…there is something to be said for picking bottoms

I just did not manage to do it today. My problem is that I miss the bottom signal and then chase the move. This doesn’t allow me to place as tight a stop as I would like to and I end up getting stopped out. So what happened today. First let’s review Friday when I did not trade. Thursday I left feeling frusterated because I had been stopped out of all seven positions in my RRSP, losing about $2,500. This was not good. And the worst part is that I can see how my mind plays tricks on me and picks and chooses the rules in the middle of the game! I must write down my rules and have them in front of me at all times. The lie I told myself was that I could lose up to 8% on an “investment”. (took this rule from IBD). But this only applies to longer term swing trades or actual investments. Not daytrading! So I was a complete rule-breaker to sit back smugly and allow for up to an 8% loss on a day trade. The rule for day trading is no more that 1% in the RRSP and .3 percent in the active account. Thankfully I did not manage to lose more than 2% in that disaster and it was an important lesson. The other recap that I need to discuss is that I did not set a stop for the large position I took in XIU on Wednesday. I seemed to feel that it was an “investment” and therefore did not need any stop. At any rate, the market was quite a bit up by 11am on Friday (300 points) and I felt dumb for having closed out my positions. Then by days end the market was significantly down and I felt better for having kept my stops. Today the market fell off a cliff – over 1000 points! – and I would have lost thousands of dollars so I am grateful for my stops.

So what have I learned? Stops in the RRSP must be kept very tight. I can take large positions, but cannot lose more than 1% on a day trade. I don’t believe swing trading is a good idea right now because there is so much going on with rate cuts, bail outs, overnight banks going under around the world. I want my capital kept safe overnight. I also today located the tickers for the high volume indexes in both the US and Canada and those are the tickers I would like to trade in the RRSP. They provide high liquidity and allow for tighter stops.

What happened today? Where was I this morning? There was a bottom of 9600 in the TSX (can you imagine??) and I was having coffee across the street. All was not lost because I was reading Market Wizards and felt so much better that a lot of strong amazing traders had rocky starts learning the rules. And many of them were wiped out over and over again before figuring it out. I feel like my losses are quite reasonable considering and (with the exception of XIU) I always have stops and never risk more than 15% on a position. That is 15% total position with a 1% stop. So to be stopped out, this would allow for a .15% loss in my account. I can live with that.

This means my R is 1% (and for the record I am shooting for a 3% – 5% return on R). I returned from coffee to see the market rebounding and entered three trades in the RRSP. XIU, XEG, and XFN. I doubled up the stop on my XIU trade to allow for exiting the entire position. There was a big move up from 9600 to 10,200 (6%!) but because I was in late and stopped out on the way down, I was only able to capture 1.3% (XIU). Another 1% on XFN but lost 1% on XEG. At least I know the system is working. The market drifted back down to 9800 where there was a very nice reverse head and shoulders (on the one minute chart) with the right shoulder coming up off the 30MA. Really, it was beautiful! But I had a power outage (no lie) and power came back on right at this moment. I was of course trying not to grasp at trades so I watched the move go without me. And the market moved from a low of 9800 to close at 10,300. Another 5%! And this was across all markets. DJIA, S&P, NASQ, and many ETF. So the lesson is that I need to be bum in seat. And I need to check the different time frames on the charts. The reverse H&S was most evident on the 1 min chart.

Also, HCPG. Very nice moves today in the HCPG world. I will need to pay closer attention to the newsletter before the market opens and have my watch list ready. At this point in time, I don’t think I will subscribe to IBD because it is information overkill for me and I am already feeling overwhemed. I will endevour to purchase the Saturday edition and comb through the charts. When I am making more money, I will consider adding the IBD site.

Last but not least. OIL-T hit a low of $4! today. When I was at coffee. And moved up as high as $5.40. Insane. Like the other three trades, I entered late (breakout of $5) was stopped out at $4.80. Then reentered at $5, followed my stop up to close out at $5.25. So up $60! That was my day. At one point, the second OIL trade was up $450. That was exciting to see.

It feels like the ETFs have more defined moves than the individual stocks. And the larger ones have higher liquidity. (listen to me, like the liquidity on RIMM would be an issue for me…) Anyway, it feels safer to try and pick bottoms in the larger ETFs. Why do I love to pick bottoms so much??

This is not working…

Today was one of the worst days I have had since trading full time. ok. It’s only been a week. But still. Doing the math (which on days like today is painful), I only have 194 days like today before I have bankrupted the family. But this comes on the heels of yesterday which was also not a good day. What is happening? I have a trading system (discretionary) that I am supposed to be using. My trading system is supposed to be that I buy stocks that are breaking out of established patterns on high volume, or sell stocks that are breaking down out of established patterns (volume not so important). I am not to sell stocks in a rising market and I am not to buy stocks in a falling market. And as I type this I know exactly what I am doing wrong. The market is open and I get so overwhelmed and afraid of missing a trade that I start guessing. And my favorite front and center guess is that stocks are so oversold that I must not miss the obviously forthcoming violent relief rally. Although it would appear to be obvious to only me. The teeny weeny fish in the great big ocean getting swept away in a sea of just being plain wrong.

This is important to me. I want this to work. And yet I feel myself grasping at trades just to be in the game. I feel like if I don’t make trades I am wasting time. I have read close to 50 books on trading that spell out for me over and over again what the right path is. So why am I doing exactly the opposite. My emotions get in the way; my fear (of being wrong, of missing a trade) and it is costing me money. It is costing me time. Most importantly, it is costing me the greatest opportunity of making a career and a fabulous living doing what I love to do.

I would appear to be learning. Expensive lessons. I don’t think my CFA designation cost as much as I have lost in the past 48 hours. This goal I have set for myself is very important to me and here on this page I will declare that I am going to start respecting it. …more later on how.

As an aside. Much computer issues as of late. Miracle I have been able to trade at all since last night I discovered that my bootcamp XP partition was a paltry 5MG (or whatever, I am not a computer person). As a comparison, my OSX partition – which I do not use – was like, 140MG. So that had to change. But I could not resize the partition without starting from scratch and I spent most of last week downloading much software to get XP up and running. Of course all this downloading caused me to have zero space left and I kept getting messages that “disk space on drive C was dangerously low”.

My Google journeys led me to either Ipartition (what I maybe should have done), or Parallels which lets you run OSX and XP at the same time. This sounded great to me. Mostly because (flash of honesty here) I am a junky for computer hardware/software and mostly am just giantly in adoration of my most awesome trading desk which is 80% aluminum and mostly wire free. At any rate, I degress. Asthetics aside – I love MAC but need XP. So I dropped the $99 for Parallels and after much tinkering and sighing, managed to get it working. But… it did not solve my problem. My partitions were still the same size and all the google searches let me to believe that it was too far over my head to dig in the computer language and fix it myself. And I could not bring myself to spend another $49 on IPartition (sad insert: had I skipped trading today and spent the day having coffee and reading the paper, I could have purchased 40 copies of IPartition. Yikes. But I try not to think of it like this… Can’t or I will go insane(r)).

So I scrapped it all and started all over again. It went seamlessly and now the partitions are split 74/74 and all my redownloading was done by 11am. I think what was happening is I was stressed about the computer and while it was doing it’s thing, I used the back up computer to trade in the investment accounts. Just wrong. Wrong. Wrong. Not focused. Grasping at a bottom when anyone watching the TV, or just breathing could see that no bottom was in sight. Relief rally will come, but I need to learn to wait for it.

I honestly find myself thinking that I will get some kind of gold star (from who?) for buying exactly at the bottom. I can see myself now in a ticker parade, “oh..there she is…invested her entire investment account at the exact 2008 bottom“, …nodding and smiling in admiration of course. Of course.

Well this blog is to be 90% my daily trading diary and 10% (look, I can still add!) a forum for my multiple selves to work out there basic retardness. It has to happen somewhere if this trading project is going to work. And it must. Because it is important to me.