Posted on October 18 , 2010 In Daily Updates

Trust From Within

Tomorrow’s Plan:

The market broke out higher today to new highs on lighter volume, and as of this writing, is right back to the opening price (in the futures). All in all, I guess you could say today was a wash with those kinds of results. Internals were bullish, but Apple came out with earnings after the close and is down about 15 points in AH trading. Today was the first day in at least a week or two where I saw the bullish case not really find a lot of volume to support it. As I said in the weekend update,there are lots of news items hitting the tape in the next few days, so any readings we have on the market are suspect to rapid change. I expect Apple will dictate a lot of the action on the open tomorrow morning.

Stats for today were bullish, VIX looks like its heading to test the 18 area. Gold looks like it might have a nice day tomorrow as it rallied into the close after pulling back the last couple trading sessions. This is of course associated with a possible swing high in the dollar. All in all, the bullish case is still strong until we get an indication otherwise.

My Best Ideas:

•SHORT COST: I like this short below the 63 level which it has tested multiple times without moving through. I think there are definitely some stops below that level.

•SHORT DPS: This is another short that has tested a support level multiple times without breaking through. Today it definitively broke through its daily 200 SMA and all time frames are pointing lower.

•LONG HPQ: This is a stock we have had on our list of longs for awhile. Any ORBO or swing low on a longer time frame is buyable

•LONG SWN: This has a very clear breakout area of 35, if it can stay above that area is looks like a good long, although there is some resistance around 35.70.

•B.O. TJX: This is a repeat of yesterday, it rallied today on low volume, which does not make me think it will breakout the the upside tomorrow. We’ll see.

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry:

Last Note

Went through a lot of emotions this morning. I started the day just feeling…meh…I was down about almost everything. After some initial losses, “I just didn’t care,” which isn’t to say I actually didn’t care, but was feeling apathetic. I figured if I had to lose money, I would at least lose it the “right” way, but in reality I had very little feel for the market. What really hit me was a feeling of amazement at how well my mind creates the results that it wants. I really felt down this morning, like I deserved losses, but that I would do it the “right way.” Guess what, I got losses, and I did it shorting swing highs in a stock that was a short on all time frames. According to Keystone, that is the “right” way to trade, but I didn’t really feel it. The afternoon session brought a change in mindset where I decided I would just watch a breakout stock, DD in this case.

The results were also amazing. I recognized that there are two sides of the ledger in my mind when trading: observations and facts on one side, conclusions on the other. When I lose, I focus on conclusions. I try to figure things out using my mind: “Okay, if it went up there, down here, the hourly is up, and the 15min is range bound, then I am supposed to do XYZ.” It never works, trading with my mind always gets me into a position that is “right,” but doesn’t make money. When I win, I focus on facts, and observations. I see charts, I figure out what has already happen very clearly, and then the answers just come to me on what I should do. That is what happen with DD this afternoon; just watching price action, seeing a seller get taken out at .09, and knowing it was a good long. Barely even thought about stop levels, targets, or risk to reward, it was just obvious what was going to happen.

This experience really matches some things that Jason Alan Jankovsky says: when you go from being a loser to a winner, you shift from evaluation to observation. You stop trying to figure out how to make money, and instead attempt to answer the question of what is actually going on in the stock. When you see clearly what is going on, right action follows. The tough part is getting over my natural inclination to use my mind to figure things out. Whenever I feel depressed, scared, anxious, sad, or any “bad” emotions, my “go to” solution is to think about it and figure out a solution. The fact is, this method really sucks, but is comfortable. It is so much harder to take negative emotions, or positive emotions really, and put your trust in having an unconscious feeling when the time is right to act. Call it your subconscious, God, the universe, or whatever, but trading profits lie in trusting that within you.

Lucas

Posted on October 17 , 2010 In Daily Updates

I’m Just The Undertaker

Tomorrow’s Plan:

The market is definitely “heating up,” so to speak. There are times when you can just feel the tension coming through the screen, and this is one of those times. I cannot remember the last time there was such a discrepancy between sectors. The financials got absolutely hammered and technology blasted off to the moon. The SPY has been pausing the past two days as the dollar made new lows and bounced on Friday. VIX made new lows this past week and then bounced pretty well. Everything points to the market being in pause mode for the time being. With that said, expiry just finished, so Monday is going to really be anyone’s guess. Lots of option traders love to place the next month’s trade on the Monday after expiry, so that, along with all the news items hitting the wires, should really make this a high volume week.

Speaking of news, there are lots of catalysts coming out in the next few days, like earnings for AAPL, AMZN, NFLX, BIDU, and GS. So a lot of the big names of this rally will be on the line. With all these news items, I think this next week is going to be one of those “decision” weeks, where the action sets the tone for the near future after the dust settles. However the November 3rd Fed meeting will definitely put a calm on the market as it approaches. I know there are lots of traders who are trying to pick the top of this up move, and that fact alone will probably drive the market higher, although how much is really becoming limited. The dollar DOES still have room until it hits weekly support, so the market could push higher. I think both sides of the market will start to become playable though. Maybe the short side will start to actually pay a bit more then the brief 15 minute sell offs we have been getting lately.

So to sum up, lots of emotions running high, lots of volume being thrown around, lots of news events coming out, and high expectations all around. A time where a trader can make or break their year!

My Best Ideas:

•LONG ORCL: This stock looks great on continued strength to the upside. It probably has another point before it hits any significant resistance. I am guessing that it will take out its highs on Monday, the question is whether it stays there and gets institutional order flow, or will it whither?

•B.O. TJX: This stock has been in a range for awhile now, just check out its hourly chart for a nice textbook definition of a lack of dominant order flow. I am watching to see where it breaks out as it has tried twice now, once up and once down, to break the box, and both times come back into range. If the market really does top out here, this could pull in two points rather easily.

•LONG EBAY: Check out EBAY’s weekly chart, it just looks fantastic as a break out after many doji candles. The daily chart looks a bit sketchier, but I like this as a long, especially if it pulls into the 25.10 area.

•SHORT AUY: Gold is strong, but I like a bounce up to the 11.5 area as shortable. The hourly chart in this stock is beginning to roll over, and it has plenty of room to the downside. Other gold stocks, like GG and ABX, have much more neutral pictures, so I am treating AUY as the relatively weak stock of the bunch

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry:

Last Note

I had some great pointers come to me this weekend. The one that I really liked was something that clicked in my head as I was driving home. I was thinking about conflict, and the idea “A good trader does not win or lose a conflict” popped into my head. This thought points to the fact that, as a retail trader, we are not in the game to win or lose in a battle among titans. Our job is to watch the battle between the bulls and the bears play out, and then simply step in when we see one side gain an advantage. The funny thing is that this perspective is exactly opposite of what we were taught growing up.

I am not sure about you, but growing up, I learned that when the going gets tough, you fight back. I watched TV and saw cancer survivors, Olympic athletes, and many people who all had the same typical message: you pull yourself out of any slump and rely on your own smarts and ability to carve out your corner of the world. This weekend I got that this really isn’t true as a trader. We don’t want to get in any battles where we are pushing against something that is bigger or of equal size as us. We want to watch the titans battle, and simply jump on the winning side. Looked at from that perspective, it reminds me of a quote by George Soros: “I am just an undertaker.” A good trader is almost like a bottom feeder. To be successful, there is no storming of the palace, or waving the flag on top of the fort. We wait in the sides, watching to see who the winner is, and then hop on the band wagon.

I think this is funny! I got into trading with dreams of grandeur, honor, riches, and victory! Very funny indeed.

Lucas

Posted on October 14 , 2010 In Daily Updates

It IS Just You

Tomorrow’s Plan:

I don’t trade expiry, resumed Sunday

Today’s Trades:

Today’s Journal Entry:It’s Just Me

I have a question for you: would you rather have a 55% edge or a 35% edge for winning trades. Pick an answer…got one? If you are like most people, you pick the 55% one, thinking it’s better. However Jankovsky (the author of the recent book I read) said, why not pick the 35% edge and simply do the opposite of its signals (giving you a 65% edge)?

This answer kind of opened my mind up a bit. A very common pattern in my trading is consistency: I am either losing consistently, or winning consistently. There is no real in-between. After the second exit in HUM this morning, a question popped into my head. If I am a trader, I am consistent one way or the other, and I know what I am looking at, then why am I picking losers?

Today, after losing in those trades, I did not really get those “bad” feelings. They started to creep in, I looked at them inside, and they pretty much faded away. After they faded away, I realized I was always going to be me. That sounds a bit obscure, or obvious, but I literally felt: “this is me.” With that feeling, a further thought came: “I will always have this edge because this is me.” It just clicked that I was always going to have this edge to trade on, and furthermore, I couldn’t NOT trade with this edge. The edge I have IS me. I don’t know any other way to explain it; the edge I trade is ME, how could I trade without it?

So why the losses like today? Well, if you see a trade, and your subconscious lets your know through feelings that an edge is present, and you trade AGAINST that edge, what do you have? Consistent losses. What do you have when you trade with it? Consistent gains. It seems pretty obvious then that to have consistent losses, or consistent gains, I have to have an edge.

This fact hit me like a brick wall today: I have always been trading with an edge, its just the side of the edge that I trade on that dictates my results. So why do I trade on the losing side of my edge? That is the big question because there is something outside my awareness that urges me to trade against my self. I pick trades unconsciously that lose on purpose for some reason.

This whole realization has so many implications. First off, I realized there was nothing really wrong with me. If I could pick consistently, I could trade either as a winner or a loser. I also realized that the answer to the question of being a winner laid with why I feel I should be a winner, or why I feel I should be a loser.

I’m not sure, but I think the answer is in a belief that says either “you have to fight,” or “you don’t have to fight.” When I fight, I have to take the underdog/hard/poor position and win with it: I have to take the loser and win (fight fight fight!). If I don’t have to fight, I take the least stressful position, one with obvious order flow, and a trend in the direction of my trade. So simple!

Another possible answer is that I believe I must suffer to get what I want. There is some pie in the sky of “consistent profitability,” and to get there I have to place these losing trades. The thought goes a bit like this: “I want consistent profitability, and I feel this isn’t the greatest trade, but it fits some of my criteria so I have to take it, oh well.” That thought has a bit of a fatalistic tinge to it, almost like I am doomed to be punished so that I can eventually get some treat in the future. Ever feel like you have to buy a pull back in a bull market because its a bull market, but don’t feel like it will work? That is this feeling!

I don’t know if I explained this well. I feel like it has so much potential for being one of those mind blowing posts for me, but it is so hard to explain. I might try to add onto it tomorrow or this weekend.

Last Note

Lucas

Posted on October 13 , 2010 In Daily Updates

Sphere

Tomorrow’s Plan:

Not exactly the greatest close to a very strong bullish day. Volume today was very high, toping anything we have seen for a week or so. The close was a high volume sell off. The market is just amazing; you have to know that longer term longs are beginning to liquidate, you have to see some of the cracks in the bullish case, and yet the market goes higher and higher! At the moment, the SPY just gave an hourly sell signal, and the daily has a vulnerable looking candle on the daily. We will see if it goes anywhere from this level, but whatever selling occurs, I think a retest of the SPY 118.50 area will happen at some point. If I was a short, I would not be touching this thing until there is some kind of double top in place, and then with very little size.

Some things I noticed: financials did not follow up on their great day from yesterday, TLT gapped down and then rallied into the close on higher volume, my special chart of AMZN+AAPL+NFLX+BIDU has been in a range for the past couple weeks, Semis were relatively weak today, one of the best swing trade advisories I follow pretty much liquidated all their longs today, and you pretty much cannot buy hard assets wrong. Oh also, MATD in the morning tomorrow? You bet.

My Best Ideas:

•LONG WAG: This looks nice as its pulling back after its breakout higher on high volume. A bottoming signal around 34.50 would be a great entry.

•SHORT COST: I like this as a short if it can get below 63. It has some support there that held all day, but if the market complies and it can get through that level, this has some big room to the downside.

•LONG INTU: I like the fact that INTU had this big buying bar in the morning that was sold down hard, and yet it still rallied all day. I think it can get through that 48 level.

Best of Luck Tomorrow

Today’s Trades:

Today’s Journal Entry:None

Last Note

That last trade of the day really got to me. What is funny is that trades like that always get to me. I have a slight up day, not enough to celebrate, but its slight, and I am looking at the market thinking to myself: I don’t want to lose this little lead I have, but I don’t want to miss out either. Inevitably, when I feel this way, I do one or the other. It is impossible not to because that is my focus! The market always makes my strongest wishes come true: I may be open for profits, but if the fear of losses is stronger, losses win out. This reminds me of the movie Sphere. You should check it out if you haven’t, its one of my favorite horror films. The premise is that a Sphere gives you the power to make your dreams come true. The caveat is that everyone has these terrible fears and they create a nightmare for themselves and their friends. Can you think of a better analogy for the market? All our dreams right in front of us, yet we bring only our fears to the table.

I got a chance to watch one of the other mentors at keystone and I really enjoy his mentoring. He talks about his trades he places, and most of all, you get how centered he is about what happens. If he places a trade and it doesn’t work, he kicks it out no problem. That SUN trade was a mentor room wide trade that many of us took, and the deftness with which he took the loss was pretty heartening.

Here is a stone cold solid fact. I know how to make money, and I know what patterns make consistent profits. I am willing to bet that most of the people reading this blog do as well. So what stops us? For me, its not wanting to feel sad, or low energy, or any of the “bad” emotions. Winning trades “do” something to me; they make me excited about trading, think about future profits and the freedom that comes with them, and they make me want to trade. This sounds great, but the structure of the mind dictates that if you feel that way about winning, guess how you feel about losing? It is a constant struggle to have it only one way when it has to be both. Seriously, check out the movie Sphere.

Lucas

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