More on the trading survey

Well... been awhile.

Dissertation is coming along - not as speedy as I would like, but progress is being made. Still shooting for next fall.

In the meantime, I have started a new business venture with a couple of friends. It has been crazy successful thus far - we are in line to hit $160k gross next month (and we started in January).

One of the cool things about the business (it is a basic internet traffic/ad revenue model) is the immediate correlation between spending and income, probably one of the closest analogies to trading that I can think of. After the system has been set up, we spend so much money for so much revenue (buying traffic, providing service, then selling traffic). We can increase or decrease spending immediately with an almost immediate response on the revenue side. Say we spend $1k/day, and assume this translates into $1.5k/day revenue. This took some getting used to (the immediacy of the spend/receive cycle) - but I am thinking this could be very helpful when I eventually return to trading. Spending $1k/day (i.e., losing $1k/day) to generate $1.5k/day ($500 net/day) works in any business model. Adopting this attitude sounds very healthy trading wise.

And along those lines, I thought I would share a little about the survey I posted on my last entry. When it comes down to it, it is nothing new, but it does come from a fresh perspective. I recommend giving it a listen.

Suffice to say that the traders interviewed were like me - in that 90% of them think that trading is a skill that can be learned, and 85% believed that they had what it takes to be profitable.

Surprisingly - length of time spent trading seems to have no bearing on whether or not traders consistently reach targets - the exact opposite of what I have been expecting! Not that time spent trading can have no impact on consistency, but this suggests that consistency is something that can be learned outside of actual time spent trading.

The authors of the survey were able to differentiate 'mistakes' (what the interviewed traders considered to be the cause of their losses) between three categories:

More importantly, they couldn't make the same link between the inverse of the categories to profits... what they did find was a link between stress and trading profits: high stress correlates with large losses, low stress correlates with consistently meeting targets. Leading to the conclusion: 'The harder we try and make money... the more stressed we get... the further we get from the money tree...'

The more important we make the outcome of our trading, the more likely we are to get stressed when trades go against us, and the more likely we are to continue in that vein.

Simply said, that pattern is recognized in me. I am inclined to say that continuing to trade (inside of the vicious stress cycle) was more harmful than beneficial - without breaking out of the high pressure to succeed at trading/high stress cycle, I was on a steep downward spiral. There was/is a lot hinging on my ability succeed at trading - and I am guessing it is that way for a lot of semi-experienced traders.

My first experience with trading would seem to lend proof of this concept: I withdrew $2500 from my savings (an amount I was very comfortable with losing), and decided to play around with it on the stock market. I approached the market with a sense of nonchalance, used a default chart (believe it or not it was a 5-minute candle, I knew next to nothing about indicators or how to read them) and proceeded to triple my stake within 2 weeks - winning and losing some. Then I got serious and decided I could begin to make some money (turn up the stress): by the end of the following week I had lost 1/2 of my earnings. 

So what is the solution? I am not really sure; this blog has been more about thinking out loud than providing answers. One thing is clear however; consistent trading requires that trading itself not be stressful, i.e., that my success/failure not be 'too important'. I can only think of a few things that can counter stress in trading, and they are the same things I keep coming back to: either not being financially dependent upon my trading skills; or an over-arching confidence in my trading abilities (i.e., immediate trading performance has no bearing my overall ability to make money). I have little control over the first (my financial situation is what it is and I want to eventually be financially dependent upon trading), so the second is where I need to focus:

• A clearly defined edge - and an unwavering belief that I can execute on that edge
• The ability to accept immediate losses as the cost of doing business
• The ability to accept immediate profits as nothing more than the result of the unwavering execution of my edge

Nothing new. I keep running into the same thing from different approaches. Bound to sink in eventually. Maybe for the first time I am seeing how distinct this learning process is from actual screen time... failing to get all of this in place before spending time in front of a screen seems to contribute to nothing more than feeding the vicious downward stress-filled spiral. (Credit to whom credit is due - this is Scott's mantra.)

Anyhoo - stuff to think about.

Trade well!

Trading Survey

I ran across a very interesting survey on BMT this morning.

Here is a link to the accompanying slides.

The stats say that length of time spent trading is not related to profit. They also suggest that stress (or lack thereof) is associated with making money or losing it. Great stuff.

Break Time! (and... the continuing saga of mental games...)

Without regrets, I have decided to take a break from trading. Not sure for how long, but at least several months.

2 reasons:

1) I need to get my dissertation done this year. If all goes well I plan on defending next fall.

2) I need to concentrate on the mental aspects of trading.

I won't bore anyone with the dissertation details. Next year you can read it if you like. =)

I have been reading Mind Gym : An Athlete's Guide to Inner Excellence (some of you may remember Don M.' s plug in December). I haven't had time to finish it yet, but what I have read has helped to reinforce the mental aspects of everything and the importance of a proper mindset for success in all endeavors (assuming some level of player competence).

Last week was a great example of one set of bad habits: I refuse to take the credit for doing well and beat myself up when I don't. After an amazing day on 1-4 I wrote: 'I wish I could that I was in the zone, but the trades felt more like a fluke.' I didn't post several days last week because I had several trades that didn't work out well first thing in the morning and I had this sense of the markets being in control rather than me, so I quit for the day.

There is a mindset that has been lingering for as long as I have been trying to trade. The best way to describe it is   that I feel like I am knowingly walking off the edge of a cliff and expecting everything to be all right. It is almost a compulsive reaction or fear of thinking or analyzing too much, accompanied by thoughts of 'Gotta play to win' and 'No one knows what will happen'. Yet in the back of my head there is an over-riding sense of dread and the expectation that the trade will fail.

Heh. That is the mess that is my head. Not a healthy mindset.

Why all this? Again - I am not real sure. But I intend to work thru it and wrestle it to the ground. I am guessing part of the problem is an intense focus on myself rather than on price action. Of course, when I am doing anything well I am fully conscious of myself and how far I am able to push myself, but I am even more aware of and responding to what is going on around me. Take any activity and think about what happens. For example (because skiing is still on the brain) - I consider myself a competent skier. When I am skiing well I am aware of my body - but I am not questioning my body's response or ability to respond. I am not looking for outside confirmation or affirmation of my response. My body senses ice - I don't check the temperature, the position of the sun, or wind direction for confirmation. Nor do I push way beyond what I know I can handle or beat myself when an edge slips out from under me. I trust myself and respond. And have fun.

The analogy isn't perfect, but I think the principals hold.

As I mentioned a few post ago, the last year has also seen some great 'in the zone' moments. Enough so that I these will provide the healthy mental trading backdrop for visualization. The Mind Gym : An Athlete's Guide to Inner  Excellence has several exercises and I plan on blogging about these as I work thru them. This will be a 100% effort over the next several months. Making that backdrop real and readily adoptable is the goal.

Trade well.   

End of Day Journal (1-5-11)

Summary:

Paper trading on 100 shares:

Up and down.

I realized today that my approach has been pessimistic (today and yesterday). The thought process is... camouflaged... it goes something like: "Ok - I can do this. Expect to lose a bit - but it's all right I can make it up later. Don't let it faze you."

Then a price moves - and I think - where there is movement there is potential for profit. Hop on. I am not quite sure how to explain this. It is almost as if I leave my sense of focus somewhere and simply try a trade out. Some of this is done in the name of 'probability' - "You never know what will happen, and you can't win if you don't play." At the same time there is an over-riding sense of doom: "Watch, my entry will be at the worst possible time." And immediately comes another thought "I have to be prepared to lose - it is the cost of doing business, so go for it."

My EOD reaction to this thought process is "Just don't be stupid." What makes this extremely hard is that my thought process in the moment justifies my entry with some good solid trading philosophy (probability and cost of doing business). I want/need to believe/acknowledge the good stuff, and I need to do this more and more (because it isn't second nature yet). Part of making the good stuff real means implementing it - so I decide to believe and act on that belief by making the trade (thinking this will reinforce the good stuff). And - I make a bad trade.

Funky.

Anyhoo - I have been reading a sports pyschology book (can't recall the name just yet) and mean to work on the excercises. Part of my problem is focusing on what I don't want to happen - because I don't want it to happen. And sure enough, I make it happen. A good analogy - water on a golf course. Some golfers will take out an old ball as soon as they see water. Guess where the ball goes? I can see more and more that I need to focus on the positive outcome.

I have decided that I will not trade when I feel like I did today and yesterday. Capture that. Remember what it feels like.

Tired and a late post - I generally post with FF and for some reason the population script was not working correctly and I couldn't bring my post up to edit or start a new post. After about 4 hours I tried Chrome.

Trade well.

Details:

Posting 5 minute charts today.

End of Day Journal (1-4-11)

Summary:

Sim trading on 100 shares:

I only did two trades today and both came out well, so I opted to neglect the usual chart summary.

I wish that I could say that I was in the zone  - but the trades felt more like a fluke. Heh.


Trade well.

Details:

CMG

NFLX

Start of a New Year

December 31st marked the one-year anniversary of this blog.

I thought for sure I would be trading profitably by now. Not to be.

But - I have learned a lot. Last year started with TDA, holy grails, backtesting, and swing trades and some $14k more in assets.

The Christmas break was good. Cold, snowy, skiing, firewood, extended family and good friends... and closed road delays on the way home. A good, clear-the-air break from trading.

But... I didn't manage to stay completely away from trading. I actually spent quite a bit of time thinking about the last year, what I had learned, and how my understanding of trading has changed. I have been exposed to a lot of information, tried plenty of experiments, had some very good trading days and some ridiculously bad trading days (unfortunately more of the latter), and run thru the associated emotional gamuts.

The question of course is,  what distinguished the winning days from the losing days last year?

Let's think about this.

To state the obvious, there are only two things that can happen with price: the price can go up or the price can go down.

Ok.

The price goes up. A trade is registered on the exchange. DTN IQ's servers relay the data to my CPU and my CPU sends it to a pretty chart on my screen. The photons pass thru the monitor's glass, race thru the air and into my retina. 

That is all that can happen.

Now - I respond... and either my response is meaningless and trading is a right-place-at-the-right-time dumb luck activity - or - simple up and down becomes either ripe or convoluted with meaning and intention: the product of the market's fear and hope... or the catalyst for my own.

I still think the second scenario is the valid one.

We spent some time as a family skiing. It has been two years for me and I spent most of the time with son #3 on the bunny slope teaching/reminding him of the basics (everyone else snowboards). It was a rewarding time. After a bit my wife and I swapped and I got a few good runs in. I stuck to the groomed, and as I tried out my (out of shape) legs, I began to remember how incredible and fun skiing is. The human body is quite amazing. As I am skiing, my body is accepting and responding to an incredible amount of information: varying snow conditions, varying slope, varying  physical aptitude;  all across a broad spectrum of sensory input: vision, hearing, and touch (within the classic '5'). Say the skiis hit a patch of ice. Somehow this is sensed and my body responds and adjusts. Say packed snow becomes powder, my body senses, responds and adjusts.

(Imagine what it would take to get a computer/robot to respond to a ski slope...)

I think that for trading to be 'good', it should be something like 'skiing'.

Take any type of activity: driving, sports, video games - even relationships. A person's ability to respond to his/her environment - even without being able to quantify exactly what it is that is happening - is amazing.

I think that when I am at my best in trading, I am simply in the moment and responding to what is happening. When I am at my worst, I am thinking too much; trying to be too technical; trying to make something happen. I think that good trading is as organic as feeling the snow thru my skiis, boots, socks, and tired legs;  as organic as feeling how a 3 and a half ton Sequoia is responding to snowy, curvy road conditions; as organic as me sensing and knowing what kind of a mood my wife is in. When I try to figure these things out, I focus on the quantifiable, the 'art'  - and the beauty and fun - is lost; I also tend to choke.

This is what I want to bring to my trading for the new year. I am going to mentally adopt and practice putting on the focused/fun/feel-y mode of thinking; starting by trying to be in the moment and letting my body/mind respond to what it is sensing. Putting on my 'skis' and letting my body do what it wants to do. What is happening? Am I being reckless? Am I safe? Am I ready?

As I finish this post, I can't help but notice the simplicity inherent in trading and my attempts to control the uncontrollable. I see the need to let the market be what it is and to work on adapting my response to what is. I am not quite sure how to come to grips with all this, but I tend to think the most important aspect of all this is to make my success at trading less important/critical, and giving myself the permission to learn (i.e., make mistakes).

Trade well.

All the best.

End of Day Journal (12-10-10)

Summary:

Live trading on 100 shares:

Traded the morning session with the same uber entries - and the same EOD results. My trading is riddled with fear. I was long on CMG's $4 (10:00) move, and long on NFLX's LOD for a $5 move (9:45). I got out of both too early.

So - back to the drawing board - no sense in throwing good money away. I think the foray into live trading was good - it served as a reminder/refresher of what I am up against in myself. But for now, back to paper. Actually going to take off for the rest of the holidays - we are heading up to Bonner's Ferry ID for some snow and cold and family. I may do some chart reviews but for the most part I plan on working on the internal struggle and simply taking it easy.

No charts - same old, same old. Great entries, either not holding long enough, or after missing a big move, holding too long for the profit and stop. Mind games. Gonna get thru it.

Happy holidays!

Trade well.

End of Day Journal (12-14-10)

Summary:

Live trading on 100 shares:

What happened?

Hope happened.

I want to say that 'hope' is what happened Friday when I bumped up shares, Monday after licking my wounds all weekend, and today when I was $20 away from breaking even after being down >$400.

When I am able to focus on and read charts - I trade like a champ. I am more Chuck Norris than Chuck Norris. I am so freakin' pro. That may sound a little over-confident, but really, I am convinced of it. Really. The problem is - I don't know how to keep myself from becoming distracted; from not being distracted by me.

And that is the problem, here is the scenario for the afternoon: The morning started great with 4 profitable trades right at the get go. I lost everything on a slippery stop on CMG and then proceeded to get my rear end kicked by NFLX. I think this was beneficial - because at the end of it I felt like I had 'worked out' the anxieties associated with being so negative. After I realized it wasn't as bad as I had thought, I started trading from a place of focused nonchalance (albeit with a few fear based exits), before I knew it 3:45 came along and I was almost positive for the day. I almost quit due to the late hour, but I recall thinking - it wouldn't be that hard to be positive on the day. Thus I hunted for another setup, all I needed was $0.50. MA looked like it was heading down so I jumped in short. Stop. Looks like it wants to head the other way, no problem. I had to make over $1 now, but no worries, MA was a mover. Long. stop... Short, stop, short... etc., etc.; all at the ends of the candles (see the 20). 10 minutes later I was back down to -$350.

What changed?!?! I think it was a classic case of 'I want to see a potential move'... so I saw it. Granted, MA was falling fast and setting new lows, but it was already some $0.40 off of the prior LOD. In times like this I rationalize getting in with 'You never know what will happen' - that is the language of hope. Sure - the same words can be used while thinking in terms of probabilities, and I use that as a basis to trade, but make no mistake about it. This is not probability, this is me hoping - plain and simple.

I am just not sure what to do about it.

Trading happens fast, often if you stop to think about it, the moment passes and it becomes too late to do what needs to be done. This makes it harder to take a time out - with the MA trades, I 'only' had 15 minutes till market close which added more pre-tense (albeit completely false pretense).

The 'wannabe a hero' scenario was laid, I didn't have 'enough' time, and even more importantly, I didn't have the tools to be fully aware of all this.

Don't get me wrong, to some extent I acknowledged all this was going on - somewhere in the back of my head I told myself this didn't feel right, but I pushed the thought aside in the name of probability and profitability (hero complex) and went for it. Bleh.

More than anything - I need to be aware of and alert for my propensity to do stupid things. My stupid things are brought on by and directly related to my emotional state. This includes the state of hope, patience, and fear. How can I recognize this in myself?

I do best when I am watching a stock and waiting for something to happen - volume stacking up at the top/bottom of a move, a second attempt at S/R, a pause in the price action, etc. By then I have watched the action and identified the players. I have a feel for what is going on and where things want to go. I avoided MA most of the day - all the stocks I had been trading looked dead in the water at 3:45. I checked MA one more time and saw it was hitting new lows and went for it. I can make a rule about 'waiting at least 5 minutes before placing a trade' but I am not sure that that will cut it. The fact that I traded had more to do with how close I was to being profitable and how badly I wanted to end the day on a profit. Deadly combination.

It is kinda crazy - I went thru the opposite side of this during the morning. The PnL was showing heavy losses, but by the time it got to the bottom I had let it all go and didn't care anymore. I remember feeling a distinct difference, in fact, when I got up for some water, I told my wife that I was negative but I felt like I had worked thru 'it' and the rest of the day was going to be different. I am not making this up. Funky or what?

When it comes down to it, this is all about the PnL. If I would of closed out the trade prior to 3:45 (CMG) and been profitable, I would of stopped for the day. What would I of done if I wouldn't of known what the PnL was? I am guessing that I probably would of stopped as well - all the stocks I had been trading had no setups to speak of.

PnL is powerful - that is the supposed end result of all this blood, sweat, and tears: BIG P. I am not sure that not looking at the PnL throughout the day is the healthiest thing to do. I have been thru this once before, made the commitment to give up looking at PnL during the day, and somewhere along the line, assumed that I had outgrown the commitment. But the fact that I would of stopped trading if I would of been profitable at 3:45 serves as a very real example of how this affects my mindset. Ideally, I should be able to look at the PnL and trade regardless of what it was - like with what happened this morning at the low on the curve. But... I am afraid that is not the case. Until it is, I am not sure about what to do except to endeavor to never ever trade with the PnL in mind.

>$4/share is some kind of crazy money to make: and this is what happened when I was able to trade with no heed to the PnL. Not exactly 'Scott-esque', but some kinda crazy.

The day has been too stressful and long to do chart reviews - or to read back over and edit this blog... It is beneficial to do reviews, but it is not the core of my problem. I did get one done on CMG, but the others I am just posting trades.

And on an end note, simply in terms of terminology, I am not sure that 'hope' and 'patience' are the correct terms to use. I think perhaps 'wishing' and 'wishing' are probably better terms. Only because I think that both true hope and true patience are excellent character qualities. What I am experiencing has something to do with a blatant disregard for reality - which neither true hope or true patience have. Just a thought.

All advice, comments and feedback welcome.

Trade well.

Details:

AAPL

CMG

CRM

FFIV

MA 20 range (arrrgh!)

MA 45 range (arrrgh!)

NFLX

OPEN

SODA

YOKU

End of Day Journal (12-13-10)

Summary:

Live trading on 100 shares:

My trading was wracked by fear today - fear that I wouldn't succeed at this.

Crazy how this works. I think that my emotional state carried over from Friday and a weekend of thinking about it. It wasn't helped by today's schedule either; I had quite a bit on my agenda for the rest of the day, items that needed a lot of prep and I wanted to get done with trading early.

I started the day ok; I think the emotional state of fear came just before hitting the profit HOD. I was actually determined to quit and walked away from the comp to tell my wife that I was done for the day. Then I came back to shut down NT and thought I spotted an opportunity for another quick gain. Pffft.... this rapidly descended into another, and then another trade and before I knew it I was negative. Then the game became very much about fear and breaking even.

I am not sure about what to do with this - some days I am not affected at all - it is more about a state of mind. This fear is usually associated with me wanting to take a quick scalp and I become more concerned about that then I do price action. This can drive me crazy and I am not sure how to diffuse the emotion. Perhaps more work on the visualizations.

Today's agenda sure didn't help. Let's see how I feel tomorrow.

Trade well.

Details:

The same patterns show up again and again.

AAPL

CMG

LULU

MA

NFLX

End of Day Journal (12-10-10)

Summary:

Live trading on 100 shares:

Pfft.

After a great week - one of the best ever - I finish off with the worst day ever as I doubled up the shares I was trading. A few thoughts - the commission per trade on 50 shares vs. 100 shares is about exactly the same. It is much more expensive to trade 50 shares. But... if I would of stuck with 50 shares for Friday, I would finished the week slightly positive at around +$100. Just to put things in perspective, if I had been trading 1000 shares (as I was when I started last spring) EOD Thursday profit was > +$8000 (and substantially so, due to the commission difference); by EOD Friday the account would of finished at > +$1000. I effectively loss something over $7000 on Friday. 

Here are the IB summaries, For the week ending Thursday:

For the week ending Friday:

Well, well. After spending the weekend licking my wounds and thinking about what happened, here I be at the end of it and still not exactly sure what 'it' was. Or what to do about it.

A few things that I do know:

• By EOD Thursday I was coming off of one of the best weeks ever. My confidence was at an all time high, I was thinking of myself as a trader and fully convinced that I could do this and make it work.
• I bumped up the number of shares I was trading.
• I could not short YOKU.
• I had some very good entries.
• I had some very poor entries.

Those are the facts. That - and price went up, price went down, price went sideways.

I am guessing that being able to short YOKU would of kept me out of a heap of trouble. I tried to short on the 11:00-ish new low and when I couldn't decided to try and time the bottom. The first entry would of been a champ and it is very likely that I would of stopped after that trade. 

What about my emotional state? What were some of the thoughts that were running thru my head while I was trading?

This is the question that I have been concentrating on - and I am not really sure what to make of it; or perhaps better said, I am not sure how my mental state affected my trading and how I can recognize it and prevent it from happening in the future. Here are some of the thoughts that I believe might be helpful:

• When I made the decision to bump up the size, questions came up - what if I completely blow it after I increase in size? What if I lose everything I made and then some? This is exactly what happened. I didn't for one second entertain these thoughts and pushed them out of my mind as they came in. As the day started, they were no where to be found - but after I hit the -$400 mark they popped up again: 'See? Watch, you are going to lose everything you made and then some.' I pushed them out again, but they rang with sarcasm and a sense of inevitability. I kept trading, knowing (or maybe it was more 'hoping') that a few good trades would take care of everything.
• As I mentioned earlier, my first attempt on YOKU was a short on the 11:00 new low. IB didn't have any shares to short, so I said to myself, well - it has to find a bottom. I still stand by the first four entries (though the exits on 2 and 3 should not have gone to the stops). The rest of the entries were all bogus and more an attempt at what I 'wanted' to see, rather than what was actually happening with the price and volume. I think that by then YOKU had gone down so much and I was so 'desperate' for a big move that my perspective was biased and remarkably skewed.
• I was up numerous times - too many times to count > +$0.50. I let all of them came back to stops. This is all too typical. Some days I let the stock 'speak' and some days it becomes about me hanging on and hoping. Friday late morning and afternoon were definitely about hoping. I think this problem tends to show up when I am down for the day. I know that one or two great trades will put things positive and I go into each trade thinking this is the one - I just need to be patient. My thinking goes along the lines of 'You never know what will happen... let it come back to the stop or shoot for the moon... just hold on...' That needs to be a heads up: time to take a break, re-asses, and perhaps get out of the trade.
• On the opposite side of the reaction, I start chastising myself for not taking the easy profit and start taking money at the first sign of price hesitation, e.g.,  the HOD shorts on CYH and FSLR. This is just as damaging.
• Last but not least: I recall thinking at about the 3 o'clock mark that I will have to make $5/share in order to break even for the day and thinking that there was no where near enough time for this to happen. But - a guy never knows - and under that pretense I traded what I wanted to see happen - YOKU was moving big for the day and it was bound to hit bottom... nad I kept seeing it. FFIV had a nice ATR and was bound to move big on the last hour... and I kept seeing it.

Several of the thoughts I mention are recurring themes of mine, they recall the initial attempts at momo trading. I have come a long ways since then. I think what I am still seeing now is about some of the core of my personality - who I am when not much else is left... I would characterize it as optimistic riskiness. 'You never know, I might get lucky. Just keep trading.'

The thing about this is, I am not entirely sure how to catch myself in these modes. I don't think it is a stretch to say that my chart reading skills are adequate for profit, that is, if I use them. I think there was an unconscious shift in focus that took place on Friday afternoon. I am going to make a bit of an assumption and say that the circumstances that lead to this type of trading are the same: I am negative for the day and I have several relatively small moves that come back to stops. So in an effort to remedy this I am going to mandate a break if I have 3 consecutive stops. Since I think the 'see a profit - come back to a stop' moves are more a signal that I am not reading price action correctly, and potentially more damaging, I am mandating a break if this happens once (>$0.50).

By break I mean getting up, walking away from the computer, and doing something entirely different for at least 10 minutes. And before I come back to trade, spending at least 5 minutes re-focusing on my objectives.

This might sound silly, but I know me - I can make excuses galore if I am not specific.

Another thing that has been troubling me is why I didn't stop trading on both Thursday and Friday morning. I think it has something to do with not being positive - which... when it comes down to it, is neither inherently good or bad. I thought I could get by with setting an arbitrary/intuitive 'time to stop' standard, but I just don't know. For now I will keep it this way.

Feedback, insight and advice all appreciated.

Trade well.

Details:

CMG

CYH

FFIV

FSLR

HBD

NFLX

YOKU (with cut scenes below)