Brave New World

…be not swayed by the fantastic plans of impractical men who think they see ways to force thy gold to make earnings unusually large. Such plans are the creations of dreamers unskilled in the safe and dependable laws of trade. Be conservative in what thou expect it to earn that thou mayest keep and enjoy thy treasure. To hire it out with a promise of usurious returns is to invite loss…

…wealth that comes quickly goeth the same way. Wealth that stayeth to give enjoyment and satisfaction to its owner comes gradually, because it is a child born of knowledge and persistent purpose. To earn wealth is but a slight burden upon the thoughtful man. Bearing the burden consistently from year to year accomplishes the final purpose…

Clason, The Richest Man in Bablyon

 

In any endeavour, the majority will seek the holy grail of instant success and effortless mastery. It’s human nature. Seeking pleasure, avoiding pain.

So while many traders are searching for the perfect system, or seeing options as the nirvana, the shortcut to riches, (a myth perpetuated by marketing hype) my perspective is entirely different.

I believe that real success lies in discipline, unswerving commitment, and tireless hard work.

Baby steps up the stairway to heaven; before you know it you’ll be walking on the moon.

If you want inspiration, watch Gattaca. A celebration of the limitless potential of the human spirit. A timeless masterpiece.

I’ve spoken to some successful traders. They’re not interested in home runs. They’d choose consistent singles any day. And they pay little attention to ‘perfect’ systems or fancy indicators. They simply trade with the trend, cut their losses and ride their winners.

And that’s all I’m setting out to do.

I could illustrate this with so many analogies.

Take bodybuilding/weight-training. A passion of mine when I was younger.

Take the majority. What do they do?

Read the magazines, buy the supplements and join expensive, all-frills health clubs. They try to emulate the pros. Little matter that they’re not juiced, genetic freaks. They jump from one hyped system to another, always in search of the holy grail, that’s right, YOU TOO could have a body like this in six weeks. Just twelve easy payments of $39.95, and eventually quit after injuries, frustration and perhaps even forays into the world of underground pharmacopoeia.

They don’t take the time to find out what real life success stories do. They don’t enter the world of the genetically typical and drug-free. After all, why should they? It’s not glamorous and exciting. No bells and whistles.

There’s no avoiding the pain.

Guys love to boast about their bench-press.

Go to your local health club and just look at the benchpress rack. There’s usually a queue. A pecking order of guys lining up to prove their manhood, hoisting as much weight as their ego will bear, with awful, even dangerous technique.

It’s absurd.

Little matter that it’s the same struggle with the exact same weights, week in, week out. Month in, month out. No progress. Then they curse their bad fortune when they get a rotator cuff tear.

What do the real-life success stories do?

They have a sound training plan which they stick to religiously, eat a healthy diet with an excess of protein and calories, and keep a training log. Simple as that.

And they use one of the greatest inventions in the arena of progressive resistance. Microweights. Tiny plates for an Olympic bar. 1lb. 1/2lb. 1/4lb.

They don’t do a thousand sets of twelve different exercises to develop their chest. They do two sets on the benchpress. Once a week. They don’t try to add 20lb to the bar every workout. They’ll add 2lb a week, one tiny plate on each side of the bar.

I’ve actually seen people scoff when they see the tiny weights.

Now what happens?

The get-stacked quick crowd are plagued with injury upon injury. Their weights never increase. They get nowhere. At the end of the year, what have they got to show for it?

Nothing.

Meanwhile, the guy with the boring system and the tiny weights has gained 100lb on his benchpress in one year. And that’s just one year.

How many people do you know who have done that?

Probably none.

So you see these guys with their impressive physiques. They didn’t sculpt them overnight. Rome wasn’t built in a day either. Their physiques are the result of years of discipline, commitment and hard work.

Getting back to the point…

I’m implementing discipline and simplicity from day one.

I’m living within my means, and plan to add 1-2K a month to my trading account.

I’m aiming to increase my equity consistently, even if it’s only $100 at a time.

There’s no such thing as bad luck.

I believe that everyone makes their own luck.

 

Today’s rundown:

Closed ZIGO; 40% position gain and 1.5% equity gain with a 7 day hold. Short move up and bounced off the October highs. Decided I’d take my money off the table.

Account back to -2%

Fifty of these 1.5% gains, with twenty five 1% losses and equity is up to 150%. That doesn’t seem completely inconceivable for a three month period.

Only time will tell.

Bought a TZIX June 15 call. Ran another BE scan an hour from market close. The main rival to this one was TRDO.

While TRDO was knocking impotently against the 2003/4 highs, TZIX had strong momentum and clear skies ahead. Coupled with acceptable downside risk, there was no contest.

TZIX won hands down.

I’ve been long FCS for a couple of weeks, and it had begun to concern me of late. It stopped 5 cents short of my sell stop today. Despite channel resistance holding, I’m not confident the sellers will be able to push this back down to below the 200 SMA. I’ll be watching this closely.

On a contrary note, AEIS, my other channeling stock, had been forging ahead nicely. The stock has run up ~25% in just over two weeks, and I’m sitting on 115% paper profit. Yesterday, I was confident it could break through the resistance and blaze a trail to 16, but today the first signs of weakness were evident, the candle’s upper shadow brushing the channel line, and almost equaling the body in depth.

Time will tell.

 

Work exhausting today, so just a quick update.

Set a 0.1 trailstop on AEIS last night, stopped out today with 120% profit, 2% equity gain.

Which brings me squarely to break-even.

Spent some of those winnings on an SM May 35 call.

Admittely, I didn't stay completely within the confines of my rules (11% of equity staked, 1.75% estimated risk).

Perhaps that's a move I'll come to regret...

 

Professional exam today, presentation tomorrow, two hours sleep last night, three the night before, and I have most of my 95 hour work week ahead of me.

Let the good times roll!

On an irritating note, stopped out of LZ today.

Account back to -1%.

Turns out I misjudged support and placed my stop too high again. Identical mistake with AOC. And similarly, it's a position I'm still bullish on.

Disregarding that, the dragonfly doji on the 6th, with the insane 2+ point spike should have unsettled me. Perhaps I should have closed on the 8th and avoided the fresh uncertainty.

Again, looking back critically, although long-term trend is up, it has been stuck in a trading range for the better part of the year, and the 200SMA is bordering on flat.

Portfolio not looking great, still haven't made back the spread. However, other than the sub $10 stock which have been listless and which I've resolved to steer clear of in future, I'm still bullish on all my open positions.

Just waiting for a move.

No chance to open new positions this week. Hopefully, by monday I'll have some newfound clarity and insight.

On a closing note, is GME forming a morning star at immediate support?

Or simply wishful thinking...

 

FCS shot up almost 2 points on earnings news, obliterating everything in it's path; resistance, channel lines, my stop... stumbled out of that with a 2% capital loss.

HYSL - which I'd inadvertently bought a 150-share option contract for, not realising that 33.375 was a slightly unusual strike price - dropped below support, shook me out, and closed above. Again, a 2% capital loss.

SM is up almost 2 points since I bought it, yet my call remains unchanged in value... carried 80 deltas, volcone told me it was underpriced... don't understand this one.

Reviewing the remainder, not quite ready to close anything just yet.

Account -5% overall.

What have I learnt today?

I can't afford to trade in a technical vacuum, focussing solely on the charts, blissfully unaware of the outside world.

I need to be aware of all recent news on my open positions, especially upcoming earnings reports, and make sure to close out my positions beforehand.

-Scanned all the headlines, and discovered that an earnings report for ADPT is scheduled for 31st Jan. I'll make sure I'm not around to welcome it.

I need to be aware of how many shares my contract represents if the strike price is an unusual one.

I need to set mental time stops on all my positions. If the move hasn't happened, I'm out of there.

Given the recent string of losses, I'm keeping my hands firmly in my pockets until the rest of my trades play out.

On a more positive note, according to the test in Toni Turner's, Short term trading in the new stock market, I apparently have the ideal base personality for a trader: conscientious, detached, and seemingly risk tolerant. Whether or not that means anything is hard to say.

One thing is clear however:

My education continues...

 

Stopped in my tracks yet again.

De ja vu.

AOC slid through the support zone, sliced through the 50 SMA (for the first time since May), and settled on the next highest support.

Stung twice by this stock now, for a running total of -2.5%.

Account -6%.

My SM MAY 35 call has been acting very haphazardly. A cumulative 2 points up yesterday, option value unchanged.

Dropped 1 point today. Option up $160.

Not that I'm complaining.

The wonderful world of Oz.

 

Back.

Rolled out of my last job contract, lot of loose ends to tie up, brief respite before my next job and it begins again.

I’m attaching my trade log as a substitute for going over the specifics.

However, in short, stopped out of AOC, AMTD, SM. Closed TZIX.

Net change -2%.

Overall account -8%.

Deposit, bringing gross account size to 9.3K.

I adjusted my inclusion criteria to-

1) Strong uptrend
2) Price ≥$10
3) Volume ≥ 1MM
4) Institutional ownership ≥ 75%

I also added the 20 SMA to my existing 50 and 100 SMAs.

Another adjustment, given the recent stings of unexpected earnings calls was to set-up tabbed browsing with Firefox, bookmark the Yahoo finance summary for each of my portfolio equities, and thus be able to summon a cascade of up-to-the-minute news headlines with a single click of the mouse. In this way, I could rapidly skim the news on my open positions on a daily basis.

Whether it was the recent string of losses, or the rapid uptake of assorted trade theory (courtesy of some of the trading literature), my confidence wavered, and for a few days, I couldn’t find any new positions.

Often, I would find an appealing setup, only to discover that the calls were overpriced, support was too far, r/r was insufficient etc.

Another trader suggested I begin to implement vertical spreads. I had originally planned to leave the more complex/multi-leg strategies until I’d achieved some proficiency with basic directional trading, but I realized how limiting that could be.

So my new premise, after finding a chart pattern I like, is to buy my 75-80 delta calls if all the prerequisites are met, and if not, to capitalize with a vertical spread, either ITM, ATM or OTM/FOTM, depending on the situation.

My grasp of the greeks is still tenuous at best, but Taleb, Dynamic Hedging is next on the hit list.

Briefly, on 27th Jan account was completely in cash.

Decided to pull the trigger and opened four new positions within the space of thirty minutes. Probably not the most prudent course of action, but managed to decisively overcome my burgeoning stage-fright.

Anyway, here are the new positions, plus rationale:

SGP Aug 17.5 call

Brushed the bottom of it’s channel with a spinning top, rising on increasing volume.

CELG Feb 65-70 bull put spread (ATM) 1.60 credit

Uptrending, rising from a pullback, trading right on 70 when I placed my order. Potential resistance at 72, however.

MO Mar 80-85 bull put spread (ITM) 4.30 credit


IMHO, failed double top, bounced off trend line, and strong real body penetrating 50 SMA. However, testing strong resistance…

QCOM Feb 50-55 bull put spread (ITM) 4.60 credit

Bull flag grazing the 20 SMA in the context of a healthy uptrend.

Reversal strategy with CELG is to buy back the short leg if it breaches 66, and ride the long leg down to breakeven with a trailing stop.

I’m beginning to find the IB interface a little cumbersome. Browsed the TOS site and, at first glance, the application looks promising. I’m particularly attracted to the analytics and firewall-fazing web-trader. Not sure if I’m prepared to pay their commissions yet though…

As promised, attached, my unenviable figures to date.

(*NB* 2% discrepancy between figure posted here and account summary…?)

 

8% hole in your account is a considerable hit: take a break and reflect; there's clearly something wrong with your approach.
Revisit your trade carefully, as painful as it is, u know it is necessary; let them be good lessons to u, not mere consequential losses. Reduce significantly your size and trading frequency or u might get to a point of no return, where u'll be completely stripped of confidence and ultimately of buying power: u don't want this journal to be consigned, with all the others, to ET dustbin of history, do u?

 

Thanks for the feedback.

I've made sure to extract lessons from every single trade. In fact, that's been far more important to me than the actual dollar value of the P/L. Look at my trade log, it includes the heading lessons learned.

None of my losses have been painful. I welcome these small losses with open arms. The way I see it, they're insulating me from much bigger losses down the line.

My size is only one, occasionaly two contracts. I'm not sure how I could reduce that significantly. However, apart from miscalculations, I've kept to my 1% max loss rule.

I accept that I may be entering some trades with undue haste.

This is money I can afford to lose, and I don't see 8% as a 'considerable hit'. I see it as merely the price of my education. I actually think I'm learning my lessons at a discount!