Fear and Greed- What does it mean for each of us? Much of what i have read -and experienced- on trading -suggests that the reasons I and most other retail traders will fail to even market perform is that psychologically we have a greater need/ fear of protecting our winning trades from becoming losers- prompting us to close out winning trades early to reinforce that behavior- We may take a profit quickly, while our stop may have been wider- IF we had an actual stop in place. Conversely, we also want to be "proven" that our trading judgement is right, and want to allow our losing trade the opportunity to prove that we- the astute trader- indeed chose well- At one time, we have ALL likely done this and been taught by the market that this is not what a trader does- That is what a value investor does-and how one ends up being a long term holder in a position - unwilling to sell for a small loss, sitting through a much larger-on paper one- hoping for an opportunity to get our money back. So a 5% average loss suddenly becomes a 30% decline- and we find our losing trade has lost the equivilent of 6 separate stops at 5%- but we accomplish that in a single trade because of our ego- desire to be ultimately be proven 'right'. Does this ring any bells? The only way to curtail our need to appease our psychological wants- is to override the need and implement the mandatory stop-loss - on each and every trade. Position sizing- and having a defined STOP-Loss set is the foundation recipe to implementing a disciplined approach-on each trade is the process by which we will survive the losing behavior of allowing a losing trade to go lower. Conversely, we need to have a method to allow that winning trade to go higher- as long as the winning trade doesn't roll over- These are the things I need to be vigilant about and reinforce as positive behaviors. Tomorrow- Sunday I will reassess my Friday trades and new Investment positions- Trades- as well as "Investments" and try to determine a common ground between the 2 methodologies. Limited capitol to employ in a small trading account is indeed a liability- The costs of typical commissions has a much greater impact on a $1,000.00 trade, than it does on a $10,000.00 trade. Will discuss that in the BRKB trade.
quick note this Sunday 1.25.15 Remember all the past market fears over Europe and Greece? With the Swiss decoupling their currency, The situation seems to be anything but stable- Euro concern affected our markets in the past, Greece is again a hot spot. CNBC article-http://www.cnbc.com/id/102366312 Late EUO entry momentum may still see more upside -
HOW ABOUT A TRADE/INVESTMENT THAT HAS OUTPERFORMED THE S&P BY 300+ % WITH LOWER VOLATILITY OVER THE PAST 5 + YEARS? No offense meant by the caps for those easily offended.! PJP has outperformed over this period 3:1+ with a 0.74 beta.past 3 years What is not to like? I've taken positions in this in both the trading account as well as the investment account. I've traded PJP in the past- but looking at the present chart- why did i not hold a piece of that earlier trade?
the IBB trade is also similar to PJP- adjoining market segments- likely some overlap in the two. IBB comes with a 0.84 Beta/3 years and a 3:1 outperformance to the $spx.
the euo trade has been in decline until months ago- Europe was stable-or so it seemed. Look at when this trade made the turn from decline to uptrend! in the last 9 months, this trade has been a winner-- outperforming in this period-
the xiv trade has outperformed the $spx 2:1- but with a higher beta 1.12. looking at the attached chart, trading on this looks intimidating -
Today looks to have been a good day- The trading account positions overall gained from Friday, and have put the account back to the prior high- making up for the prior past weeks decline. The one negative on the day was the EUO trade- down 1% - but Biotech + 1.7% , healthcare + 1.4 % , energy + 1.4 % , and volatility + 5.6% pushed the trading account higher. The Portfolio has recovered from the 2% decline- For Today at least LOL! Nice to be positioned on the right side of the market- although it did not appear to be quite so on Friday. The Investment account should have also benefitted. 1 Toot for the good guys today LOL! The tide is flowing in - despite the ebb and flow being a bit frothy. More conservatively- and sound effects aside for a nice- but relatively minor gain on a market positive day- I have to make an observation here- In posting charts of the IBB, PJP etc that have a 300% performance- over the $S&P during the same time frame -with a lower BETA- These make sense to be the kind of sectors to be overweight- Why will these same investments not outperform going forward/-Can I withstand the volatility and Hold - or do I try to employ the faster chart/?
Wow- Easy come and easier go! Just caught the 12:00 view of the market action, All indexes down 1.5-2% certainly doesn't favor my positions- So, the 2% I had recouped will be away again by the end of the day. For better or worse, I cannot access my Trading account from an unsecured access point during the work day, so no opportunity to make a knee jerk move. Article I just read on CNBC cites concerns about the strong dollar hurting our multinationals earnings- and Greece- and consumer durables down- http://www.cnbc.com/id/102372326. While not everything is down- IBB is trying to hold on, pjp is making a new high ,XLE is treading on thin ice. the EUO trade is down - I'm surprised at that- and the XIV is of course down and that does not come as a surprise as it rises WITH the market. Not all is bleeding...... It may be that volatility reappears, and tactical trading would be to look at the large industrials- DOW as a possible short- DOG gapped higher at the open. Since I didn't have tight stops in place, I'll have to take what happens today- I will be tightening stops this pm- but the cow is out of the barn. Those trades that dropped were all gap downs at the open. I didn't catch the premarket this am.......I do have some cash available in the trading account for 1 full position- or a split - Gold is moving up, SKF-a financial short is moving up- I don't have positions in either presently- but may consider them this pm. Both have some fundamental reasons - poor earnings, concerns about forward earnings- concerns about currency that Investors/traders may put some $$$ there. UUP is down-TLT is higher- USO is up today; FCG has held in the turn from several days earlier and is moving higher above the fast trend line. FCG - a gas/energy play-has been on the reversal path for about a week now, with upside of 10% to reach the prior rally level. Doesn't seem to be reacting to the market news per se. In this type of environment, finding something that doesn't get whipsawed around might be prudent. Is this just a 1 or 2 day Market hiccup? Or, does it portend more? No clue-
BRKB- MEANT TO GET AROUND TO THIS- BRKB has been in a declining wedge- I took a real time entry as it appeared at that moment, that there was a probability that price would break above the decline line- I based that assumption on the prior day's strong reversal and higher close off the lower support line. On the 1.23. day, viewing price on a 30 minute chart, price was holding near the higher level of the wedge- i took a chance that this was a positive development, and an attempt to break up would be forthcoming. a conservative approach would have been to catch a buy-stop entry above the decline line and a prior high point- Discussing this trade with a friend who also follows BRKB- I view the recent lows where price found buyers -$146.50 as a good minor support- I don't advocate trying to get a fill at the very bottom- saving $.60 on a $147.00 entry doesn't count for much, and trying to get a precise fill may not work- if buyers step in early. POF- Point of Failure-re: Alan Farley- What makes this a good entry- is there is a well defined area of support- with a rather narrow amount of $$$ to lose % wise under the entry. With the market's volatility today- no one knows where we end up- but a stop-loss under the daily prior low of 145.00 Risks $2.00- $2.50 on a $147.00 trade- The trade may break support- but it is a good example IMO of a well defined lower risk trade. For myself, My position I think is 10 shares- so, my Risk is about $30.00 on $1,450.00 or approx 2%. I wanted to not promote BRKB- but illustrate the thinking behind having a defined risk level and position Risk. For the port value- it is 00.3% risk.
Today started off- I had put in a buy-stop on Dog, and FCG last night. Both partial positions dividing the remaining freed cash in the Trading account- I got the 1st e-mail notice that DOG had filled on my buy-stop -limit- @ $23.82- Only 40 shares unfortunately. The FCG trade never touched it's higher buy-stop, and retraced lower with XLE - I notice that USO made a new low as well. Today, I sold XIV $29.20 for a $1 loss on my entry. Sold XLE @ $75.00- If my chicken scratch is correct- my entry was $75.24- not as large a loss. BRKB broke down sharply without a pause through prior minor support that I had posted-closing the day at the very bottom. Ugly- Separate account but a loss none-the-less. Apparently the FED speak spooked the market, as I'm replaying Fast Money @ 9 pm, but the panel had a mixed interpretation of what was the take-a-way. I hold very mixed feelings on the healthcare/biotech positions-I hold the Opinion- that the demand for the drugs and therapies developed from the companies in this sector will not go away- There may be future regulation & legislation in the healthcare industry that would put a hold on profitability-But I have to believe the demand for continued development will not abate . All of us aging "Boomers' want to keep the repair process going so we collect every dime we contributed to Social Security-with Interest. Both have pulled back to my entry costs- even a bit lower in PJP- I also have a small CURE position. They haven't closed below the daily ema -yet- but have the 2 hour-and in the prior year, that earlier low close under the ema would cause me to raise the stop-loss to protect the trade- and most of the times- that was the right thing to do. and that lead to a more successful trading year-. It would be frustrating to set a tight stop to protect my entry , only to find it retraces 2-3% and rallies higher. My decision is- in the trading account- I will seek to reduce losses on signs of weakness- I may be more flexible in the Investment account- PJP- $67 is below the prior swing low- It was a stop I had originally set- and it makes sense. IBB- the last swing low suggests a $307-$305 - so volatile- Let's see what the market tosses up Thursday- i do not expect a big sell-off day in this sector- unless the market panics overall- Is this the pullback that so many have predicted for so long????? Volatility can bring wider swings- and fast reversals- in the other direction- and then back again in your favor- Fed Speak, market gets it wrong, decides all is OK 3 days later- We've been there, done that- Cramer blames that on HFT's ......He might have a point. There is a 'shift' as we enter areas of increased volatility and market nervousness- Perhaps EUO is a good example of this- It was a very extended momentum trade, and had 2 prior days of decline- I thought that odd based on the market "news" It rallied higher today- and i had given it a bit more room- I had a very late entry recognizing the trade was extended when I entered. Now that I have had a retracement and a move higher- this retracement provides me a swing low to set a stop by that makes "sense" $24.00 it is. I think being Short the financial sector makes sense - SKF lot's of exposure to declining energy companies. The Dollar- The Fed flat......But I don't have a position there- I will add to the DOG position Thursday with a buy-stop $24.10 -stop $23.50 and see if this gets any further traction. There seems to be fundamental reasons why this 30 stock sector may have headwinds.