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Wednesday, October 10, 2018

Red day recap and digesting my mistakes

While I was green on Friday making $51, green on Monday making $87.50, and Tuesday having no trades because the cash in my account was not available, today I lost $58.10.

Why does this deserve a blog post? Because I have some key points to talk about, and I am using the lessons I perceive today to grow instead of beat myself up about things as I have so heavily in the past on days like today. The funny thing is, I say "Days like today", but today is not a catastrophic one like many of the past even though it is a red day. Just in having taken the time to reflect and see these lessons today, I already see a gigantic change in who I was as a person and the difference in how I would have handled myself just weeks ago. My problems today are basic, crystal clear to me, and most importantly nothing that I need to get upset about. It was not an easy day today by any means, and I do still hear the remnants of that demon in my head that wants to take over and make it mean things it doesn't have to mean, but it's more like I am observing from a monitor in a secure room while it is locked up in a prison cell.

Today started out much like the last two days, meaning not much up on the scanners, and what was up did not have much volume behind it. To start the day I took some premarket trades on something with decent news,  volume and a good chart setup. After the open it had a brief spike that failed so I tried to buy a dip, took a loss, and I did not touch it again. It proceeded to fade all day if I remember correctly.

If you notice on the chart above, I never respected risking a break of the lows and got scared out with small losses. Furthermore if I had held my position of 249 shares from $4.01 I could have sold into that spike at the same $4.43 (on my chase trade) for a profit of $104.58 if I would have simply respected the lows. Instead after all those trades I took a profit of only $6.02, which after commissions is a loss of $6!

I basically made the same mistake on $ACRX with not respecting the lows and getting scared out of several trades that never would have gotten me out before a good profit opportunity. However the $ACRX trade was not a planned trade at all. My wife pointed out that it was rocketing, and then Ross in the chat room pointed it out as well. I looked into the news and it had just been given a price target of $10, which means it was a long way away from that. I wanted a pullback to get into and it did not seem like it was going to give one, so I took that initial position with the goal of cutting quickly if wrong, and I did. I kept trying to play it due to the news, but I guess the market in general is not hot enough. Either way, a good deal of profit was available to make up for any losses I would have taken if I had simply respected risking off a break of the lows. It was even making higher lows, which I did notice.

I did happen to trade two other stocks well today. $IGC (+$16) and $ASTC. (+36)

All throughout the session I had to keep awakening to the tense state of my body to consciously loosen muscles and breathe. Surprising as it may sound, I often had to do that with my paper trading. People in the realm of trading frequently say contest that paper trading isn't any help, but I think it is if you have the ability to operate from the conviction that what you are doing is real. We see people all the time playing video games on edge because they've suspended their disbelief and have become invested in something that for the most part holds no real world threat. The best performers in any field are those who can detach as if there is nothing at stake, so that they can enter a flow state and execute optimally.

I have been employing (or attempting to employ) some very specific perspectives on this journey in order to operate from that detached place as much as possible.

Every morning I attempt to remind myself that cutting losers is so important, that it is basically the strategy itself. While I am experienced and have a repertoire of tactics that come to me without effort at this point, none of them can have any hope of expressing a long term advantage if I can't keep my losses small when the trade does not complete the pattern as anticipated. 

A reminder I tell myself to help ease any difficulty in cutting losers, is that I have plenty of money in the account, plenty in the bank to replenish some if needed, and a great job that I can earn to replenish with as well. There is literally no need for me to fear taking a small loss. But, as simple as all of this is, it is not easy, and that is the paradox. The real work does not so much lie in strategy, but in self mastery. Caring enough to cut the loss and follow the rules, but not caring so much that you are too scared to trade or respect the risk in the first place. Today, that was my shortcoming. It was my fear of losing that caused me to lose money today.

To sum up the errors for today:

  1. I kept trading after I noticed the market was slow, as it has been for a few days now. There were very few stocks gapping up on big volume. I forgot to trade the market we are in, not the one I wanted to be in. That means that buying dips on support and taking small wins is probably going to be the recipe for success, but that's my general attack anyhow! I chased some moves and it was not ideal for the overall market energy. 
  2. I kept trading after I said "Ok, I'm up on the day, I'm going to walk away". When I said that, I was up $47 on the day ($70 something before commissions). From now on, if we are in a slow market and I say that, I am going to stick to that. I only kept trading because $ACRX popped up with what seemed to be a good enough catalyst for a trade. 
  3. I kept trading as it was moving into midday. Volatility just dries up and people aren't trading as much. That means potential for follow through is much less, and trading is just a bad idea for someone who want's quick and volatile movement.
  4. Possibly the most obvious one of them all is that even when I did come back to trade and spotted come correct big picture patterns, I got scared out of them because I did not respect the risk off the lows. That means I was trading my P&L and not the chart. (I will add the caveat to that, that there were big sellers on the ask that kept pushing price down. While I did felt the squeeze was coming, and it eventually did, what matters is the price and level II right now. Right then I was seeing much larger size on the sell side than the bid.)

After running all the numbers, had I respected my risk I had the potential to make a combined total of $248 on the day  (including my other trades) instead of losing $58.10.

To be fair, If I had made that initial $104 on $NVCN I think I probably would have called it quits or traded very differently, as this first week my general desire is to make at least $50 a day. Who's to say though. Either way todays lessons are very important and need to be remembered every moment during the trading session. I am thankful to only have paid an amount that can easily be made up tomorrow if the market presents a good pattern and I trade it well.

This is all hindsight, and hindsight always makes it feel deceptively easy to know what you should have done. Hell, I could have respected the lows and kept getting stopped out for larger losses than I did today, which may have ended up me being down even more on the day. It's truly anyones guess, but I have to keep reminding myself of one monumental truth: I have over 9 months of tracked trades that shows I can't just be getting lucky.

During Step 1 the goal was simply to trade the chart and see if I could capture more % positive of a stocks upside over time than I lost.

During Step 2 the focus began to be equalizing my position size over all trades so that the dollar gains more accurately reflected the equity gains. In the very beginning I had some major mental hurdles brought about by the size of the positions. I got stubborn on only a handful of trades and took devastating losses, that most of, if not all, where in profit at one point or another. The bottom line is, I was truly devastated by these losses because to me it meant I would never be successful. After regrouping and almost giving up entirely after 19 or so years trying this, I began to think differently. I began to understand that if I did give up, I would never be what I wanted, or achieve what I had desired so much of my life. The only change that took place at the apex of this chart was me lowering position size to a mentally manageable level, and cutting losers.

I try to look at these charts often and realize that is what has made all the difference, and that the same person who has turned horrible results around on paper, can continue the upward trajectory with real money. Perhaps the only real world hurdle I face besides my own discipline right now, is commissions and not trading on the platform I love that allows me to see everything I need to see to trade my best. This first week I am trading with only $1,000 positions, and although my commissions are quite small compared to the rest of the brokers, if I trade too much by taking less than optimal setups I will eat away at my profits in a very detrimental way.

I have since made what looks to be a turn around since I stopped trading a year from the very last real money trade I took. I not only find it hilarious that it was basically a year exactly that I came back to real money trading, I find it consoling, because so many things in my life seem to happen so coincidentally as this. I am certainly not saying I have mastered this, either in concept or execution, but I am saying that I have never been more convinced that I am going to make this happen in a big way. My present course forward has me getting comfortable with trading $1,000 positions and slowly ramping it up so that commissions don't eat into my profits so much. As of right now with a $1,000 position, if I make a 5% gain on a stock that would be $50. If I am trading a stock that with 250 shares, the commissions would be $2.50 per round trip trade. Just the commissions alone would eat up 5% of my profit because I am trading a per share commission structure. In the future as I increase my standard trade, I plan to switch to a flat fee per trade at some point. Anyhow, today was just one day out of the journey, and I got something out of it.