This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I’m not a psychiatrist, but I play one on this blog! I’ve probably seen Oprah more times than I’m willing to admit.
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I don’t think I’ve been doing a very good job of generating developmental material for the site lately. The older articles I’ve written are still popular, but when I look at them now I mostly cringe. I think it’s because I was writing about problems I was overcoming, and now that I don’t have those problems, the posts seem silly. The old interview MWF recently posted reminded me of how different my viewpoint is today than it was in 2006.
It stands to reason that I would cringe less at more recent articles, if I would just write some. After all, I still have problems with my trading and I still work on them. It’s just that, the kinds of things I focus on now are more personal, and generally harder to put into words. And I am lazy.
I don’t mean personal as in private or embarrassing, but personal as in relating specifically to what goes on in my mind. And also, it’s harder to know when I’ve really “won” or learned anything worth passing on to others… it’s not as clear-cut as when I decided I knew something about profit factors.
I will give you an example. If I could change one thing about my trading today, I would want to trade all day as if it were my first trade of the day. If you read the site and watch the videos, you know that once I’ve made some decent money, I lose all motivation to trade. I still watch the markets, but none of the setups look good enough to me anymore. I feel sluggish and uninterested. On the other hand, when I’ve traded myself into a hole, I have no trouble finding good trades until I’m in the green again.
So, even though it presents itself as a kind of lethargy or distaste for trading, I have to assume that there’s some fear deep down of giving up the money I just made. Or maybe it’s something else. But the fear thing sounds good. I would like to fix this, because I think I would be well on my way to serious wealth by now if I could just keep trading enthusiastically. Trading stocks, I would usually take 3 to 5 trades, which for my style meant I had open trades in the market for a total of 2 or 3 minutes out of the market day. Obviously, there was room for a LOT more trades. The big downtrend on Friday gave me lots of opportunities in @ES that I didn’t take. You saw me take the first one effortlessly in the live trade video. Each trade after that took more willpower, and after I made a few more points I pretty much stopped at midday. Crazy!
So that’s the kind of thing I am focused on now. I am reading Trading in the Zone for the first time, in preparation for an eotpro event with the author. I had heard of the book a lot of times, but just never got around to reading it. Maybe I will find something in there, of use.
(aside: how stupid is it that Ari Kiev also wrote a book called Trading in the Zone? I didn’t even know that was allowed! I can tell you right now that my first two novels will be called Harry Potter and the Sorcerer’s Stone and The Holy Bible: King James Version).
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
My background as an engineer has ruined my life in so many ways. ;) This comment from Tapeworm’s “Are Futures Harder Than Stocks?” article tells a bit about it: Read the rest of this entry »
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I was reading the Best Of series at Phileo’s Picture Windows, and ran across a great article - Trading is Like the Grouse Grind.
“…Indeed, it is a challenge in itself to be consistently patient and emotionally detached from my trading positions, accepting responsibility for my own actions, putting in the hard work to continually look for the low risk setups, and to be persistent in learning new tactics and approaches to trading, to be vigilant in avoiding mistakes but more importantly, to learn from my own mistakes once I do make them, and to be constantly remaining alert and focused on the trade, and the setup.”
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
This weekend I saw my Dad, and the first thing out of his mouth was regarding the new highs on the Dow.
Then last night a friend of mine who has been reading trading books for quite awhile now (without actually ever making a single trade) let me know that he is putting a rather large sum in the market — specifically the Dow. Since he has been a TA proponent for so long, I asked him what was his reason for entry. He got very defensive. Basically, his reason is that he has been missing out, and this money could have gained much better interest than a money market account.
When I asked about the possibility of actually losing money in the short term, he gave me a long term forecast based upon a book he read regarding the aging of the population, and what that may mean.
I could make the obvious point about fading the crowd, but instead I want to bring up another point that plagues many of us.
We have two people here. One (my Dad) has no interest in the market, and no desire to trade. The other person owns at least seven or eight books on trading. They both reached the same conclusion. I’m not disputing that conclusion. Plenty of tops have been called as the market powered higher. By my previous post, I believe the market will continue to rise over the long term. However, I am not betting either way. When the correction finally comes, it will be painful for those who bought the most recent top. As they are shaken out, the market will resume its trend.
Even after reading all the trading books, and even a few blogs, my friend’s main focus is a fear of missing out. Personally, that same feeling has caused me to take many a bad entry. A fast moving market doesn’t always allow a safe entry with a defined risk. Some times that works. More often than not you will lose money jumping in without any regard for risk. He did say that he would put a stop in place. When asked where, he answered 5%. Remember, he has read quite a few trading books. I asked him if it was possible for the market to have a 5%, or even 10% correction while still being in an uptrend. He agreed that it could, but was unwilling to wait until he had a plan. He wasn’t goint to look at the first chart. When pressed, he said he had a feeling it was going up. Eight trading books later, he had a feeling.
There are a few questions that each of us need to answer before putting our money at risk. Where will I get out if the trade moves against me? What is my target? Is it defined by price, or the way market is acting? All of these factors have much more to do with our profitability than identifying a trend. Without ever making a trade, he has no idea how hard it is to hold onto a winner. Likewise, he doesn’t really understand how hard it is to get in the habit of cutting losses quickly. As his irritation grew, I backed off. I changed the subject to an Escalade I saw on Unique Whips — specifically the sound system. The conversation went back to trading. We were talking about the probability of success. My belief is that my success or failure at trading has absolutely no impact on his ability to be successful or otherwise. His thought was that within about three years he should be a millionaire. I’m not making fun of him. I used to think the same thing. When I asked him why, his answer was that most traders don’t understand the psychology of trading. After all, he read Trading in the Zone. I laughed. Almost everyone has. In fact I recommend Mark Douglas other book, The Disciplined Trader, even more.
This was a long way to get to my main point. We all read the same books on TA, psychology, business plans, strategy, or whatever. However, we also are all plagued with the same emotions that are at the core of our being. I think perserverance is probably the one essential trait for an aspiring trader to be successful. Along the way, you will be beat down, lose money, kick yourself for not sticking to your plan, and maybe even make some money. You have to retain enough trading and mental capital to make it long enough to find a system that fits you. There are a ton of strategies that make money, but a successful strategy won’t work for everyone. Its my belief that if you continue to violate your own rules, you probably are trading a system that’s not right for you.
Btw, he went to a free seminar where they showed drawdowns for different trading systems. He wanted the system that doubled your money every year with only a 5% drawdown. Where do I sign up?
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I just listened to a pretty good lecture on happiness by Daniel Gilbert, a Harvard professor, and author of Stumbling on Happiness. The talk was about how the brain is able to synthesize happiness with just about any situation. The corollary is that striving for the best possible outcome usually makes us less happy than just choosing any option and never looking back.
This is the mp3 (about 20 minutes long): http://ted.streamguys.net/ted_gilbert_d_2004.mp3
I thought three points were particularly interesting:
The talk is short, and entertaining, if you like to think about things like this. I haven’t read the book yet, but it looks interesting.
I put a bunch of new entries in my stocktickr watchlist this morning, all off scans of weekly charts. So, it may be a few days before they become viable, if they do. Either late tonight or tomorrow morning I’ll update that list, and add anything I can see from the daily charts.
A Matter of Scale
Does this ever happen to you? I’m clicking on Trade-Ideas alerts, to pull up the corresponding charts, and I spot this gorgeous looking drop. Just a nice smooth trend with gentle pullbacks going down all day. But before I go shopping for private islands, I glance over at the prices. That’s when I realize that, even though the candles moved from the top of my screen to the bottom of my screen, the drop only covered 15 cents, total. My trading platform “helpfully” adjusted the scale to use the space I had given it.
It can be mentally tricky, because if I asked for GOOG next, its daily range would fill the same space. Since charts look realistic at every scale, this kind of thing can easily fool you. To some degree, you can accomodate a smaller range by buying more shares, but there are limits to that.
At least, the way I trade, I can’t get into a stock without looking at the day’s trading range. It’s part of how I calculate my stop. But I have no such safeguards for volume. And, today I was fooled by… wait for it… volume! It’s my fault, of course. I can’t blame my stock charts for picking a scale that fills the space given to them. But, when I saw this on Quality Systems Inc. (Nasdaq: QSII):
… I thought it looked like a pretty good entry. It had fallen on relatively high volume, then had a little bounce, and was making new lows again. So I entered a short order. Then I noticed that my order was taking a long time to fill. Then, I saw the spread getting wider. Then, I noticed that the tallest volume line in the above chart only represented 6000 shares! Eek! Suddenly that spike looked an awful lot like the volume chart was giving me the finger. I cancelled my order and covered the shares that did fill for break-even.
Now, before you write me off as a complete “shoot-first, ask questions later” idiot, I did check the avg volume on yahoo finance last night. It says 436k. Not as high as I like, but not bad. But, if you look at the historical data, you can see that the number’s only that high because two days in June traded millions of shares. It turns out that, some days, this stock doesn’t even trade 100k! That’s why, for my top 50 list, I remove the highest volume day from my average, so anomalies like that can’t throw the average too far off.
“Hey,” you might be saying, “I thought you were only going to watch the million+ volume stocks on your top 50 list this week.” That’s true, but I’m also watching stocks on highchartpatterns‘ newsletter. I should note that I was trading their stock, but not their system. I picked a different entry than they did, since my entry looked good to me at first glance. They didn’t take the trade (the price never got low enough for them), and they are always preaching about volume in their newsletters. Good for them, and shame on me! Anyway, I’m glad I aborted my entry. The stock turned and went back up for most of the rest of the day.
| Stocks Mentioned In This Article | |
|---|---|
| Stock | Links |
| QSII |  |  |  |
If my first cat were just a little smarter, I would have her trade for me. Like most cats and their owners do, we play a game where I drag a string around the ground near her. We both know that she wants the string, and we both know that it’s my goal to yank it away from her before she can get it.
When we play this game, she is completely still. To the extent she can, she watches with her eyes, and doesn’t move her head. I can pull the string less than an inch from her several times, and she just observes. Sometimes, she even starts looking off elsewhere, as if she’s lost interest. Then, just when my attention is waning, she grabs it with a speed and intensity that startles me. How she knows when I’ve been lulled is beyond me.
This is perfect for the market. Stocks move in ways that are VERY tempting. But, remember, it’s tempting for everyone, and doing what everyone is doing doesn’t work. The way to win is to wait until the market’s not trying to sucker you in anymore, but is still presenting a high-probability opportunity.
My other cat has the opposite market attitude. The moment he sees the string he lunges with all he’s got. About half the time, I can beat him, and about half the time, he’s so fast he can catch the string mid-yank. The upside of this approach is that it’s a lot more exciting… we go through several trials a minute, rather than one every couple minutes like the other cat. And he does win about half the time. But, this cat, despite how incredibly fast he is, would be slowly whittling down his account.
Which cat are you more like?