Posted on October 22 , 2010 In Daily Updates

Unlimited Freedom Is The Result

Tomorrow’s Plan:

Resumed Sunday

Today’s Trades:

Today’s Journal Entry:

Last Note

I don’t think we have had such a flat day in a long time. I got another chance today to see my fear in action. I was a bit baffled by how strong my fear really was with the GG trade. I mean I cut that mutha off like I was a brand new trader. My fear was pretty strong; I felt sick to my stomach and my shoulders and chest tightened up. I really thought deeply about it and realized that many of the old defense mechanisms and excuses that I used to cover up my fear were gone.

These included “trying a new method,” which made it okay for me to lose, or “listening to the mentor,” which made it okay to sit out. There were all kinds of things I used as excuses or defense mechanisms that some how took a little of the responsibility of my trading away. Now, it is all on me, and I think I feel the weight of that responsibility.

I have never really been able to punch through the fear line consistently to a carefree state of mind in any performance activity. There has always been “something that needs work,” that justified not trying my best, or not taking complete responsibility. I always knew that there was this state of mind where I would flow effortlessly through any action. There was always a reason why I could not be in that state now; something I had to do.

Well I am running out of those excuses and defense mechanisms. I know everything I need to do, its just a matter if I can get over the fear I have at the deepest levels. I know I have an edge that I can act on that will give me consistent profits, but again, the fear is there. This fear really does not have much to do with the market, but is deep, and from my past. Once I get through that fear, and I am not sure when that will be, unlimited freedom is the result.

Lucas

Posted on October 21 , 2010 In Daily Updates

I Will Get A Lot of It

Tomorrow’s Plan:

Well we got the new highs today as well as a nice sell off. The sells offs in the market have been brief, but violent and broad based for the past week. I definitely think there is profit taking, but as long as the market is not taking out new levels to the downside, the bullish case is still strong. Overtime, if we see more and more sell offs that do not take the market lower, we have to assume the underlying bid is still strong, and trade confidently to the upside. I see a lot of short frustration really. The new highs have to be frustrating the shorts, and the strong but brief sell offs do not give much to chew on. At the same time, I feel it from the longs as well. They want the market to keep going up, which it is, but these sell offs make it tough. Take a look at the past few days and you will clearly see a range in the market, it has been hard for both sides.

Volume dropped today and the stats were pretty much neutral by the close. That is not to say there was not something to do today, there were great moves on both sides of the market. We are creating a new value area around the 1175-1180 area. So any trades within that area will probably be lesser probability, and that area will act as both a magnet and a propellant for price. VIX and TLT are both in an hourly range as well. I had a tough time this afternoon finding some ideas I really liked.

My Best Ideas:

•LONG UNH: Looks like this stock bottomed out on the hourly at its 20 SMA. Looks good as a long tomorrow.

•LONG USB: This is kind of a meh idea, but here goes. If this stock can break over it’s highs from today, I think it can run. The 200 SMA is above it at 24.1, so it only have about 50 cents until it runs into some resistance, but its strong showing today tells me there might be some willing buyers in the stock.

•SHORT VLO: This broke down nicely today on higher volume, severing an up trend line from the beginning of September. I think it might have an inside day tomorrow, but otherwise looks like a good short. This is a bit of a bullish dollar play, along with many other energy and gold names.

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry:

Last Note

This was what I wrote down this morning for my morning trading plan:

“Gap higher will not be believed by retail, will fuel up move with deep to moderate pullbacks. Buy pullbacks and liquidate into new highs and extreme tick”

Some plan for this morning’s trading right? It was actually perfect. Yet I watched in horror as I did the exact opposite! I bought at the highs, and then got stopped out into the pullback. Even did it three times! I felt terrible! I was aghast at the losses I had accumulated for myself. I literally felt like I had a demon inside me that does not want me to win. It was actively sabotaging my results by making me do the exact opposite of my plan.

Not only that, but I do not recognize it while it was in action! I really thought I was following my plan this morning! Only afterwards did I snap to and see that I actually did the exact opposite. I felt dire sorrow for myself! Here I was, chained to this beast in my head that made me do all the wrong things and I did not even know it was doing it! The worst part was that I actually thought it WAS me while it was in action! I thought I was making informed decisions for my betterment only to see I was sabotaging everything!

After writing about this in my journal with all kinds of woe and lament, I did some breathing exercises and found that I was beginning to laugh. I was beginning to laugh hysterically. The whole situation was comical gold! It reminded me of the three stooges trying to screw in a light bulb or something. I was laughing because I felt free! Like it was not me who traded this morning, it was this weird dark, heavy, fear-monger thing. I don’t even know what it is, I have been just calling it the dark heavy thing for lack of a better word. The crazy part is, it’s in EVERYTHING. It comments and guides, through fear, everything I do.

For example, I find that I constantly have ideas when I look at charts; it is hard not to when you have been looking at them for so long. This dark heavy thing tends to come in and tell me why my ideas suck, and why I should not do them because there is some valid reason to fear. That is the funny thing, the reasoning to be afraid always seems valid in some way or another. “This looks like a good long, ohh but I don’t want it to pull back against me like the stock that I had a similar trade in yesterday.” On and on with the reasons to deny good trade ideas.

After all this, I looked at my day’s results, and thought “Man! This dark fear thing is not helping me at all!” I was sitting there listening to this fear-monger voice because I thought that if I didn’t something bad would happen. Well something bad did happen! I lost money! The freedom came when I realized that I did not have to listen to it, and I could at least lose money in the way I WANTED to trade. See most of the trade ideas I get are fun and carefree, but then this dark thing comes in and puts the kibosh on it (“you have to be serious now”). If I am going to lose money, why not do it the fun way?

My eyes lit up as I saw that trading could be a lot of fun! I could wake up everyday and put on trades that look good instead of listening to this voice that isn’t even helping me in the first place. I was listening to that voice because I was afraid that if I didn’t, terrible things would happen. The voice seemed very logical, it was great at pointing out the trades that it kept me out of that lost money. “See there, if you had made that trade, you would have lost money, good thing you were fearful!” It doesn’t work though! It cannot prevent losses! So might as well listen to the other thing that says “Hey, this looks like a good long, lets see what happens!”

I feel great right now, one of the biggest losing days I have had in awhile, but feel great. This fear thing has its tendrils in everything, and it isn’t disappearing overnight. I have already writen down some places that I see it in action, and I will be on the look out for more in the coming days. I don’t think I will root out all the fear, because like I said, I think it is ME when it is active, but I will get a lot of it this go around in the cycle.

Lucas

Posted on October 20 , 2010 In Daily Updates

The Most Important Question To Ask

Tomorrow’s Plan:

Well the picture definitely cleared up today! Sell off, what sell off? I shouldn’t say that because today’s stats were kind of meager compared to the decisiveness of yesterday. The internals were all bullish, but volume fell, and the market came off at the end of the day. VIX, on the hourly charts, looks like it made a 1-2-3 top after it made a 1-2-3 bottom yesterday. All in all, I see confusion. I would not be surprised AT ALL if selling picked up again tomorrow and took this market down on a negative catalyst. Although I think it less likely, I would also not be surprised if we took out the highs in the SPY at 118.67. Either way, I think the market is battling hard at these levels, and it is going to have big momentum moves in both directions before snapping back into range. Just when traders think one direction is a given, the market will snap back the other way. I will be watching for the severity of the moves. If we continue to have higher volume sell off days, and meek rallies, you know what that means. Tomorrow we have some news events at 10 EST, as well as more earnings announcements. We really have to be ready for anything.

One last note, there were quite a few very nice bullish moves today where you could basically buy something and hold it for the whole day if you could. I think a few of those moves will have continuation, but overall, we will not get as squeaky clean action tomorrow.

My Best Ideas:

•SHORT COST: This stock rallied for most of the day, but it started to roll over at the end of the day after hitting the 20 SMA on the hourly. I like the hourly swing high, so this is a short down to 62, and then lower.

•LONG DD: As long as DD can stay over 47, I think the long is intact. The hourly is starting to roll over, so I want to see some kind of swing low forming to get involved.

•B.O. SWN: I like this long if it can get above 35. The stock has tested the level a few times now, and if energy continues to do well, it should be able to break through.

•LONG COP: This stock started to roll over at the end of the day, but I still like it long if it can turn around.

•SHORT LEN: Lots of selling in this stock. It may have had some exhaustion today. I think if it goes down to retest the lows, it will probably break through.

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry:

Last Note

This has definitely been a realization rich past few days. Today I really saw a lot of fear in myself. I was amazed at how much of my life is ruled by fear in some form or another. Even the smallest decision to take one road instead of another on the way to the gym is influenced by it. The truly amazing thing is when I saw this fear in myself, I easily saw it in others. I saw it in some of the traders in the mentor room I am in and I saw it in the market. When I look at the market and ask myself “Who is the most fearful right now,” I trade pretty well. It is obvious to see that there are traders who are afraid of getting stopped out, so where will the market go? To that stop out point of course!

Trading COP in the afternoon, I basically saw something along those lines. I saw that there were traders waiting to make a decision at the highs of the day, fearful that they would miss another move higher because they had missed the five minute swing low. Whatever the case was, many people were going to make a decision at the highs of the day, so buying at .55 and selling at .62 around where they would make that decision seemed pretty obvious. I didn’t do any analyzing, or evaluating, I simply watched and surmised what was already happening within the stock. Then it was a piece of cake to see a trade that was a no brainer.

The funny thing is this. When I trade from an evaluation mind set, using some method that tells me what to do, I lose more often and in larger amounts, BUT I feel less anxiety. When I trade using the observation method, like today, I win more often and in larger amounts, BUT feel much more anxiety. The second way FEELS so much riskier, yet on an objective basis, there is less risk involved. I wonder why this is? Why is the winning method feel so uncomfortable and the losing method feel so comfortable? That COP long that made 7 cents in the afternoon felt like a HUGE risk, even though it was an obvious trade; I had my finger on the exit trigger. However the second LEN short which was asinine felt so comfortable as it lost me money. From an objective standpoint, the COP trade had less risk and it had a high probability of being right. Yet I felt the opposite.

Crazy huh? I bet most of you readers have felt the same at times, what do you think of that?

Lucas

P.S. The most important question: Who in this market HAS to or is afraid to do something right now?

Posted on October 19 , 2010 In Daily Updates

Karma Never Fails

Tomorrow’s Plan:

Just wow, what a day. I guess some Fed guy said in the afternoon that QE2 is not a 100% go, but was still up for debate. Whatever the reason, the market used it to sell off on increasing volume. Today’s stats are like a deep red blotch in an otherwise sea of light green. AD line closed around -2000 and volume was almost as high as expiry (!). With that said, I think after some initial continuation selling, a short sale tomorrow is probably a suckers play. I doubt the bulls are just going to roll over and take this, although with some really negative catalysts we could get quite a bit more selling before a bottom is found. One big red down day is just that, a big day, and it does not make a trend. There will be plenty of bargain hunters picking up select stocks tomorrow, and I will be watching for some names to have trend days. I also think there will be some MATD action in the morning, so waiting for at least the first 30 minutes will probably be a good idea for any trades you want to hold. Otherwise, bookem into momentum!

The dollar had a really great rally today, and we should get a clearer picture as the week goes on whether it was just a stop run or the start of something new. GLD is right at support, so again, I wouldnt be surprised if we had some kind of light rally tomorrow. One last note, as an addendum to what I said above, some stocks, like HUM, do have more room to pull back, and given their pattern, they may pull back farther just off of disappointment tomorrow. I think tomorrow is setting up to be a “both ways” kind of day.

My Best Ideas:

•LONG TWC: We talked about this stock in the mentor room today as the market sold off, just check out its hourly. This thing held tough when everything else was shellacked, so there are probably some buyers in there. I will be watching this off the open tomorrow.

•SHORT COST: This broke out today below the 63 level and ran another point or so. It still has room to the downside, hopefully down to its 50 SMA on the daily at 60.23. It has some support around the 61.80 level and its hourly just went into pause mode.

•LONG NTAP: This is another relative strength stock that had a great day and did not sell off too bad in the afternoon bloodbath. It is still pulling back on the hourly for now, but when it turns around, it is a good buy.

That is all for now, although I am sure morning batting practice will give me a few other choice ideas.

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry: Don’t Hit Your Hand With A Hammer

Very interesting morning market action wise. I wanted to put some thoughts down from this morning’s trading. First off, the losses really did not bother me very much, and not in the “I just don’t care” kind of way from yesterday. The market rallied, the shorts lost money, that was it. The fascinating thing is the insight I got while trading. I was sitting in this COST short, thinking “Wow, another bounce after an initial push down is going stop me out again,” and it hit me. I thought, why on earth am I shorting weak stocks in a bull market? I looked through all the keystone designated short sales for this morning, and all of them (TOL, DPS, AKAM, etc) were failing miserably as shorts. In fact some, like TOL, were long opportunities that could make your whole day.

One fact about trading I have realized over the years is that where a stock goes is not as important as how it gets there. COST, for example, is still a short, yet compared to stocks like T and M from this morning, it was much harder to hold if you were selling momentum. Maybe this will change in the afternoon, who knows. So this thought hit me this morning “why on earth am I selling weak stocks in a bull market?” The fact is, weak stocks have no buyers in them, but it’s a bull market, so they have no sellers either! So most of the time, breakouts just do not work, and weak stocks tend to get into a range in bull markets.

This fact hit me like a brick in the face and I knew, this is why I was losing every day shorting keystone’s short list! Selling breakouts only work in stocks that have buyers in them because of their stop losses! Now, if this were a bear market, then shorting weak stocks would be the way to go. But on my timeframe, if there are no buyers in a stock, and not many sellers, it is a mine field for shorts. I need to point to a chart and say, ahh, see there, those are the buyers that have to liquidate.

This realization was a bit like finding out hitting your hand with a hammer hurts. Duh. It was in front of my face the whole time, but I was “doing the right thing” by shorting Keystone’s list instead of shorting what was going down. I want to trade with Keystone (I can’t trade otherwise), and they have let it be known that trading with them means following the plan. This means buying strong stocks and selling weak stocks. Nothing wrong with that, I will work with what I can get. These past few days I have been losing money because I overrode what I saw with thoughts about what I was supposed to be doing. That is the great thing about losses though, they tell you when something is not right in your mind.

My real question is, how did I get to this point where I was ignoring what was right in front of my face, and following some plan in my head? I looked at my thought process and some of these came up:

Do you ever have thoughts like this?

•Oh this looks like a good short, but I can’t short this because the hourly 20 SMA is over the 50 SMA.
•This long looks great, but it’s too over extended now, I will wait for a pullback
•This pullback has a little too much volume, but it is a bull market, so I have to buy it.
•This stock looks like it’s topping out, but it’s a strong market, and I have to hold until my trailing stop loss.

All of these points have some kind of initial feeling or idea that is then squashed by some thought about how things “should” be. When I listen to those “shoulds,” I usually am able to cut my losses short. When I listen to that initial feeling, I cut my winners short. The crux of the thing is that the ONLY way I get winners in the second method, so my real choice is, do I want to be perfect at losing, or imperfect at winning?

I am going to look more at this stuff after the close.

Last Note

I had written all this stuff after the close today about fear that I was going to post, but reading it back, I thought it was pretty unclear. I kept going through and editing it, so I put it in a draft, maybe I will come back to it later. To sum it up, it always comes down to fear in one shape or another, and trust me, it can take many shapes. Here are some bullet points about the day’s realizations:

•I tend to think “they are doing this and I have to figure out how to beat them,” when I am losing. The market is like an adversary that could do anything, and I am scared it will hurt me if I do not out think it. When I am winning, I look at moves and question what had to be true for a stock to make that kind of move. For example, what had to be true for KLAC to take out the highs today on big volume, and then fade all the way back to its open?

•I became dominated by unconscious fear at the end of August after my winning streak and consistent profitability. To deal with that fear, I used an idea or thought structure that overrode ANY information that might lead to something fearful. I was afraid, and so I embraced the Keystone methodology OVER what the market was telling me. It is like an agreement that says if you listen to this, and give up your intuition and ability to feel the market, your fear will be covered up.

•I also fought the Keystone methodology. Fear has two parts to it, a fight and a flight, they are just two sides of the same coin. I fought Pete, I fought the market, and I fought myself when I felt fear that turned into aggression.

•My default method of dealing with fear, like most people, is to avoid it in some way. I do this by justifying leaving the screen, not trading or trading as the case may be, and a host of other mental practices that push the fear away. In one way or another, I pay for this, there are no short cuts; karma never fails.

Lucas

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