Traders feedback

Kerry, 

 

I just finished rereading Master the Markets for a 2nd time. I feel like it has allowed me to paint such a different story when looking at the charts. I hope you offer this book to all your clients. 

 

Again, thank you. 

 

S. 

 

 

Hi Sash,

 

Yes it is a book in my top 5 favorites and recommend reading.

 

Glad you found it helpful. All the best!

Kerry

The Analyst and Trader

Many of you know that I believe we wear two hats in this game we call Trading. There is the Analyst and the Trader. They are both uniquely different. We can be good Analysts yet be lousy Traders. We can be poor Analysts yet be Great Traders.

I read a post by Brett Steenbarger yesterday… The chart above is an excerpt from this post… I cannot find that post now I wanted to link to it. If any of you have it please forward it to me.

Typically it is easier to become a good analyst and more difficult to become a great Trader. This is why we find ourselves getting a directional move right, yet we find ourselves not profiting from our analysis work. We begin to doubt ourselves and will look for other’s opinions to follow, hoping to find others to agree with our outlook. Don't trade solely because someone else told you to.  I will be the first to say do not trade anything based on someone else’s opinion and that includes me.  I'm a risk manager first and trading coach/mentor second. I am not a fortune teller or psychic. I will likely miss every single move in some form or another. None of us get it right 100%. If we do we were lucky.  Take what I say or anyone else for that matter as "information", not "instructions".  Then make your own decisions, and then take action based on those decisions.  Embrace that you may not get it just right. You will also be wrong many times, we all are. This is what makes trading the markets so difficult. We will always get it wrong somehow or some way. After the move occurs we will know exactly what we should have done. The market has a way to make us feel we messed up. It has a great way to make us feel downright stupid and diminish our self esteem.

I teach by showing what I do, not by making a bunch of after the fact explanations of buy here and sell there. You see my analysis and you see many of my trades, good or bad. Sometimes I trade the moves well and sometimes I miss the move in grand fashion. More times than not I miss the moves in Grand Fashion. It’s not easy to show just how fashionable you can be wrong sometimes. At times the Analyst and the Trader is not functioning so well. At other times they will be in sync. It is always more fun when they are in sync. It is a nightmare when they are both out of sync. These are the days we ask ourselves… “Why the hell am I doing this?”

Thursday evening I posted my thoughts and “opinion” to sell strength and buy weakness based on the morning action. We got a slight bounce from the opening and then sold off, attempted a failed bounce mid morning then eventually sold off to new lows. The sell strength analysis was not a bad directional call. The trader in me attempted to hold the final position in my IWM short. I was not fully positioned as I hoped due to where I had to take the trade near its -1ATR. Again the analyst in me got the move right but I was not participating as much as I hoped. Never the less I had to manage the risk for the trade I had on. Wishing I had more exposure to the short side was not going to help the Trader in me to manage this trade any better. If not careful those thoughts would hinder the Trader managing this trade.

Once we broke to new lows and the oscillator dropped to -270 to -280 it was time to think of closing the short position. I had also remembered that I had 1050 as a support area on the SP and we were beginning to hit -3ATR on multiple time frames. Probabilities suggested the Trader was beginning to overstay his welcome and it was time to get out of this short. This was the Traders job based upon information received from the Analyst. My first job as a Trader was to exit my shorts, I then could start thinking about trading the bounce. The Trader in me felt prudent to exit the final shares of the IWM short and I covered.

I took about a 15 minute break and decided to write a post to the Trading Blog. At about 2:05 EST, I began to write an intraday post of the day’s action and showing how the $TICK indicator can help one manage the intraday action. I knew I was getting ready to call it a day and go pick up my son at the airport.

I wrote…

The market may find deep enough oversold levels to have an afternoon bounce. I had some emails come in about playing the bounce but first I wanted to get out of my last IWM short. That is closed as of now. I will not play the bounce other than a day trade. I rather not hold positions over the weekend as the Sovereign debt news spreads like wild fire. We may set up for a bounce next week.

The Analyst in me (now in hindsight) got the intraday move correct. The markets began to bounce at 2:10 EST (in hindsight) and by 2:55 EST was beginning its big run into the close. When I wrote this I was stating probabilities not anything I knew for certain. Had I known 100% we were going to get a 22 point SP rally from low to high, I would have placed that MIX strategy bet and made off like a bandit.  In my post I wrote…

We have a few signals in place but not all of them. Again, even if they were all aligned, I doubt I would put the position on into the weekend. That is just my personal style and my little chicken trading ways. ;-)

As a trader I was debating if I was going to make another trade for the week or call it a day. I know I had limited time to be in front of the screens. If I had taken the MIX strategy the SPY 104’s was selling around 2.70 and closed at 3.67 for a 35% gain in about 2 hours. The 106 strikes netted about 41%.

Did the Trader in me participate? No… and just why not?

The Trader in me decided to call it a day and I had some personal obligations to tend to. I don’t think my son would appreciated the fact I left him stranded at the airport, although it might would have helped if I had brought my winnings and gave it to him. I had decided to write an intraday post and took care of a few phone calls, did some updating on my record keeping, and managed some Spike related issues. I spent about an hour to finish my day up before it was time to leave for the airport.

The point is the Analyst got the direction correct, the Trader followed directions, “closing the final short position”. The Trader chose not to follow the intraday trade opportunity for various reasons. Is the trader badly wrong and should be dragged out behind the wood shed and beaten? I hope not. Be careful talking negative to yourself after having the benefit of hindsight.

Had the market bounce fizzled out and we sold back off into the close I would have felt I had made the perfect decision. In hindsight I would not have done anything differently other than If I had not had the obligation to go pick up my son. ( I could have asked my wife or his grandparents to do it) I might would have day traded the bounce. In hindsight I would have liked to say I would have traded and made some extra money. In reality I know that it was late Friday afternoon going into the weekend. I did not feel I had traded the past two weeks as well as I could have and was looking forward to calling it a week. I did not want that emotion of wanting more to force me into a bad trade. In reality I might have made the same decision to stop trading if I did not have the obligation to pick up my son. I was looking forward to seeing him and so I have no right to take this Trader out behind the ole woodshed and give him three lashes.

The moral of the story is….

This past week the Analyst in me was looking for a bounce that would eventually lead to another leg down. The direction was correct, we bounced Monday and Tuesday with a pause day on Wednesday at resistance levels of 1100 - 1110. The Analyst had been mentioning these levels in my updates. The market began another leg down on Thursday with a gap down and continued into Friday. Thursday evening the Analyst suggested probabilities existed if we saw more selling pushing us down into extreme oversold conditions that we could set up for a bounce. We got all the action in one day on Friday. The directional call was good and the Analyst in me did his job. Did I participate as well as I would have liked as a Trader? Did the Trader in me trade the direction based on the  analyst recommendations as well as I should have? The answer to both of these are NO. The Trader did not participate as well as I feel I could have although the Trader did get a little piece of the action. The important part is to recognize who is doing their job well. Make sure you don’t let the market make either one of these parts feel worse than they should.

I wished I had traded my analysis better than I did. My risk profile did not match up that well with the way the markets traded leaving me on the sidelines more than I would have liked. When reflecting back on the week’s events, the Trader in me did not do so bad considering the various events the Trader must maneuver around.

1.        The Trader in me must stay within certain risk parameters to control losses in case the Analyst IS wrong.
2.        The Trader in me must deal with outside interruptions, regardless if they are good interruptions or bad.
3.        The Trader must deal with emotions and directions within hours sometimes minutes. It is not as easy as it sounds to be bullish for a bounce two days, flip to be bearish for two and half days and then flip back bullish for two hours.

What kind of expectations do I have on myself as a Trader? If we are not careful no one will be able to live up to those expectations we impose on ourselves.

In the end – I am happy of the Analyst work and the Trader did the best he could considering all the circumstances. Only in hindsight I know for sure what I could have done differently. In the end, the Trader did not make any foolish mistakes or take any unnecessary impulsive trades. The Trader did not violate any money management rules and did not trade against the direction of the Analyst work. It was a profitable week. The only issue is hindsight. I wished I could have participated better and that the market was not so difficult to trade sometimes. We like to be paid for our work but in Trading that is not always the case.

Why can’t this game be easy so I could just kick back on auto-pilot and let the money roll in?

Have a great weekend!

From the “Analyst and Trader” that feels like “Mr. Jekyll and Mr. Hyde” ;-)

Kerry

Bank Index Negativly Diverged Nov 1st by: Kerry

Banks negatively diverged from the SP500 and did not participate in the recent rally to new highs.

They now have formed lower highs. This along with weakness in small and mid caps show why this market has been so thin and market breadth so weak.

When we have these type conditions, most long strategies are not following thru. Only a few stocks are working and many of those have been difficult to find good risk reward entries.

All the best!

Kerry 

Trader's Feedback

Hi Kerry,

I want to wish you  a Happy Thanksgiving and many thanks for everything. My trading has become less stressful and much more manageable thanks to your guidance. I am posting my November equity curve and proud to announce it is my best month thus far. I am only trading a $40,000 account and I am up about 5% for the month. Prior to working with you I had never experienced a winning month. I always managed to keep my losses small but each and every month I would lose a few dollars. I know I have much more to learn as a new trader, but I finally feel I am on a path of understanding and proper direction.

The dip in my equity curve this month was a very impulsive trade and it cost me. Had it not been for that one trade I would be up over $3,000 dollars for the month.

It only takes one trade to diminish your results. I now have that trade posted on my wall to remind me that impulsiveness takes away from one’s hard earn profits.

I am taking the remainder of the month off for the Holidays and will use the time to relax and take my mind off the market. I am looking forward to December to continue my new found discipline and see what my trading brings me. My goal is to trade near impulsive free for the next 3 months. I will allow myself to have 1 impulsive trade per month as I do not feel my discipline is strong enough currently to eliminate all my impulsiveness. Compared to a few months ago I am 10 times better than I was before and now had my first winning month. With only a few days remaining, no need in risking my profits and will go experience some much needed down time.

Thanks again for great advise and help.

Warmest Regards,

Jim P.

 _________________________________________

Jim,

Always great to hear about other’s successes and their growth as a Trader. Best wishes and Happy Holidays!

Over Trading and Impulsive Trading creates stress.

Reduce Stress, Increase Profitability

Those of you that are Spike Members will have read this in SpikeSpeak, but I wanted to share ti with all my clients this evening and post to the Trade blog.

The best time to look for trades is when the market is closed.  Do your research when it is not flashing, gyrating, and trying to seduce you.  It is next to impossible to make good decisions while listening to the intraday noise. This takes years of practice and immense discipline.

Intraday monitoring reminds me of the Greek story of Odysseus.  As Alex reminds us in “Trading for a Living”, Sirens were sea creatures of Greek myths who sang so beautifully that sailors jumped overboard and drowned. When Odysseus wanted to hear the Sirens’ songs, he ordered his men to tie him to the mast and to put wax in their own ears. Odysseus heard the Sirens’ song but survived because his system would not let him jump.

The market acts like those sirens.  It seduces us to enter trades we should not make, and we see our mistakes only after the fact.  It pays to tie yourself to the mast and put beeswax in your ears, so as not to fall prey to the beautiful singing and dancing of the market.

I had to tie myself as a trader because I used to have an issue with jumping on anything that moved. There used to be days I would have 20 to 30 trades, but nothing to show for them. By end of the month I could have over 400 trades, and can you imagine the commissions?  I would earn a gold-plated Christmas card from my broker.

Several years ago I decided to limit the number of stocks that I monitor intraday to 10. I set alerts to look at them when they reach levels where I must make go / no go decisions based on my chosen strategy. I am forbidden to look for more trades during the day. I either get a trade out of my 10 monitored stocks or I don’t trade that day.

Furthermore, I go through my analytic process every night, and if I cannot do my nightly homework, I am not allowed to trade the next day.  This prevents impulsive trading when I want to watch the markets hear the Sirens.  I do not have a mast in my office, and so figuratively I tie myself to a chair and put beeswax in my ears.