Best of Trades, Worst of Trades, Some of the Others too

What to expect from this journal…

Rather than list all of my trades or total up my performance every day, I’ll try to post screenshots representing the best, worst, or otherwise most interesting of my trades, along with whatever relevant discussion. I do intend to be as generous as "seems right" in describing my own trading rationales, but I make no promises, and, though I’ve learned a lot about trading, I could not, as will become quite clear, honestly put myself forward as a “qualified” trading-instructor. Indeed, I hope and rather expect that my descriptions of my own struggle will at least partly serve as a warning to those who might seek to copy my methods. For “newbies,” just let me emphasize that, though “it” is often best when it is “easy” and “simple,” getting there may not be at all as easy and simple as it sometimes looks.

Over time, I’ll try to expand upon my aims, plan, means, and methods, and I or possibly we will likely engage in some lengthy digressions and diversions, or even some review of matters taken up in the ET Chat Room (where I’ve been a regular), I’d rather not see my journal get bogged down with too much irrelevant by-play: We may even prefer to take some discussions to some other forum – perhaps another thread or my own private web-pages, for instance. Though I do enjoy discussing trading theory and practice, do intend to discuss my own trading from various perspectives, am always willing to consider adjustments in my own means and methods, and don’t at all mind kidding around and commiserating, if things get out of control, I won’t hesitate to seek editing help from ET Moderators or simply to put combative or otherwise obstreperous individuals on “ignore.” Finally, if it all gets too difficult to keep up, or turns too weird, or becomes a hassle, or becomes an embarrassment, or hurts my trading, or in any other way starts looking counterproductive, I’ll terminate it.

At this point, I believe some introductions and background would be in order. Some of the related matters, especially those having to do with my prior and current screen names, are fairly complex, and may be of little interest to many traders – so please let me apologize in advance for going on at perhaps excessive length in the following posts, and let me invite those of you with high interest in trading, but with little patience for quasi-literary, possibly narcissistic digressions, to check back in on some later date…

 

I, KymarFye, was born on April 17, 2000 – a Monday following what I have often thought of as “The Weekend of Doom” for Nasdaq traders (see attached chart).

On the prior Friday, it had seemed that the whole world was terrified, as the Nasdaq was already down more than 1500 points and around 30% from its high, with many individual stocks already down 50% or more from their highs, with no bottom in sight, and with many observers looking forward to a Black Monday – even if hardly anyone, it seemed, was quite ready to admit, as seems so obvious now, that the party was truly, definitively OVER. As “SirFye,” I was in remote yet close contact with someone I'll call “Vanda,” a fellow position trader who lived around 3000 miles from me, and whom I had "met" on-line in the Raging Bull message boards. In happier times, we would watch the day’s trading action “together” – Vanda from her Hamptons living room, me from the office area of my Hollywood apartment – exchanging thoughts and observations via Yahoo! Messenger, corresponding by e-mail during off-hours, or occasionally using the telephone. Partly under the spell of exponentiated irrational equity exuberance, we were a little bit in love, I think. We had exchanged photos of our real-life selves, and liked to fantasize about making tons of money and blowing wads of it in Cancun or some other romantic spot for our first in-the-flesh meeting.

Throughout the “mania top” period, Vanda had joked about being “heavily diversified in ultra-high tech,” an approach that had led to lots of excitement and lots of paper or maybe pixel profits, but which now had her vomiting up all those pixels and more, working her way into terrifying losses, while confronting a margin call. By the fateful Friday, the 14th, I was completely “flat,” not to mention numb, but Vanda was still heavily invested. She sat staring at her screen, unable to act, virtually paralyzed with fear, anger, disappointment, self-loathing, and so on and so on. Like many of us in those days, she was only just then, in the midst of a financial and emotional crisis, first coming to terms with how margin accounts really worked – shall we say rather disadvantageously, not to say ruinously, in such circumstances. To make matters worse, she had awakened to discover that her family’s pet rat “Kymar” had died in the night. She hadn’t yet buried him, but spoke a brief eulogy: “He was a good rat,” she said – even while the Nasdaq, without pausing to mourn, plunged further….

Finally, after a weekend over which Vanda seemed to be hovering near nervous breakdown, she was forced to sell out the next Monday morning – a gap down right into an extreme (if short-lived) reversal. She drifted out of trading soon after – and we fell out of touch.

My own idea at the time was not to start investing or trading again until I had learned a whole lot more about what I was doing. I took the new screen-name “KymarFye” in recognition of that Friday morning, the Weekend of Doom, the Monday reversal, and my own feelings that I myself had proven I did not truly deserve the noble honorific implied by “SirFye,” and in memory of the rat who seemed to have died as though for our sins (as just another victim, I would say, not as some rat redeemer). I intended to keep the name until I had made back what I had lost and more: At some point in the future, this second Kymar (or anti-Kymar) could die peacefully, and I would be able to take my real name and for that matter my life back.

 

Illustrative chart:

 

Through the end of 2000 and most of 2001, trading a much better-capitalized account much more aggressively, I sought to apply the methods I had been intensively studying and testing, but, rather than make up what I had lost during the crash, I managed to multiply my losses several times over. Finally, around the end of 2001, I hit upon a method that seemed to have potential for me, and I have spent most of 2002 attempting to put it into practice.

The results have been rather worse than uneven. Though I know that I’m an inestimably better trader now than I was even just a year ago, I am still very likely to put up my third consecutive losing year as a trader. That would be three for three – a perfect record – as during earlier, better years I never really “traded” much at all (I used to invest “responsibly,” and restrict “speculation” to activities outside the financial markets per se). Though I’ve managed to put together some winning streaks and profitable months, I have fallen victim to self-sabotage of many different types. I feel sure that if I had succeeded in eliminating even 50% of my typical trading errors – and not improving in any other way as a trader – Kymar would be near death, and I would be a much happier man.

Somewhere along the line, through laziness or some other form of linguistic drift, at latest around the time I was trading with CyberTrader in 2001, I allowed KymarFye, the anti-Kymar, to become “Kymar.” “Kymar” was a contraction of “Kyle” and “Martin,” the names of two brothers who had been friends of Vanda’s sons. SirFye’s name had originated in something of a play on words. On one level, I imagined a comical knight, Sir Fye (as in some Olde English spelling of the exclamation “Fie!”). Also, I had in mind a double pun –references to the metaphorical “surf” being “high,” and also to my former diversion of “surfing” (the net) while “high” (on pot).

In becoming KymarFye, I had wanted to make a statement of higher seriousness, deadly seriousness, and, as above, I was acknowledging that I may not deserve the “Sir,” even under the dubious assumption that I ever might have. In contrast to the curt and brutish “Kymar,” “KymarFye” retained some of the former name’s winsome defiance (de-Fye-ance as in the exclamation), and, though effectively nonsensical, offered a rhythm of its own while standing as a placeholder for a whole (proper + sur-) name. Though I am by no means deluded enough to believe that having the wrong screen-name is what caused my losses and other difficulties as a trader, I do now wonder if “Kymar,” instead of serving to commemorate a moment of enlightenment, hasn’t too much become the dead rat – attaching me to bad luck, death, emotionalism, sentimentality, lost friends, and, perhaps worst of all, to the orgy of destructive wishful thinking that may not have come to an end for us until, as it happened, the real Kymar came to his end.

Kymar is rat-man - maybe a rat in disguise as a man, or maybe a man who’s little more than a rat – or maybe a zombie rat-man... a pathetic monstrosity in any event. I considered calling this journal “Death to Kymar!” or “Kymar Must Die!” or “Down with Kymar!” and I even thought I might invite fellow ET’s to take up the call, but I don’t think that’s exactly right. Kymar does not need to die – he’s already dead. I do not need to destroy Kymar or to become the opposite of Kymar, or to try to domesticate Kymar: I just need to leave Kymar in peace – while accepting that there will always be a bit of Kymar in me, a bit of the rat in whose nature it was to snivel and scrape, who would happily batten off my corpse if given the opportunity, and who, in truth, will be little missed.

 

I had considered simply forgetting KymarFye, letting him follow his fellows as well as Vanda and countless others out of my life, but, rather than sustain yet another subtraction and compound my self-betrayals, I’ll stand by KymarFye, in the full knowledge that the sooner he can enter retirement, the better. KymarFye was a fallen knight, a kind of ronin or knight errant seeking re-instatement. He’s damaged – but there may still be hope for him. Indeed, I believe there is hope for him and I proclaim and assert that there is hope for KymarFye! The name remains unwieldy, but its very unwieldiness might help it to serve as the reminder it was originally intended to be, as well as an incentive to follow-through on my original promise to myself – to attain knowledge and mastery, and to make back what I lost.

Since first becoming KymarFye, I’ve lost enough more to make the latter goal seem extremely difficult: It’s as though I started climbing on a high trail, in view of the peak, and now find myself all the way below, at the bottom - but I have no choice. I must return to the upward trails, and prepare for the daunting ascent. It may take several years, and it may entail new sacrifices even more difficult and painful than those I've already undertaken and endured, but…

…I don’t have anything else to do.

And it does matter to me, and not just to me: I am not a wealthy man, and this is not just "for fun."

I hope that some of you will prove generous enough to aid me in the climb back up. For the moment, simply knowing that a handful of you might be reading these and subsequent words feels sufficient.

 

You write well. Looking forward to your journal. Have you posted as simply Kymar in the past. I remember being impressed by some of your posts if that was you.

edit: I just notice the KymarRIP so I guess that was you.

 

I'll be reading, and wishing you well

 

Thanks, easy and dark, glad to have you around...

Here's a sample of the kind of thing I intend to put up here:

The attached gif is called:

cr_s+100202SMTC

cr = “crown” set-up
s = short
+ = profitable
100202 = October 2, 2002

le = long entry
lx = long exit: (as of late 10/02 to be colored green for a profitable trade, red for a loser, and white for a scratch)

I trade probability frameworks – price patterns within concentric market structures. I use indications from “the tape,” market breadth, and TICK or TIKQ in several ways – chiefly to guide me to the kinds of trades I should be looking for at any given time, to adjust capitalization, but also, for example, to warn me off of especially risky entries. Though I encounter occasional strong signals that critically rely on such indications, the stock-specific framework remains primary in the vast majority of instances.

As you will see, I do not use mathematical indicators other than 50- and 200-SMAs in the daily time frame and a variable moving average (VIDYA) in intraday time frames. These are secondary references, and never used as “trading signals” on their own.

For reads on the larger market (as relevant to my tradables), I watch the Nasdaq E-Minis (NQ) primarily, and intermittently keep track of the ES, the major cash indices, sector indices, and market leaders. The NQ charts I use during the day normally exclude overnight data. The bars are colored according to market breadth readings (Nasdaq advancers and up volume vs. decliners and down volume) similar to TRIN or TRINQ – green indicating a roughly positive trend, red a roughly negative one.

Such trade captures cannot show everything that I was looking at or thinking about when I made whatever trade - and they obviously also include things (such as how the trade turned out) that I couldn't know when I entered. Also, some trades may rely on or be supported by cues taken from the L2 montage and other difficult or impossible to capture sources. The chief objective remains to collect on one screen the central indications involved in critical entry and exit decisions.

 

It indicates a virtually multi-orgasmical process of scaling out: Partly, that's Kymar's fault: The sniveling Zombie-Rat used to rush us out of our best trades, while holding on for dear death to our worst ones. On the other hand, we (Kymar and the anti-Kymar, just to name two) felt so terrific about the SMTC set-up that we upped the ante going in, and felt fine about taking lots off one by one all the way down - even if, in retrospect, we sure do wish we'd just held the whole thing to the furtherest target.

 

INTRODUCTION

Though I don’t intend to go into "the whole story" or even a very detailed summary on every trade I document, since this one will stand as Kymar’s last trade, and since it happens to combine so many typically Kymarian errors, I’m going to take some time on it. Many aspects of the following paragraphs deserve their own “flag for follow-up” in the subject area “trading mistakes and pitfalls.”
The effort might also help to introduce additional aspects of my charting and trading as well as my underlying beliefs about price action in the market.

THE CONTEXT

On the last day of a tiring, dispiriting week, with a precipitously de-funded account hovering near “Pattern Day Trader” minimums, Kymar the zombie-rat finds himself around noon EST having not yet made a trade. To this point, the NQs have been trading in a slow-developing, narrow range, and appear to be backing away from a test of resistance – amidst pathetically low volume on the Nasdaq Composite – running at that point some 300 million shares behind the levels reached at the same time during the previous session.

Suspecting that breakout patterns are unlikely to follow through very quickly or smoothly within such a context, Kymar takes another look at NXTL – a new stock on his list. Though a Nasdaq volume leader for years, NXTL has only just recently made an attempt to re-join the ranks of double-digit tradables, and was the recipient of fawning coverage on the Kudlow & Cramer TV show the night before. Despite, and in other ways almost certainly because of, a positive overall picture, NXTL has ended up on Kymar’s trading list as a “reversal down” - its previous day’s ca. 10% gap up led to a 10% gap fill and reversal with the implication of possible follow-through. NXTL had, indeed, followed through that morning, subtracting another 5% on a “flashback” reversal that Kymar had missed while inspecting other trade possibilities that failed to develop.

A SECONDARY SET-UP?

Though the desired structural set-up was missed, NXTL still might be of interest, Kymar thinks, for the kind of pseudo-liquidity scalp that merely seeks to wring a few pennies out of some volume leader. Properly identified and executed, such trades offer very high odds of incremental success, allowing even for unfavorable non-probabilistic risk to reward ratios, but the conservative targets and high capitalization leave little room for error. With the NQs showing some strength and appearing likely to re-test the then-high of the day (HOD), and with NXTL itself re-testing the unchanged level, Kymar theorizes that at least some initial positive movement is very likely. In addition, especially within the context of a tenable if marginal intraday swing structure, a near-term test of NXTL’s own intermediate high (10.13) looks probable, and an eventual test of the true HOD (10.3) seems quite possible. Finally, NXTL does so much volume that getting out at virtually any time with minimal slippage should be possible. Barring unforeseeable catastrophe, Kymar expects that he’ll at worst get his “feet wet” with a quick minor loss.

This is where Kymar loses his mind – and the results are also an illustration of how having one, two, or more absolutely correct ideas can lead to disaster…

I suppose if I was teaching this is as class (hah!), I'd have to give you before and after shots... Here, instead, is the whole story condensed into one capture: