Before I tell you who is the biggest enemy of a trader, let me tell you about my today’s trades.
As I blogged in my previous post, I had my biggest winner today and I was on cloud no. 9.
I was looking to short PLA, TGA and RZ. TOS had borrows for none of those, so couldn’t enter any trade.
Then Adam told me in the chat about CPHD and that it has easy borrow on TOS. Here’s how I traded.
CPHD Trade on 6th Nov
There was a potential for taking profit of 37$ at 14$ support but I thought that stock will break the support at 14$ which it did not. I got out at 14.5 with loss of 105$. Well, I will keep an eye on CPHD to see if it breaks tomorrow.
Next, I saw DIN mentioned by one of the commentator on Tim Alerts site. DIN moved from 5$ to 18$ on no news and it was slowly bleeding for last 2 days. I really liked the chart and here’s how I played it.
DIN Trade on 6th Nov
DIN was very similar to CPHD in its roller coaster moves. It was very tough to see it move like this but after BEE trade, I decided to wait for it to bleed. As I am typing this, I am realizing that it would have been a better idea to cover it at 13$ for 95 cents/share profit. The pain I have to go through as it moves is not worth it. Torello’s idea of multi day short is very nice but I am stretching it by applying to each and every short of mine. Anyway, right now I am still short 200 shares at 13.95. At closing price of 13.33, I am up by 120$.
After entering these two trades, I wasn’t really planning to enter any other trade. But then someone in the chatroom asked about PNK. I had completely forgotten about PNK. The chart was looking beautiful. Also, in the morning, both DIN and CPHD were doing very well and even though I felt that it will be difficult to monitor three trades, I went against my judgement and entered PNK. Here’s how I traded it.
PNK Trade on 6th Nov
I am really happy with my PNK trade. PNK closed at 5.78 and I am up by 256$ on this position. This is PNK’s first BIG red day after it ran from 2.5 to 6$. I am really hoping that I will trade this well and ride it all the way down.
3 trades for the day should be enough. Right? Well, when your three trades are doing well, you don’t think that way. Out of curiosity, I looked at BEE. It was at 3.25 after going as low as 3.09! [As I posted earlier, I exited at 3.6]
I was mad at myself for covering my BEE short in the morning. And for some reason, I decided to short 1000 shares of BEE at 3.25. Here’s what happened next.
BEE Trade on 6th Nov
As of now, I am down by 100+$ on my second BEE trade. It was a stupid idea to enter BEE again. Just because my other trades were winning, I entered in to BEE recklessly and incurred a loss. I am hoping it will crack down further tomorrow and I will be able to minimize my loss. Lesson learnt: Curiosity kills the cat. In another words, once trade is closed, move on. Don’t look at it again. Delete it from your watch list.
There is even a bigger lesson. The bigger lesson is that for a trader, WINNERS are the biggest enemy. As soon as you have winners, you stop looking at trades objectively. You start thinking that you are infallible. You start believing that you are the best trader in the world. And that’s when the problem starts. If you see my past trading log, I never traded more than 2 tickers in a day. After making 675$ profit, I did 4 trades! And guess what? I lost money on two trades. Winners cloud our judgement and don’t teach us anything. LOSING trades are our best teachers.
In case you are getting impressed by my thought process, hold off. These are not my original thoughts. I read it in the MOST EXCELLENT Mastering the Trade book by John Carter. I had read that book before I started treading and John mentions that winners are the no. 1 enemy of the traders. At that time, I did not really grasp his point. But today, everything is crystal clear.
If you haven’t read this book, I would highly recommend it. John discusses psychology behind trading as well as specific setups which you can use to trade everyday. Though his ideas are mainly geared towards ETFs or other high priced, high volume stocks, some of those lessons could be used for Muddy style trading as well.
Overall, it’s extremely important to understand the emotions and psychology behind trading. On that note, I would like to give shout out to Market Monk’s blog. He has quite a few posts where he discusses psychology behind trading, they are very insightful. E.g., his post fighting boredom details why a trader who has patience to wait for right market conditions has advantage over the one who doesn’t want to wait. He also outlines how one can fight boredom. Excellent stuff! Let me know if you know of any other resources which discusses trading psychology.
That’s all for now, over and out! Happy Trading!
RJ.
Status as of end of Nov 6th:
Positions traded for Gain: BEE (676.90$)
Positions traded for Loss: BEE (90$), CPHD (105.85$)
Open Positions: DIN (Short 200 shares @ 13.95$), PNK (short 800 shares @ 6.10$)
13 responses so far ↓
1 johnnyvento // Nov 7, 2008 at 2:06 am
my general rule is if I get $1 I am lucky and should consider covering at any time. I think that Sykes and others have caused too many traders to be too greedy in expecting huge moves. $1 is a great trade and if you can successfully predict that then you can always put more $$$$ in the trade the next time. Trying to predict multi-dollar moves is swing trading at that point and moves into the realm of another trading strategy (which I don’t understand).
2 iltorello // Nov 7, 2008 at 2:15 am
Ramtajogi…WOW! I’m going to have to read your post a few times to soak it all in. Let your winners ride and keep a close eye on them! I’m definitely going to pick up that book! That’s pretty cool how you mention the psychology of trading…I’m a Psychology major! Congrats!
3 RJ // Nov 7, 2008 at 2:15 am
JV,
You are right. If you are up by 1$/share, that’s phenomenal. But as they say, trade to trade well. If one sees that price/volume action is in their favor, why should they exit?
I should admit that I am highly influenced by Torello’s trades and that’s why I am holding on to these shorts. Also, when overall market is bearish, it’s highly likely that these shorts will work.
I don’t think Tim at all advocates waiting for huge moves. He is always about taking profit quickly just like he will cut his losses fast.
Anyway, I am still learning so we will see what strategy works for my personality.
Thanks for your input though!
RJ.
4 iltorello // Nov 7, 2008 at 2:18 am
Ramtajogi…I’ve suffered from “Winners High” and lost also. My loses have been my expensive lessons for sure.
5 RJ // Nov 7, 2008 at 2:18 am
Torello,
You don’t have to soak it in, it’s your strategy which I am using! If you try to follow me and I follow you, it will be infinite recursive loop!
Thanks!
RJ.
6 iltorello // Nov 7, 2008 at 2:23 am
The multiday short…I learned from Laura and Muddy! When you see green, you cover. When the price action hangs around the previous day’s close, you cover. Just keep an close eye on volume and price action and you’ll be fine. If I had learned that sooner, my first RZ short at beginning of October would have been at least four times bigger instead of only $566!
7 RJ // Nov 7, 2008 at 2:26 am
Yep, that’s what I do. Keep watching price/action. Sometimes it aches my stomach, but what the heck, it makes me money!
And those two points about covering (cover on green, cover when price hangs around previous day close) are very useful! I will definitely keep that in mind as I try to ride PNK and DIN.
Thanks!
RJ.
8 johnnyvento // Nov 7, 2008 at 2:53 am
cool Ramta, email me about what you think about the different calculators
I have many more ideas, this thing could keep going…
9 Jeepee // Nov 7, 2008 at 9:05 am
Serious post RJ
Like some of us already said. Let winners run, take your losses fast. Will deifintely put that book on my wishlist!
10 Tortexal // Nov 7, 2008 at 6:57 pm
RJ ahhh!! CPHD was a short if under 14! Hit me up whenever and we’ll jump in chat we can look at those charts you were asking about earlier.
11 YngvaiMalmsteve // Nov 7, 2008 at 8:34 pm
Gotta agree with Adam. CPHD was a short if under $14 because that’ s where support was.
As far as DIN is concerned, DIN’s big move WAS on news….very strong financial news. That’s why it held most of it’s gains for a number of days, although it has bled for the past 3 days or so.
12 matty84 // Nov 8, 2008 at 1:30 pm
I agree completely with Johnny on the $1 thing. I do disagree a bit with what you said about the price action potentially showing a stock could go lower. It can happen that a stock can fall all day long, but that is pretty rare, and not at all predictable.
http://thedailyvento.blogspot.com/2008/08/using-dayrange-as-support-and.html
Intraday day range support and resistance is very important, imo, and that’s why we can’t expect our shorted stocks to keep falling more than a dollar, maybe .50 for a low priced one, or 1.50 otherwise, since at these key “support” points they tend to bounce. They may keep going down overall in the next couple days, but within a given day, not as much.
The day you shorted BEE, it went 5 to 4, basically, so $1. That is huge on stock priced so low. The next day basically 4 to 3. Huge again, and a much larger percent of its price. That is the basic idea of day range support, and it was further accentuated by the fact that the support fell on clear dollar marks. In other words, it was pretty unlikely that BEE would nosedive through 3 as if it weren’t even there on one single day.
That being said, you had a very nice profit on the first BEE trade, you never LOST $225 (in our minds we think, oh I had 900 now just 675, therefore I lost money) but you in fact GAINED 675, so no complaining haha
Good job on that!
13 Greed is not good ™. - RamtaJogi // Nov 13, 2008 at 11:01 pm
[...] is right. If you are up over 1$/share, you should cover. Yesterday, I was up by 384$ (1.28$/share) on my position. And here’s how I screwed it up [...]
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