I started this blog in November of 2009, things were going very well. Thereafter, I've had ups and downs, with most of 2010 being a bad year. 2011 hasn't been good either. I can blame myself for being bearish when the market was rising, but there are other more general factors.
For me, trading is a game that tests your psychology more than your analytical skills. I have found analyzing the market data and reading the patterns to be the easy part. What has been more difficult has been to overcome the psychological barriers to trading success. I have a different mindset when I have been winning for several months than when I have been losing for several months. When I am winning, I don't rush into trades, have a lot of patience, and wait for the easy trades. When losing for a while, I become less patient and try to make back my losses quickly. This has caused me to trade much more frequently and less than optimal setups. I can't win at this game trading that way. The last 2 years have taught me that. But I continued down that road. It is a psychological weakness which I need to overcome.
The best way for me to regain my previous trading form is to forget about past losses. To be more selective in my trades, and to think about more than the next few hours or days of stock movements. Fortunately, I don't need to make money everyday like a worker on a salary.
I have decided to focus on the big picture and the longer term. The big money is made in the big swings. I am not a daytrader and the best timeframe for my trading is a few weeks to a few months, not a few hours to a few days. It is something that I have learned painstakingly over the past couple of years. Numerous times over the past 2 years, I tried to catch the next ten points down and set myself up to reverse from short to long on the reaction. But too many times the reaction was too shallow or it never came and I was left holding the short bag. Even though I knew underneath that the market was strong and would eventually make back its losses. I was trying to play a pullback perfectly, trying to pinpoint the exact bottom to cover and then go long. I was able to do neither at prices that I desired. You can't be Mr. Perfect. I lost the forest for the trees. Trying to capture the intraday movements left me badly positioned to capture the bigger moves.
I will be making less but more substantiative posts. There will be no regular schedule. Maybe a few a month. I am not sure yet, and it will depend on the market. Future content will have less to do with the daily fluctuations. When the daily fluctuations are such that it is worthwhile to daytrade, when there is lots of volatility, I will make more posts. But mostly, I will be focusing on the bigger picture.
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7 comments:
A good post, most of which I can really sympathize with.
I got interested in, and started trading more heavily, in 2007, when the whole 'subprime' thing was happening.
For me, trading is a game that tests your psychology more than your analytical skills.
I agree 100%.
I can blame myself for being bearish when the market was rising,...
It's certainly true that, over the last two years, I've lost more money being too bearish, or being bearish at the wrong time, than vice-versa, i.e. being too bullish, or bullish at the wrong time.
...with most of 2010 being a bad year.
For me it was definitely not great. But it could have been a lot worse. It could also have been a lot better, and that really annoys me. Because this kind of market volatility should not be wasted.
2011 hasn't been good either.
I'm doing OK in 2011. I have some small unrealized losses at the moment, but I have gotten pretty skillful in turning those around/waiting those out.
FWIW: In mid to late 2010, I finally gave in to the 'dark side' and started more aggressive buying and selling volatility on the dips. Before that, I was reluctant, as I could just not believe or accept (the psychology part) what the market was doing, because I was so convinced that the underlying problems were grave and had not been resolved.
But the market did not care what I thought: it just kept going up.
Again FWIW: Since I started going more with the price action, i.e. buying the dips, I've had great success selling volatility. Because there are some companies that I would not mind owning, at a certain price. So when they and the market swoon, I sell the puts. Calculated out, you can generate a nice annual return this way, e.g. IMO 20% is very doable, and with minimum risk. Sure, sometimes I end up owning stock, but as I said usually at an advantageous price, and when that happens I just wait it out, e.g. by selling calls.
The introduction of weekly options has been a significant plus here -- I really look carefully there for opportunities.
I've had really relatively few losers.
Of course this strategy does not always work -- you have to be a bit careful about when, and which symbol. And often patient. But over time you get better at that.
And I sleep a little easier.
This has caused me to trade much more frequently and less than optimal setups.
I have recently concluded that I have the same problem. For one main reason: diversification. So regarding e.g. selling puts, I typically will sell them for a number of symbols, rather than concentrating on just a few high probability trades, maybe even only one.
A specific example: In late June (June 23 to be exact), I took advantage of the downtick to sell the Jul $61 TNA puts for a very good price (equivalent to an annual return of 42% on the capital invested). In retrospect, I should have really hammered this very high probability trade, instead of selling only a few contracts.
My broker is probably very happy with my current strategy. Me not so much, as IMO I spend too much on commissions -- I could generate the same profit for much less. I'm working on that.
Owl, also understand that the pie has gotten much much smaller and the partipants are fighting each other for whatever's available. I don't mean that we don't have big 20 point swings on the s&p but it has gotten exceedingly difficult to eat those big moves without taking the pain. For instance, there have been some great long side setups past month but you'd have to have taken the pain and held on for days before the move came. And when the move comes it is like a thief. If you are not in, the market will not give you the chance. I agree that patience is a virtue in this market. However, waiting too long, you can easily miss the boat. This market requires its participants taking alot more pain than in the past just because everyone sees the juicy set up and everyone is in waiting for that move which inevitably comes after shaking out the majority.
Basically can a trader take a 20 point pain on the s&p to make 60. Most cannot. It is no longer the obvious set up, get in and instant gratification.
i think a double dip is looking more and more likely. very few people think this can happen
I agree that you can still sell volatility profitability for the next couple of months. I am not so sure about 2012. The stock market needs QE3 to continue a sustainable rally. Otherwise rallies will not last much like the first half of 2010.
I agree. Deep pockets are taking all the smaller trader's dough. I know traders who make great calls and still lose cos their stops are <1% entry. No pain no gain
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