Nerve Racking Experience

Lately, I have been trying to comprehend and control my hopes and fears of losing money. Although most of the anxiety was psychological, some of the severe anxiety I experienced actually manifested physically, i.e. pain at the back of the head, sweats and shakes. I was obsessed with every stock tick of every trade that I was in. While it is natural to not want to lose money, I seriously had a problem.

At the time of my last post, my excuse for not wanting to enter a live trade was that I was waiting for the FED announcement. The announcement came and went (what an over rated experience that was) and I hadn’t entered a trade. It took until the 10th before I was able to muster up the courage. The first few days were bad, I had been in the red (only a few hundred dollars, but in the red all the same!). While I drove to work today the DOW gapped up 60+ at open. This put me in an instant state of anxiety. I was invested in some option put trades and thought that all my fears had been realized and that I had just lost a substantial amount of money. When I looked at my account I found that both my hopes and fears were being realized at the same time. While two of the trades pushed deeper into the red, two others were performing well, putting my account into a positive position! I did not expect this.

I am reading ‘The Coming Economic Collapse” by Stephen Leeb at the moment. On page 58, he quotes Jesse Livermore (Edwin Lefevre’s Reminiscence if a Stock Operator):

“It is inseparable from human nature to hope and fear. In speculation when the market goes against you, you hope that every day will be the last day-and you lose more than you should had you not listened to hope-to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out-too soon. The successful trader has to fight these two deep seated instincts”.

While I cannot say that I am cured of my problem, I have reached a turning point in both my ability and attitude towards trading. Hope and fear will always be there, but I have started taking steps to manage and control these powerful forces.

Based on this learning experience I am training myself to think differently… My thinking should not be ‘how much will I gain today, it should be along the lines of ‘how much will I lose today’. I have come to learn that losing money is a part of trading and I MUST accept it if I am going to succeed. I need to accept loses and move on. The only caveat is that I need to make sure that my winning trades are greater than my losing trades.
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Below is a screenshot of my current trades (live). As noted above, I entered these trades on 8/10/06. I have contingent stops in place for each. I will not go into detail about the stops at the moment, because depending on PPI and CPI announcements over the next two days, I may chose to tighten them BMO tomorrow.

About Time!

It has been about a week and a half since my last posting. There has been no real reason for this other than being short of a little time (while I finish up remodeling my house and preparing for the birth of my first child at the end of the month!) and waiting for the damn obsessive FED announcement on Tuesday. I have managed to get on line and look at each day’s action, but finding the time to make a post have been difficult. I need to work on that.

On the last post, I said that I have been waiting for the market to tell me which way it is going to go. Revisiting the DOW chart that was also posted, we can see that it has completed its move to the drawn resistance line. On Thursday, the index broke through resistance to close just above. On Friday, It surged +100 points to a new high, it then dropped around -150 points to make the session low and then rose approx +50 points to closed just above resistance. What a couple of days!

$INDU 60d/60m chart

Looking at the chart, Volume appears to have been gradually rising over the last ½ a month. My Sto and MACD look to be getting ready to tip, RSI appears to be increasing and OBV downwards. The unknown – What the FED is going to say and how the market will react.

In my mind, The DOW has completed this leg up, but the index still does not give me any clear indication as to what to do. I wan to buy some select puts, but I remain cautious until tomorrow. My expectation is that it will make another leg down after the FED announcement. Based on what I have been reading in the news media and on other blogs, the economic outlook is bleak and there is little reason for the market to rally.
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As for current trades, I still have the QCOM strangle. I added some DIA Puts last week. I am looking at entering a number of new trades after Tuesday.

Good Luck - David