End of Day Journal (8-17-10) (Trading in the Zone Part 3)

Wow! What a day.

For what has seemed like an incredibly long time, perhaps since I placed my very first trade, I was able to trade and be in a trade without fear.

Unreal. Unbelievable. Incredible. And all rest of the superlatives. A milestone.

Not that it was easy or constant, not by any means. I had to work at it. I had to catch, stop, and lay aside all the old belief system thoughts and channel that energy into the belief system that I am claiming as my own. And I had to do this over and over and over again. But it worked. It really worked. Being in that spot is almost un-imaginable: calm, in control, focused.

Now - I need to get better at it, make it a reflexive habit. I think that it is only in this mindset that I can learn the ins and outs of momo trading - I am finally able to pay single minded attention to the charts (well, it was an almost today, my mind would slip back into fear at nearly every opportunity). This is fantastic.

What did I do? I started the morning by typing up and printing the 5 tenets of the 'Emotional Risk Free' belief system and the 7 sub-faiths of the consistent winner. I put a copy on my desk, and kept a copy up on my third monitor:

ELIMINATING THE EMOTIONAL RISK - THE MARKET CAN DO ANYTHING AT ANY TIME:

1. Anything can happen
2. I don’t need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any give set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

I AM A CONSISTENT WINNER BECAUSE:

1. I objectively identify my edges
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I pay myself as the market makes money available to me.
5. I continually monitor my susceptibility for making errors.
6. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

I read these several times before I traded and then again after I was in the first position. This worked pretty well. But then I started noticing very specific thoughts and rational that kept popping into my head, so I pulled up another MS Word document and starting addressing and refuting specifics:

When I put on a trade:

1. I am saying that I think I have a hunch that other people are going to jump in on the trade and move the stock in some direction.
2. What other people decide is out of my control.
3. If a trade does not go the direction that I see happening, it simply means that at least one person does not agree with me.
4. If a trade does go in the direction that I see happening, it simply means that at least one person does agree with me.
5. I cannot expect anything from the market
6. I expect myself to expect the market to do anything at any time: to be completely out of my control, its own master. I cannot know what every single trader is thinking. But I can guess at what might happen.
7. With respect to exits – Am I willing to accept the risk that the market can do anything at any time – that this profitable trade can turn around and become a loser?
8. With respect to adding size – Am I willing to accept the risk that the market can do anything at any time – that this trade can turn around and that by adding size I may be averaging my cost of entry and lowering the profit?
9. With respect to exits – Am I willing to accept the risk that the market can do anything at any time – that the stock may continue moving in the same direction, meaning I left profit on the table?

If I cannot accept all of these as reality, I have no business putting on the trade or staying in the trade.


When I enter a trade and it doesn’t work, does not mean that I am wrong. It means that at least one other person thought it was going to go in the opposite direction.


Each tick in the market requires me to evaluate and re-evaluate what I am seeing. I need to ask myself:  ‘Am I willing to accept all the risks inherent current moment?’

Kind of a hodge-podge and not edited, but it was in the moment and writing these things out and reading them again whenever I felt the least bit of fear creeping in really worked. It put me in control of the day - in how much profit I would take, or how much loss I would accumulate. While in the right mindset it became clear that every moment in the market was a risk decision - even while holding a position. Rather than letting my anxiety rule the trade and the exit, I would ask myself whether or not I was prepared to take the risk that my position would go from a profit to a loss, or, the opposite - was I prepared to accept the risk that the stock would continue to move in the anticipated direction after I closed. The question became one of risk acceptance and me, very personal - not about what the stock might do - because it could do absolutely anything at any time. There was no right or wrong - it was only a matter of which risk was I more prepared to accept.

It was a constant battle - I think that I was re-reading that list every 10 seconds at times. But it worked. I can see the path to becoming very good at this.

Now - the big question - will it last? Will this approach be effective in the long term? I think it will, as long as I stay committed, i.e., I maintain a desire to use this belief system. This is the best I have ever felt about trading, so why shouldn't I? I can only get better. I am sure that I will eventually face another problem, perhaps euphoria, or perhaps psychological impediments to winning too much, but Mr. Douglas prescribes the same gig: I will need to learn to  recognize the symptoms and then re-direct the energy away from the old belief system to the one the I want to adopt.

Simply trade.  Simply a matter of defining and adhering to personally acceptable risk. It was experienced in fleeting moments today, but this can only get better as I establish the habit. This kind of trading is... what I always hoped it could be. And now it seems tenable.

On that note, and for the sake of full disclosure - I was negative today... pfft:

This was trading the usual 200 share lots on TNA, with a few attempts at KSS (which just happened to be on the chart after checking out Lucas' monster trade),

Truth be told I was doing something that I never do, which is at about 12:25 I opened another window to get some 'real' work done before a 1:15 appointment that I had; and I regrettably tried to keep trading at the same time. It was pretty much a disaster. I would suggest that anything after 12:30 is not representative (I went short when I meant to go long and then tried to reverse after I realized the mistake, and let it run till the end of the day).

The 11:30 to 12:00 drop is real though and I have no regrets whatsoever about it. The market was hee-hawing around but I was in the acceptable risk mode the entire time.

7 fearful days of paper profits, and 1 fearless (more or less) day of paper losses. Today's bottom line has absolutely no impact on the day though - I feel like this is the beginning of being able to learn - my head was finally quiet enough to listen and heed the candle momo.

I will finish with a little more introspection, I think the big step realized today was being able to take 'right or wrong' out of the picture. I have always considered myself a fairly open minded person, able to listen, and ready to admit when I am wrong.  I have had plenty of practice. I thought this had prepared me for being 'wrong' while trading. Heh. It is clear that I wasn't - not ready to be wrong to the depth and certitude that the market was ready to dish out on a constant basis. This catches up with a guy and demolishes any semblance of self respect, I would venture to say no matter how tough a guy thinks he is. I found out today that the correct approach doesn't involve fighting the demons, it involves changing a belief system: accepting responsibility for what happens, stripping away the power of right and wrong, and replacing it with what I decide is acceptable or not acceptable risk. Risk that is intrinsically personal.

Anyhoo - a little long winded today, but I think the day called for it. I finally truly believe I can do this, not only that, but I can be great at it.

I was listening to the Amandla soundtrack today and reminded of how beautiful and moving the South African anthem is. This was the closest I could get to the Amandla version, but it doesn't quite do it justice. If you get the chance, check it out.