Screw Ups are getting smaller

Today was a crazy day in this madness people call the Trading Industry... It's odd how even though every day is different, many are similar and prices almost constantly bounce around or revisit key levels. The end of last week the tape was sideways, meaning there was no real up or down movement, and this week has started to pick up late in the day. What has finally dawned on me, is that the markets must be navigated like a river each and every day. And when the currents start gaining speed, you better not snag the boat and capsize. Let me tell you why this day was crazy and what led up to it.

Let's start with my Aha! moment on Tuesday. Nothing had happened all morning; slowly momentum began to develop to the downside and I started to short. But I was too early; it bounced and i lost a chunk. Got out and entered again ten minutes later and the trade got under way... it faked us out, but I had entered well above and added more shares. The stock moved lower and tested support; it bounced again. Now, at this point the day was getting close to being over (I had been in this trade for almost an hour, waiting patiently), and I decided to take the profits on the table. As Jesse Livermore said, no one can catch all the fluctuations... the real money is made in the big moves. Thus, the goal is to hold until you can't stand it any more when you are getting paid. I covered my short for a $90 profit. The market then sold off for the next 45 minutes. Let's just say that every body got the Christmas bonus but me.

So today I decided to put my new knowledge to work. My ambition/impetuousness got the better of me and i lost a fair amount 7 minutes into the trading day. I say a trade and i entered, just like yesterday afternoon. This time, I was confident. The market was whispering in my ear and by golly I was going to hold. It kept looking like the markets were going to go through that key level, I started to hope, I ignored the slight changes in my indicators (we call the TICK, ratio of rising/declining stocks, and the TRIN or "Trader's Index", a volume measure of institutional buying or selling, our market internals), and i lost a little money when I got stopped out and a reversal occurred.

But I was happy! Never in my life had i been so happy about losing money! I screwed up by having overly optimistic (or on the short side, pessimistic) expectations of follow through! But I finally realized I'm not after nickels and dimes! I need to get PAID! Its crazy because every day is like a battle.

My boss will type into the IM, "BP possible short/ Let's do it/ short it;" He's talking to 30 of us, so of course he's yelling at people who are doing nothing. He continues, "Short it/ Now/ Short it.... it's the battle of Dunkirk at 109 (on the S&P)/ if it breaks get PAID!" All day long, like a good football coach, he's screaming at us. And like football practice, the pressures never off no matter how far behind or how far ahead your team is. Speaking of sports, the boss has been watching the World Cup when there is nothing to do.

What causes more emotional distress than losing an ass-ton of money? What causes more elation than getting handed wheel-barrows of money (unless of course we're talking about Weimar Republic)? This business is unlike anything else... you must be completely calm one moment, a Zen mindset taking in all the markets whisper in to your ear. Then at precisely the right time, you must transform into a Warrior and attack like Lone Wolf and Cub. In this environment, we all have to be careful. Is the economy recovering or is it not? Some days we get good economic news, the next is horrible. The news programs fill our heads with nonsense b/c they don't really have anything of substance to talk about most of the time. Even though sovereign European Debt has been a problem since September... every other day its on the front burner. Will china overheat? Will its bubble burst? When will this damn oil spill stop? Why have we all of a sudden found massive deposits of minerals in Afghanistan? Why was our top commander a complete ignoramus when it comes to politics? Vespasian or Marcus Aurelius would have had his head!

In my following posts I will attempt to focus on analyzing politics, economics, and the markets. While I see this as a journal for myself, I would like to share with the world my thoughts and opinions... in so doing, hopefully I can inspire someone to think.

Back in the Saddle

I had to take a break from my recently started career... I was married and spent two weeks in Costa Rica!!!! The Lord has been very good to me as of late. Anyway, during the honeymoon I read Edwin Lefevre's "Reminiscences of a Stock Operator." It was the best possible choice for my break, allowing me to analyze my mistakes, to learn from a master, and to get a sense of what I needed to do to be successful as a Stock Speculator. And my first day back, trading, in the first week of June, my confidence was at an all-time high.

The next week I kept battling, going from negative $100 or $200 to even or slightly positive. I thought to myself, "When I left I was bleeding money, and now I'm not losing money!" Success around the corner? Not quite yet. I continued to suffer a couple of defeats, one or two successes, but I was beginning to worry that maybe I don't have what it takes to be a Day Trader. Then last Friday, it began to click. Yesterday, i was in a trade, and i decided to take my $30 dollar profit; i thought i might be able to get back in, but i just hadn't wanted to lose. The markets then went into an hour long sell-off which i could not get back in on. But I did not take this as a total loss, it was a lesson that finally got my brain to "click".

So today, not a whole lot going on in the markets. The previous sessions were slow build ups to afternoon sell offs. Now, the week before was more or less a consolidation, meaning they moved sideways with some intermittent moves. According to the Pundits, we've been bouncing around the 200-day moving average of the S&P. In the latter half of May the S&P500 fell below the 200 day average, and in June it has rallied up to the average. In Trading parlance, it is "testing the moving average;" this is important because it is now a major resistance level which must be overcome if a bull market rally is to follow. Of course, on the other hand, if the 50-day average drops below the 200, order flow may shift and its possible we could move lower. No one really knows right now, the incredible uncertainty in the market is making it pause until some of the issues are resolved. What issues are these?

Obviously Euro-Debt in the PIIGS, there is municipal debt and it is a major problem, and of course the massive oil disaster in the gulf. There are political problems the world over including: Iran, Afghanistan, and so on and so on. At home, the Financial Overhaul is certainly weighing on the markets, and it is my opinion that as soon as it is signed, a rally in Financials will follow. This exact same thing happened to healthcare stocks following passage of the Health Reform bill. But I believe there is much more to look forward to. For one commodities, particularly heavy metals, will be needed for growth in the BRIC areas (Brazil, Russia, India, China). Currently there is some debate about possible bubbles in China, such as housing, and there is concern about there efforts to contain that growth. Also recently, China has agreed to gradual strengthening of the Yuan, but it could be some time before that translates to real change. This particular tid-bit may influence the price of commodities, but surely the massive demand that country has for those very metals indicates that there will be substantial growth in a number of markets as China continues to industrialize. The funds for those materials will flow back into producer countries and multi-national corporations, and an influx of cash into the capital markets will mean that the markets may go very high despite looming employment issues.

My boss is a mad man. I was in one bad-ass set up, I finally learned to wait for the main movement, knowing it would take about an hour to fully develop. We were getting high energy, the mkt internals indicated order flow to the downside, i continued to scale in.... and then it was the end of the trading day and my position failed. That's just part of the business. But today was no loss, I learned more today than at any other point in my short career.