order to decide which blog platform to use, this or wordpress, I've decided to blog here for a full week and see what I think. Here's a few posts I need to take care of this weekend:

1. Weekly financial review.
2. Weekly habit/goals review.
3. Trading game plan for Monday.
4. Page creation for books, links, etc.
5. Video cast?

In the mean time, check out an AWESOME video on freedom and liberty:

Tristan and the homemade desk in progress

This is a desk Tristan is constructing while waiting to class up for flight school.

"How" Hour

Well,  missed formation today. Close of Business was at 1200 instead of the usual 1400, and I neglected to check the time on the MOC website. Looks like I'll be "volunteering" for some extra duty. 

On the other hand, today presents a decent opportunity to get back into a few habits I've been skipping out on, notably How Hours. I've recently been on a pretty strong habit-forming campaign and have been making progress in reviewing and learning from my trades. Today I feel like focussing on something different: loving others. 

In bible study last night we reviewed John 13 where Christ gives a new commandment:

"A new command I give you: love one another. As I have loved you, so you must love one another. By this, all men will know that you are my disciples, if you love one another."

Recently I also quoted 2 Peter 1:5-7 and the list of qualities Peter exhorts us to strive toward. The last (and most fundamental) is love. I think when things come down to it, you can ultimately see someone's character in how they treat others. To love someone, it takes faith, virtue, steadfastness, self-control, knowledge, brotherly affection. Without those things, love doesn't really have a chance. Seeking those qualities is awesome, but they are not an end, but the means to loving people more effectively, in a way that gives them more life. 

So, though I am seeking those qualities, I need to cultivate the mindset that the reason behind faith, virtue, knowledge, steadfastness, self-control, godliness, and brotherly affection is to love people better, to love them more, and to be Christ to them.

What does this mean, practically? I believe that my mindset is so entrenched in selfishness at this point that I don't really know how to change it effectively to be more loving. I guess considering each of those qualities listed is a good place to start:

• Faith: I need to believe Christ has given me eternal life, that he has saved me, and faith that anything I lose in this life, I will gain in eternity. I will be less hesitant to give up temporary, earthly things, which will trade for eternal rewards in myself and others. 


• Virtue: Treating people fairly, with justice, with respect for their rights, and granting them everything I would expect for myself. Seeking to use your time and resources most effectively is a virtuous cause, but requires you to know a few things, which leads to...


• Knowledge: Loving people effectively requires thought, and some knowledge about who they are, their situation, their needs. Also, you need to know what you're getting into, and know yourself--how much you're willing to commit and possibly lose. 


• Steadfastness: Not giving up once it's tough, inconvenient, or when unexpected obstacles come in the way. Making a decision to help someone, to be there for someone, to give up something for someone, should be a strong commitment. Just like in stock trading, consider how much you're willing to give up before making the decision to get into it. Only commit what you're willing to lose, but commit that bit whole-heartedly. 


• Self-control: This means doing what you've committed to do through steadfastness. It means keeping your mind on the goal, and constantly reviewing where the other parts of your being are trying to take you. Often times while attempting to develop a habit I find that my mind is on auto-pilot, and my flesh has slowly started to rebel. Without practicing self-control in increasing measure, all my greatest intentions will be lost. Peter also exhorts us to be watchful, and be alert. We cannot trust ourselves to do the right thing by default. It will always be a battle, and there is always someone seeking to steal, kill, and destroy. 


• Godliness: I think this equates to holiness, purity, and keeping an eternal perspective. Being able to tell people about the hope, peace, joy, and life that comes from a relationship with Christ.


• Brotherly Affection: I am often too reserved, too independent, and uninterested in other people. By seeking others, being friendly, allowing myself to be vulnerable, I open doors for friendship and transparency. Brotherly affection is something we definitely need more of, as seldom as I'll admit it. 

All these lead to love. What, ultimately is love? It's giving up what's important to you, for the good of someone else. The best picture of love is the cross: "but God shows his love for us in that while we were still sinners, Christ died for us."

Hammy Trade - SSO

Bought 118 SSO @ 21.24.

Why this will go up: The S&P has two decent support levels to bounce from: one is the upward trend, the other is the level around 820-833. With two levels of support in a rally, this ought to be a good bet.

What will show that you're wrong: To see a significant drop from either of these two resistance points.

Again, here's my drawing, showing what I mean:

Update 3/27: Still holding onto the stock w/ S&P at 816. Today's action has been down and choppy, but on pretty soft volume. We're almost on the threshold of a recent trend line. Check it out:

UPDATE 3/30: Sold @ 19.4. Yes, I was buying at low volume on the bottom of a channel, but it was an intermediate reaction in a longer-term downward channel, which had topped out at precisely the same time. The longer-term trend rules at this point. I realized this mistake earlier in the weekend and changed my stance from bullish to neutral. Now we've broken some serious support, and I'm back with the bear, even for short term. Check out what I'm talking about in this picture:

Game Plan - 3/27

Check out my graph from my review here:



I see trade support just below 82.75, though it broke through there yesterday. This may be a weak area.

However, the trend support (sloping upward line it bounced off today) is going to converge with the trade support, creating a perfect storm for buying and killing bears. 

I will set a limit buy @ 82.75 for 48 shares. Once purchased, the stop will be at the base of the trend line, which will go up throughout the day. I'll be here to watch things. To prevent some catastrophe in the mean-time, there will be a standard 8% trailing stop on it.

OCF and Habit Review

Just had a great bible study at Mark Juntenen's house down south.

Those meetings always go over time, but i think that's just fine. Yesterday afternoon and into today turned out rocky on the habit-developing front:

• I didn't get a workout in today. 


• I also didn't take a walk or have a quiet time. 


• I stayed up late last night and ended up sleeping in this morning until about 10 am. 


• I didn't plan out today, last night. 


• I haven't been logging my net time. 


• I haven't planned out my meals yet. 


• Didn't have How Hour.

Success has been found in these areas:

• Less swearing, especially while driving. I'm much more serene on the road now.


• Haven't been drinking at all.


• Been taking notes out of Ron Paul book


• Haven't been smoking


• Have been practicing great hygiene.

What's the deal?

Something very important is getting a good diet. I've been on a pretty poor diet since getting back. I need to plan meals, even if it's for just the next one. I'm too lazy to cook chicken breast, and it's going to go bad soon.

Having a good walk and quiet time is linked to getting my workout in. Getting a workout in is linked to getting good sleep and not wasting too much time on the 'net (by logging it, or scheduling it). Staying focused on goals is done by planning the day. The trend here is linked habits, which strengthen one another and act to ensure one another. They are not designed so that if one fails, it leads to others failing--but that seems to be what is happening. 

Tonight I'm getting back to the bible reading and planning the next day (including meals). This is setting myself up for success for tomorrow to be a stellar, kick-ass day overall. I've been flaking out on good, solid How Hours and letting them slide since I've been doing well. I'm going to go back to starting them. A good 45 minutes of reflection is good whether you're setting goals, expressing frustration about life, or addressing one specific challenge.

Sent from iPhone

Check this out!

concise political commentary

Continuation of another blog

this blog is a continuation of my wordpress blog, here.  I decided to try the switch for the following reasons:

1. This page allows javascript, which will let me post youtube videos, screencasts, and charts.
2. If I don't like this, I can switch back and import this work back to wordpress. I cannot do it the otherway around (very unfortunately). 

So check out the last blog to get an idea of what I write about. Expect to see plenty about investing, personal and professional goals, and a log of my progress. 

thanks!

Hammy Trade - SPY

bought 48 SPY at 82.96.

Why I think this will be profitable: Check the following graph. This was a break through some strong resistance that was tested several times. The next stop up is in the mid to upper thirties. 



Point where my assumptions about the trade are wrong: This was not a break through resistance if the S&P goes back down below 824. I will sell around there, and have placed my stop accordingly.

Update:  The stop sold out in a bounce down to 822. The market jumped up to about 832 three times, and bounced down each time. It bounced down through support (?). Check out the graph:



lost $34.84 on the trade. 

Review: On a second look at the current trends, I had the wrong support level. Check out this graph and let me know if you change your mind, too:



I'm not sure whether I should have seen this coming. Yes, 827 was some serious resistance, but the bottom of the trend was there too. Granted. However, things looked fishy. It tested 834 3 times, and continually had the lower lows and lower highs. Nevertheless, in the future I will take into account volume support lines (827) AND trend support (around 822, right where it bounced today).

"My Scan"

Check out my scan here

My Saga of Pain

Things have been getting better. You can see that I'm taking smaller positions, but more consistent gains.

Trade Plan for 3/26

• I ended up selling my 807 S&P at 824.


• I have put a stop order in place to buy 48 SPY at 82.79. Today's high reached 82.7. 


• This is just about as high as I think you can go without running into some serious resistance. 82.79 will signify better chances of a breakout. 


• After or if the buy is executed, I'm going to set a stop for below 82.4, as it will then be clear that my assumption it was breaking out would be wrong. 

 

check out the S&P here:



then check out my drawings on the Russell. 

The broadening top on the russell is a sign of danger. I learned this from Matt Travisonno's blog here. 

He learned it from Technical Analysis of Stock Trends, which you can download if you search hard enough online.

I plan on getting rid of my longs asap and watching to see if the market breaks through this resistance, or breaks down. I told dad in an email: 

"he last 2 days has had a broadening wedge w/ lower highs and lower lows. trading started getting sloppy after a huge run-up and hitting big resistance."

S&P

here

Hammy Trade - SPY

bought 37 SPY for 80.93 today. 

Why this will go up: There was pretty strong support at about 807 for the S&P. It bounced off 806 this morning (as predicted in this post) and then punched down through it after getting up to resistance @ 825ish. It reclaimed the support, where I bought it a la my trend-trading system I\'m developing and discussed here. I will sell in the mid 820\'s for a $50 gain. Why mid 820\'s? It hit the mid to upper 820s several times today, bouncing down each time. Overall, I am assuming that it will bounce up from support to the next resistance level, then fall again.

When my assumption will be proved incorrect: If the SPY breaks 803, it\'s pretty safe to say that a)it broke through support and may go lower (next level down is 797, but i\'m not going to rely on this) or b)there wasn\'t really support at 806, and I am trading with bad info.

UPDATE: Sold 37 SPY for 82.47 on 3/26 at 11:49 est. Made $50! I have seen some bearish patterns and very strong resistance in the market and decided to get out exactly here I said i would - the mid 820s.

Hammy Trade Plan - SPY

Put a stop buy order for 37 SPY @ 82.73. This will be above the resistance @ 826.84. The S&P has already hit 826.78 and then bounced down 3. If it breaks this resistance, it's time to get long (Like it was this morning @ 806.. but I was sleeping in this morning!)

How Hour

Faith, Virtue, Knowledge, Self-control, Steadfastness, Godliness, Brotherly Affection, Love

The list of qualities above comes from 2 Peter Chapter 1, and really sum up the qualities I want for myself.

After reading that, I recalled the peer-ranking system at the Naval Academy and how we secretly gave each person one word of feedback. Someone might be "Industrious" or "Arrogant". Sometimes I got "abrasive" or "confrontational". I can work on the above qualities and pray for them. Maybe in the future those will be the words that most describe me and my life. 

A review on the week and how things are going with my developing habits and goals:

• Listening to audiobooks or sermons in the car has definitely helped me calm down. Having a verse to look at reminding me to breathe and pray is helpful too. I've started to see a little bit of a change in my attitude and outlook while driving.


• Constant prayer has been improving, but isn't natural and isn't occurring all the time yet. But it is getting better. I am turning to Christ at points of anxiety, temptation, and gloominess.


• Leaving early on purpose has also changed my outlook and attitude while driving.


• Planning the next day: While I don't adhere to the schedule all the time, it helps to review what I have to do, when, and then to try to think up when I can fit other things around those mandatory items. I plan to work-out and have a quiet time, instead of just waking up and going through my day, hoping to find the perfect time to do a workout on a whim. It takes these things out of my head as obligations, and gets them into a schedule. This way I can also focus better on what I'm doing, assured my good habits will be fulfilled in their due time.


• Reading well : I've been enjoying going through "A Foreign Policy of Freedom" and reviewing my notes and the interesting passages therein. Going through key points a second time really helps to ingrain the information and concepts in my mind. This is going well, and I will keep doing it!


• Working out each day has been tough to start, but I'm always glad after it's done.


• I couldn't fall asleep last night! I ended up giving myself some extra sleep this morning (about an hour and a half). I'm not sure whether the cause was working out too late, drinking herbal tea too late, or just having too much on my mind. I was very tired, but couldn't sleep.


• Planning the week: I haven't started this yet. I put down some mandatory events, but haven't done my work-out planning, my meal-planning, or fellowship time. This, I'll take care of today. 

Market Prediction

Update: CORRECT! The market was hitting a trend line, resistence, on low volume. Now it's bounced of in high! Check it out:

 

[caption id="attachment_328" align="alignnone" width="500" caption="Check out the two lines on the left: prediction first, then today."][/caption]

 

 

The S&P is down on low volume, at a key support level (805). If I were going to make a trade, I'd buy 31 shares of SPY at 806 for 2500. 

Stop: 800

Sell: 820.

Hammy PT

Today: Yoga X, the 1st day of 1st phase "rest week"

Tomorrow: Core Synergistics.

Trading Review: March 16-24

Trading Review: March 16-24

 

Where I was coming from:

            Starting on Monday, I was heavily short the market. This was after a huge run-up already. I had been following the teachings of Danny and iBankCoin.com. He continued to present levels of resistance and statistics pointing to the market going down. I continued to see the reasoning and logic behind his presentation, and continued to double and triple down on the market. I ended up gaining a very large position in inverse leveraged ETFs, with about $6000 in SDS and $2500 FAZ.

 

            The idea behind the shorting was:

1.     The market was in a serious downtrend.

2.     No fundamental issues had changed.

3.     We were just “bouncing” from 666 as we had previously.

 

Here’s a picture of the market over the last month, including Monday the 16^th:

 

In hindsight, I can see very clearly what I should have done. 

1. Expect the trend to continue until it doesn't. This would have meant shorting at the top of the S&P channel on March 10th. 


2. Sell once your assumptions are shown to be wrong. Shorting at the top of the trend would have been under an assumption that resistance would be in play as it had in the past, and the market would bounce down. This is expecting the trend and betting with it. After the market busted through resistance at about 696, I was shown that my assumptions were false. 


3. Wait for a new trend to confirm itself. This means that, although it broke through some resistance, it doesn't mean we're in a rally and I ought to start betting with the longs. I should see the market follow-through, to show it's serious. This could be an IBD follow through, or breaking through another level of resistance. 


4. Go to step #1. This system might turn into the framework for a new trading system for me. 

The next level of resistance was about 721, the previous high within the bear channel. Following the system above, I would have gotten my follow-through above 721, and then started getting long. A new trend, a confirmed rally, was established. Instead, I got short again at 721. Once it crashed up through there like a submarine in the Arctic ocean, I started eye-balling the next resistance level. My thinking was locked in bear-mode, and I vent frustration in this post.

As Gio said, a wise bear respects a bear market rally. I did not. Instead, I spit in it's face and bought FAZ in the high 30s. Here is an image from a previous post regarding my thoughts on FAZ, given to me by Upsidetrader. It seemed to make sense. I set my stop position a little bit below the previous support levels and luckily got out of FAZ around 34. 

Another over-all lesson learned?

If you're going to bed against the trend, have a very solid reason why, and keep your position/exposure small. Keep a very close eye on the price. Put your stop to a price that shows you're wrong. 

I can see my errors clearly now. I see it in this post, too. And here, even after I had started to see the error of my ways. 

Though I am encouraged I started to get long and change my perspective. There's nothing able to change my mind bear to bull as buying a stock & getting long. 

It was also encouraging to see me start stating reasons, expectations, and contingency plans for trading in my "trading journal", like for HES here. 

Another indicator that the trend has changed: You're betting one consistent way, and you're losing money. My Shorts kept getting killed, and any longs I had were easy money. Locked in a bear mindset, I was blind to the coin being gained by my longs. 

My HES trade here was well-executed. It was planned, small, and conservative. I used charts in my blog to support my reasoning. The result? It made some money, and got out before a possible break down. Instead of betting against the trend, I just stopped betting for it when it broke a trendline.

Hammy PT

workout yesterday: P90X kenpo

Walked yesterday while praying through 1 Pet 5

Hammy Trade: Sell SDS, Buy SSO, Buy SDS

sold 31 SDS @ 77.98. bought 131 SSO @ 20.71. I just bought 37 SDS @ 74.84 to hedge my long position, since I don't think i have the settled funds to sell SSO for the $55 profit. I'm essentially even now. This was a big rally up to a resistance position (825) with smaller than normal volume. Not interested in being long, nor short. 

My resistance trade failed. The S&P pushed through 805, triggering me from bearish to bullish. 

I learned something significant: If you're trading counter-trend, you need to keep it small or non-existent. Right now we're in the middle of a huge rally. Yes, it's on smaller volume than average, yes, it's not for any good reason, but the market IS and HAS BEEN moving higher. Thus, shorting is counter-trend trading. If you're going to bet against the market, you better a)have a great piece of information and assurance that you're right, or B) make your position very small.

I got long after 805 and made back some of the money. So today wasn't a total wash. I also came out of today with a very valuable lesson. 

LESSON LEARNED: IF YOU'RE COUNTER-TREND TRADING, KEEP YOUR POSITION SMALL! Better option is: in rallies, wait until it crashes up through ceiling resistance, then get long. This is instead of speculating that it will bounce down from the ceiling. Use the momentum of the market and stay on the safe side. There is a much smaller chance of being wrong if you wait for it to confirm it's own trend and then ride it up, or down (if in a bear market). 

or:

Don't try to short during rallies. Don't try to get long during bears. Trade with the trend. 

------------------------------------------------------------

UPDATE 3/25: 

Traded out of my "even" position with SDS and SSO. I bought the SSO close to the end of the "epic" rally around 810, and bought SDS yesterday to "cover" that SSO position.

Since these are leveraged ETFs, an "even" position between the two still loses money. So i got out of both of them today.

Hammy Trade: Sell SSO

This was a "cover" buy to cover my SDS position. Instead of getting long more SDS, I decided to just get rid of the hedge. 

Why I think the market will go lower: We are up to strong resistance at s&p 805. I got "re-long" SDS at around 797.. so there may be some pain going back up, but we'll see how it goes. VOLUME IS LIGHT for a 4% up day! 

At what point my assessment on the market will be shown wrong: If the S&P breaks resistance at 805, I will be shown wrong that it is going to break down at that resistance. At that point, I will consider getting long SPY. 

How Hour 3/23/2009

I already have today planned out. I already broke today's plan. I'm back on track though.

"How Hour" is when I set aside time to reflect on my purpose and desires and then ask “how?” for attaining each one. I had come to a point in life where there was a constant list of things I wanted to become, habits I wanted to make or break, and goals I wanted to achieve, but never stopped to ask ‘HOW?’

 

By setting aside time, I look in the immediate and long-term, consider my desires, and consider what I need to do to materialize them. Sometimes I’ll sit and write a list of all those desires. Sometimes I’ll just write about the obstacles in getting to one of them.

 

“How Hour” has been the most profitable time spent during my day for the last year, when I’ve been able to have one. It is a goal and habit in itself and doesn’t come naturally.

 

Lately I’ve been asking “how?” outside of my normal how hours. The habit-setting, review, and effort has been outstanding and is achieving the same objective. My intent is to make habit setting, self-review, and asking “how?” a total mind-set and outlook on life, instead of just 45 minutes spent each morning. I want to keep journaling on wordpress.com my goals, results, and failures.

 

Today, I have a few short term goals:

• Pray before completing any task on my to-do list, before and after. This is sortof like saying “grace”. This is meant to get me in the mindset of turning and submitting to God before going through with a decision. Appealing to Christ shows I know that ultimately He is in control, and I (hopefully) am doing my best to serve and glorify Him.


• Leave 15 minutes earlier than usual for any appointment or meeting. This is to let me change my mindset from one of being rushed, to one of being able to drive safely and slowly, unwind, and breathe before getting there. It’s also supposed to help in not swearing.


• Everything on my To-Do list.

 

I have my day scheduled, my to-do list ready, and am on track to get some work done. 

Chart Addict's Wisdom

From Chart Addict's Blog on iBankCoin.com

Trading Plan/ Trading Rules

I like to ask myself several questions when constructing the plan. I’ll give you 20 of them here and you can brainstorm the rest.  The plan is your defense against emotional trading (if you actually follow it). Without a plan, you will be all over the place. The plan must be clear and concise and written down. If you do so, you’ll be in the top 3% of individuals who have a plan, immediately giving you an edge over the other 97%. Here are the questions (in no particular order):

1) WHY are you trading? - The simple answer is “to make money”, but that’s really not a specific answer that describes you. Perhaps I can change the emphasis: “why are YOU trading”? Every person has their own reasons, such as quitting their full-time job, spend more time with their kids, increase their quality of life, take control of their financial future, etc. Why are YOU trading?

2) How will you enter & exit trades? The best entries are when the trades that you put on are lower risk compared to a much higher reward. This requires a through understanding and rationale of WHY you enter the trades in the first place. You can exit trades in many ways, such as setting initial and secondary stops, trailing stops, scaling out of positions. Do what makes you the most comfortable.

3) What type of orders will you use? There is a vast array of orders. I like to use market orders 99% of the time. Others like limit orders, and of course, there are stop limit orders and trailing stop orders. Make sure you know when to use what.

4) What broker, software, hardware will you use? Compare brokers and see what you like. Don’t make the mistake of simply going to the cheapest broker. You get what you pay for. Instead, aim for a balance of reasonable fees, fast execution, excellent service, etc. You can choose what software and platform you want to use as well. Try out a couple. Finally, I’m not very knowledgeable in the hardware field, so just get a fast computer with lots of memory.

5) How much capital will you need to reach your goals? I think the absolute minimum to feel safe and without most restrictions is $25,000. To be adequately capitalized, I suggest a min. of $50,000. If you suffer a large drawdown in a small account, then you will have some problems. A larger account ensures flexibility and the ability for you to remain in the game, provided that you don’t go crazy in your trading. If you hold a smaller account, limit the downside risk.

6) What ARE your goals? This goes with #1. Make sure your goals are 1) written, 2) believable, 3)challenging, 4) measurable, 5) specific, and 6) with deadlines.

7) What’s your % allocation of capital per position? On average, I like to use 10% per position or side. Depending on my conviction level and the probability, I can go up to 20% per position and up to 100% per side (a rare occurrence). For people that are starting out, I’d say start with 5% per position, and move up as you build a tolerance. There are many ways to allocate capital.

8 ) What is your pre-market trading preparation process? This is your plan of action in the morning. You definitely want to check the futures in the morning for any gaps and their implications and location vs. the previous day’s close. I like to check different news outlets/sites (there are hundreds of links on the sidebar for you to explore). I also check analyst upgrades/downgrades, economic reports, and earnings reports that may move the market. Be aware of what’s happening.

9) What is your after-hours review process? Besides taking a nap sometimes, your end-of-day routine is key. Use this time to think about what happened during the day and what you did. It’s good to keep a journal or blog to record your thoughts and observations. Keep a daily log.

10) How many positions are you able to focus on at once? I personally do not like to have many positions open. 10 is the limit for me. Having a portfolio with dozens and dozens of positions will create a distraction and you may miss exit points. The good thing is that the more positions you have and capital allocated per position, then the risk level per position is minuscule. I prefer larger, concentrated positions initiated through directional timing.

11) What type of trader are you (day, swing, position, etc.)? If you don’t know this yet, then you shouldn’t even be trading at all. Know yourself. Figure out what style suits you the best. What is your psyche most comfortable with and able to tolerate. Just because I do “X” doesn’t mean X is appropriate for you. This is also why many people to follow other people become losers automatically by default.

12) Are you purely fundamental, technical or a hybrid of both? There is no wrong answer to this. It all depends on what you like and it’s your choice. I am 100% technical and could care less about fundamentals (except earnings).

13) What will you use (exch-listed, OTC, futures, options, etc.)? Again, your choice.

14) When will you trade (all day, set time, every few days, etc.)? This depends on your available time, schedule, strategy, and personal preference. If you set a certain time, don’t violate it. Commit to your scheduled and allotted time, or risk impulse trading.

15) What are your guidelines for using stops? This is your choice, but you have to adapt to market conditions when making your decision. Presently, wider stops are the norm due to high volatility constantly triggering tighter stops resulting in many losses. I personally do not use a hard stop unless I have to step out. I can use a mental stop and monitor the situation throughout the day. If you have a 9-5 full-time job, then you should use stops. Stop use is on a case-by-case basis.

16) What are your guidelines on losing positions? Specifically, how will you identify a serious loss vs. a temporary drawdown? How will you deal with the loss. Some traders simply stop trading for a few days to screw their head back on straight. This accompanies your strategy for exiting trades, but on the losing side. If you have 3 consecutive losses, seriously, take a break. Go ride some horses.

17) How much will you risk on every trade? Typically, a common rule is to risk no more than 2% per trade. Your risk depends on your allocation, exposure, and your loss limit. If you allocate 20% per position, you may risk up to 10% per position using th 2% rule. If you allocate 10% per position, you may risk up to 20% per position using the same rule.

18) Will you go both long and short? You should learn both skills. If you do not know how to short in a bear market, you will left with a severe disadvantage. Learn to take profits on both sides of the market. I recommend 4 main books on short selling (the first 2 are fundamental and the last 2 are technical): The Art of Short Selling by Kathryn Staley, Sold Short by Manuel Asensio, How to Make Money Selling Stocks Short by William O’Neil, and Sell & Sell Short by Dr. Alexander Elder. Get reading.

19) Are you going to trade the open? If the gap exceeds the high of the previous day after a day long consolidation, then the gap will run in the direction of the gap’s open. An area gap that opens within the previous day’s range is subject to fading/filling. What is your gap strategy? What is your strategy if the market opens unchanged?

20) Do you have a list of sites to visit, resources to read on a daily basis? If not, then check the sidebar for hundreds of links to every resource you need as a trader.

There are many more questions to ask yourself, but here are basics. Meditate on them.

 

4 Stages of Learning 

 

Back in mid-2008, I had a friend who lost over 60%. I offered to sit next to him for one afternoon while he was trading and I made sure he was free all day. This was in early September. I told him to initiate short positions and “leave them alone for a few days”. He closed out the positions within minutes. He started freaking out because a swing trade was going 5-6% against him.

I told him to re-add all the short positions. I then told him to come over to the window where a large metal pipe was running, and I handcuffed him. You can imagine how berserk he went, calling me all sorts of shit while at the same time feeling hopeless. I uncuffed him after the close. If you’re thinking “What the hell is Chart Addict doing with handcuffs in some dude’s room”, well, chill the fuck out and keep reading.

This is sort of extreme, but it’s also a personal experience. Many years ago, I used to handcuff myself during trading hours to avoid impulse trading and succumbing to my emotions. If I had to go to the bathroom or eat, I had to call my neighbor to unlock me. I did this for two full weeks and it was one of my most profound experiences in my trading career. Psychologically, I had no choice but to withstand the pain and I forced it upon myself like a madman.

Now that I have students, I can’t cuff them, but I tell them to completely walk away from the computer if they get urges. Since I am primarily a swing trader, I can withstand bounces and giving up large gains in anticipation of closing out trades for 20%, 30%, even 50% or more. In fact, I could be eating a sandwich and watching Youtube videos while my gains fade away because I have my trade’s purpose and goal always in mind with the end result in focus. The psychological aspect of trading must be your foundation, for without it, you will not succeed as a trader.

It doesn’t matter what system you trade, what programs you use, or what you subscribe to in your search for the holy grail, or “THE” answer to trading. I found that keeping it simple was the best way for me. If you notice on my daily charts, I hardly ever use technical indicators and only rely on candle charting, price action, volume, and moving averages to make an informed decision. That is really all you need to find the best set-ups that produce highly successful and high probability trades with the greatest time value of employed capital.

I use the most unconventional methods in my trading as well. Many times, I do go 100% all-in, but in the best of circumstances. I believe I will be all-in this week, switched around from long then to short, mid-week. What I do may be risky, but I am so conditioned to take calculated risks that it is second nature to me. In addition, I don’t involve myself in conventional portfolio theory or asset allocation. That is a waste of time for my resources. I trade to get the biggest bang for my money in the shortest amount of time. I don’t fool around with 1-2% movers. That’s a waste of my day.

Everything I said above may or may not apply to you. What someone might do may not be appropriate for you and your tolerances. Most people are conservative and cannot or or are unwilling to employ the strategies that I use, all of which are 100% discretionary and technical and for some, proprietary. It is important for you to figure out what kind of trader you are, what your style is, how your personality fits, etc. This will not come overnight, but rather over months and maybe even years. You must know yourself before throwing your hard earned money in the market.

With that said, there are 4 stages of Learning:

• Stage I - Unconscious Incompetence: You have no idea what you know or don’t know.


• Stage II - Conscious Incompetence: You admit that you don’t know, and you want to know how.


• Stage III - Conscious Competence: You finally know how, but only if you think things through.


• Stage IV - Unconscious Competence: You fully know how and you instinctively take action.

During Stage I or Unconscious Incompetence, the trader doesn’t know what’s going on, and doesn’t know much about trading except for the fact that you could make millions! Also, these traders have no trading plan whatsoever. In fact, they don’t even know that they need one! Finally, the trader is unaware of the important aspect of trading psychology. We’ve all been here, done that.

During Stage II or Conscious Incompetence, the trader is all pumped up and excited about the potentials of trading. These traders look at charts all day long and flip through research reports. Finally, they open up a brokerage account anticipating great riches. This group probably reads 1 or 2 books, gets some kind of newsletter subscription, and they think they’re ready to run circles around the Market Makers. Not so fast. Unfortunately, these traders lose a lot of money and they realize that all the services and subscriptions and advice they got are no use to them This is also where the individual trader gets a taste of the emotions that come with trading (fear & greed).

This is also where traders test various strategies.  Stage II is especially difficult because the trader suffers disastrous losses and may become depressed or overwhelmed. His personal life may be severely affected. It is at this point that they decide to either move forward or quit trading. This is also where positive and negative judgments and thoughts are formed (”Am I too stupid to trade?, “Trading is too hard for me”). The trader has lost money, is afraid and confused, and has jumped into a financial and emotional abyss. You hear the statement, “90% of traders lose money”, right? This is the stage where it happens. Even if they can afford to take the financial losses, the psychological losses are excruciatingly painful for the new trader.

When the trader makes a conscious decision to take his losses and move forward, then they have reached Stage III or Conscious Competence. Usually, traders look into the abyss and somehow make it out alive. Whatever their motivation, they decided to pull themselves out. In the process, they have also accepted a few things:

• Trading is learned until the day you die. You never stop learning.


• Whatever they did in life, how well they did in their past occupation, and their previous successes do not equate to success in trading.


• Being wealthy or being really smart also does not equate to success in trading. In fact, some of the biggest losers are doctors, lawyers, engineers, scientists, programmers, analysts, business owners, CEOs, retirees, etc. Why? Because typically, these people have this desire to always be right and for some reason, they refuse to take losses until they are annihilated.


• They cannot control the markets or “will” it to do whatever they want. More importantly, they accept that they don’t need to “control the markets” to become successful in trading.


• They must have a trading plan. Seriously though, seeking advice from traders/websites/brokers/programs/ etc. as a primary method to trade is like trying to drive to Cali from DC without a map by stopping along the entire way asking all sorts of people for directions. You might end up at Sir Stanford’s gf’s house in Fredericksburg, VA.


• They must be psychologically prepared to trade.

Knowing where you are is important, because you now know where you need to be. Once Stage IV is reached, you must do several things:

• Create a trading plan. Goddammit. Would you start a business without a business plan? I didn’t think so.


• Test out the various strategies and see what “fits”. Are you a day trader, swing trader, position trader, a zombie buy-and-hold investor?


• Do not abandon any plans just because they don’t work. There’s always a time and place for everything in such a fluid market.


• Increase recognition and repetition. Practice, practice, and practice some more. Don’t bullshit yourself.


• Accept the fact that taking losses, is part of the game. If you don’t like losing, stop trading immediately. I mean it. You ‘ll thank me later.


• Do whatever is necessary to condition your psyche. Whatever is necessary, even handcuffing yourself.

After a while, you’ll be able to understand odds and probabilities, differentiate for market conditions, learn to capture the meat of profits, scale in-and-out of positions, accept multiple & consecutive losses, learn to hold positions during heavy pressure, develop the “trader’s intuition”, place trades without hesitation and finally, become consistently profitable, week after week, month after month.

Hope this helps some of you out there.

 

The Trading Death Spiral

This article is designed to be an add-on to my previous article on trading psychology. There was a lot of interest in the Four Stages of Learning, which can be applied to almost anything in life. I know this because a fellow bodybuilder told me so. This next article highlights what happens during Stage II and even Stage III. It is one of the darkest moments in a trader’s career. It’s a time where you either “make it or break it” and there is no in between.

What is the trading “death spiral”?

Imagine for a moment: You went short Friday morning (2/27) but the market immediately rallied from the open. Then, you decided to go long, only to see the market head back down. You just took 2 consecutive losses. In your eagerness to “make it back up” or “break even”, you start to get frustrated and have feelings of despair.

Later during the day, you see the market is about to breakdown, but you don’t go short because you’ve already been burned twice in the same day. Naturally, you would have made a killing if you took this trade. You then proceed to either literally or figuratively bash your head into the wall. Perhaps you even want to throw your computer out of your window. So you don’t wait any further, you then “chase” the stock and short it at ridiculously oversold levels and catch a furious bounce, forcing you to cover. There goes loss #3.

At this moment, you are dazed and confused as to what just happened in such a short period of time. You became poorer in a matter of minutes and you are feeling hopeless and you may even be experiencing shivers, shortness of breath, sweating, and of course you may be cussing and maybe even throwing objects across the room. Your choices are either 1) to calm yourself down and move on or 2) to quit, indefinitely. You are now in a death spiral.

You go through this shift or transition from accepting and embracing losses and correcting the mistakes, into a massive pit of emotions that becomes so convoluted and built up to a point where you lose total confidence and acceptance in anything and everything. This transition can occur within minutes, or even seconds. Emotional responses replace your tactical trading method and plan (if you even have one). The death spiral is simply you digging yourself deeper and deeper into this pit. It’s an abyss that you must get out of immediately. If not, you may experience permanent psychological damage that prevents you from trading ever again.

You must learn to control your emotions or you will not be able to trade. All the programs, books, people, and anything else out there will do you no good if you do not master your emotions. Do you understand that? What I am telling you is important. Even if quitting was the only viable choice, most traders that do quit do not do so until the death spiral causes an emotional response that creates a situation so desperate that the trader cannot take it anymore and must quit. You hear of stories about how traders commit suicide, right? Well, most likely, what I said above is the reason why. You want to be aware of your emotions and catch yourself before you visit the depths of hell.

Contrary to some people’s thinking, this doesn’t apply to only Stage II’s and III’s. This happens to everyone, even professionals, because we are all human beings. The difference between a pro and a novice is that the pro can quickly identify if he/she is entering the spiral and get out quickly and with only a scratch. A novice has no clue what he/she is getting him/herself into, and as a result, suffers massive losses. You can read my pretty little charts all day long, but they won’t save you once you spiral out of control. Your emotions take full control over you as if you were possessed by a demon. You become irrational.

Consider a few a things:

• The first time a spiral happens, you should correct and learn from it. The most important skill you can master here is to control yourself before the spiral controls you. However, every time this spiral occurs and the more you go out of control, the quicker and more devastating the next spiral(s) will be. You will lose control even faster. The pain will shut you down and you will no longer be willing to trade anymore. Correct the problem now.

• Instead of quitting, take the time to re-build your confidence and to strengthen your emotional resolve. Quitting is taking the easy road. It is the most convenient thing to do because you don’t want to get burned again. You know the story about the little boy touching a hot stove, right? Or how about the one that got bitten by a dog? Quitting doesn’t provide any solution, and will only feed your reservoir of painful thoughts.

• How many traders start the day winning, only to lose those gains (plus more) at the end of the day? Who’s fault is it, the market or the trader? Did the market change or did the trader change? It’s always the traders fault and the trader always changes. You NEVER blame the market under any circumstance. The emotions start coming in before the trader even starts to lose. Excitement from winning will cause the trader to lose control. The gains turn into losses. You have started another version of the death spiral.

How do you stop yourself? The key is self-awareness. You have to be aware of what you are doing. How many times have you spiraled out of control and only at the end of the day did you realized what you have done? Would it not be better if you caught yourself in the beginning and knew what you were doing and what the consequences would be if you do not stop? The moment you transition from self-unawareness to self-awareness, you will have broken through a major point in your trading career. It is a pivotal moment.

Let’s become self-aware right now. Get an index card and write the following statements on it:

• After consecutive losses, I may be losing control of my emotions


• Many consecutive losses usually result from trading within neutral ranges or doji days, such as 2/26*.


• Are you following your trading method or are you overtrading?


• Trading method losses are acceptable. All other losses are not.


• If unsure about the market, remain neutral. Making no money is better than losing money.

(*Note: I even stated on Twitter early Friday that the day presented no sustainable trading opportunities, therefore I did not place a single trade. Pay attention).

I’m sure you get the idea, and I know that there are more statements that could be added. I will welcome suggestions in the comments section for traders who need them. The card means nothing if you don’t use it. Go ahead and tape it to the bottom of your monitor. Don’t leave it on your desk as it tends to be swept aside. This visual reminder will help you more than you can imagine.

Now, get another card, and label it as “Symptoms of a Death Spiral”. I am not bullshitting you. Now, write the following:

• Self-unawareness may lead to “shortness of breath”, “sweating”, “squirming in your chair”, “nervousness/anxiety attacks”, “shaking/restlessness”, “feelings of hopelessness”, “confusion”, and finally, “anger”.


• When I reach the “anger” stage of the death spiral, I may “cuss” (more than you would on a normal day), “scream”, “throw objects”, “break objects”, “jump up and down”, “bang my head into the wall”, “kick myself repeatedly”, “direct anger towards other people” (who have nothing to do with trading), “lose full normal emotional function”.

Again, you may add a few things on that list as well. If you have ideas, leave it as a comment for others who need it. Now tape this card next to the first card. The purpose of the first card is to help prevent you from digging yourself deeper into the hole. The second card is there to remind you that if you do not follow the first card, you will experience the things written on that second card. I know you don’t want to, so follow the first card. Read this everyday before the market opens. In fact, print this entire article out and read it everyday if it helps you.

If you are in a death spiral or have recently experienced one, then you may want to do the following:

• Stop trading immediately. You cannot trade when your emotions have you under control. Go exercise, read a book, play with the dog, do something to clear your head.


• You may want to start paper trading until you become profitable on paper. I tell people all the time, “If you can’t make fake money, how in the hell are you going to make real money”? Makes sense, doesn’t it? Get your trading methodology in order.


• Start trading again, but only in small lots. If you used 10% per allocation, then start off with something smaller. The less money that you have at stake, the less emotional you’ll become. If you had $2,500 at stake, then you wouldn’t care much if your normal position sizes are $10,000. The death spiral will come after you the moment you try to make an “unplanned killing” motivated by your own greed.


• As you become more comfortable, gain more confidence, and start turning a profit, then you may increase your position sizes.


• Don’t forget this article and the two index cards. Read them daily in your trading.

I want to mention the importance of remaining neutral to single events, and that includes winning. If you get really fired up and over-the-edge excited when you make money, I mean jumping and down and calling up your friends and telling them how much of a genius you are, then you are 100% susceptible to the death spiral. In fact, you are more likely to go down the spiral faster than a non-excited trader. If you want to start trading for a living, then you have to act in a professional manner. Since most individual traders trade alone, it’s easier to “act out” on emotions, but imagine if your mother or your kids or girlfriend/wife, whatever, was in the room with you, how would you act?

I hope this helps you all. Have a great weekend!

The Trader's Mindset

As you know by now, psychology is a secondary interest of mine, after reading charts and tarot cards, of course. For this week, I decided to cover the “trader’s mindset” and the most common psychological issues that all traders deal with.

How does someone know that they reached the trader’s mindset? Here are a few characteristics:

1. No anger whatsoever.
2. Confidence and being in control of the self
3. A sense of not forcing the markets
4. An absence of feeling victimized by the markets
5. Trading with money you can afford to risk
6. Trading using a chosen approach or system
7. Not influenced by others
8. Trading is enjoyable
9. Accepting both winning and losing trades equally
10. An open mind approach at all times
11. Equity curve grows as skills improve
12. Constantly learning on a daily basis
13. Consistently aligning trades with the market’s direction
14. Ability to focus on the present reality
15. Taking full responsibility for your actions

Developing the trader’s mindset takes time. It usually takes traders 2-5 years before they can read through the above list and honestly say that it describes themselves.

Let’s take 100 traders using the same trading system or approach. It is highly likely that no two of them will trade it exactly the same way in all aspects. Why is this? Because our mindsets, beliefs, and understandings are unique. It is no surprise that most traders fail and the reason why is because they lack the trader’s mindset. This article covers those in Stage III and IV within the 4 Stages of Learning. More importantly, it applies to those that survived Stage II.

There are two parts to fixing any psychological problems:

1. Recognizing that it exists
2. Accepting it so you can move on

In trading, this is where it’s so crucial to take responsibility for your own actions because it induces change and you can start making improvements. If you don’t recognize and accept a problem, then you won’t get anywhere!

What are some of these issues that I speak of? Here are a few along with their causes and/or effects:

1. Anger over a losing trade - Traders usually feel as if they are victims of the market. This is usually because they either 1) care too much about the trade and/or 2) have unrealistic expectations. They seek approval from the markets, something the markets cannot provide.

2. Trading too much - Traders that do this have some personal need to “conquer” the market. The sole motivation here is greed and about “getting even” with the market. It is impossible to get “even” with the market.

3. Trading the wrong size - Traders ignore or don’t recognize the risk of each trade or do not understand money management. There is no personal responsibility here.

4. PMSing after the day is over - Traders are on a wild emotional roller coaster that is fueled by a plethora of emotions ranging throughout the spectrum. Focus is taken off of the process and is placed too heavily on the money. These people are very irritable akin to the symptoms of premenstrual syndrome.

5. Using money you can’t afford to lose - Usually, a trader is pinning his/her last hopes to make money. Traders fear “losing” the “last best opportunity”. Self-discipline is quickly forgotten but the power of greed drives them, usually over a cliff.

6. Wishing, hoping, or praying - Do this in church, but leave this out of the market. Traders do not take control of their trades and cannot accept the present reality of what’s happening in the market.

7. Getting high after a huge win - These traders tie their self-worth to their success in the markets or by the value of their account. Usually, these folks have an unrealistic feeling of being “in control” of the markets. A huge loss usually sobers them up pretty quickly.

8. Adding to a losing position - Also known as doubling, tripling, quadrupling down, typically, this means that the trader does not want to admit the trade is wrong. The trader’s ego is at stake and #6 comes into effect as the trader is hoping the markets will “work in their favor”.

9. Compulsive trading - Similar to #2, except these traders have an addiction to trading and quite possibly gambling issues. They need to constantly be trading, even if there is no rational reason to do so. They are always excited whether they win or lose.

10. Afraid of “pulling the trigger” - This usually means that the trader does not have a system or approach already in place. They have not calculated risk/reward and many times, these trades are unplanned. This also comes after a string of losses. They don’t want to be “wrong again”. There is no trust from within.

11. Over-thinking or second guessing - Similar to #10, but these people are usually looking for a “sure thing”, when they clearly don’t exist. Losing is not recognized a normal part of trading and the risks and unknowns of trading are not fully accepted.

12. Limiting profit or getting out too early - These traders have poor self-esteem. This is a direct effect of believing that the profits were undeserved. Usually a trader is stressed over a trade for some reason and closing the position quickly eliminates the anxiety. Usually, there is a fear of “giving back” those gains.

13. Fear of being stopped out - Traders fear failure and the pain from taking losses is great. Here is another instance where the ego is at risk. They must always be correct or suffer a feeling of “let down”.

14. Not following your system - This is a trust and follow-through issue. Perhaps the trader didn’t test it enough, or it recently produced a string of losses, casing some doubt. Your faith in the system is broken. Not only do you not trust the system, you can’t even trust yourself with picking one that works for you.

15. Following other traders (indiscriminately) - These traders do not have a system. They are also limited in trading knowledge. They feel that they will become winners if they simply “follow” someone. These trades are usually impulsive.

The key to all things is creating balance. This means that if you are winning or losing, you should not care. When you finally recognize and accept each of these common pitfalls, you’ll be well on your way to acquiring the trader’s mindset. Good luck.