My trading evolution

I know I haven't posted any details about my trading lately so I'm going to spill some details now. I took a break from the end of May till mid July. I tend to do better after taking a vacation. When I started trading again I figured I would listen to my intuition. These days when I get into a trade and something feels wrong, I would get out. When I don't see any setups and my mind is telling me to sit it out I'll stop trading. Well sometimes I don't always listen to myself hence my above average lost the other day. I have 8 years of screen time, so I really got to trust myself more.


The good trade should work right away

My trading is not totally intuitive. I still use technical analysis like support/resistance, trendlines, chart patterns, and time/sales. Technical analysis does not always work. I think rely on my gut feelings more now when I see a setup. There is one stock market saying that I believe in now, "Goods trade usually work right away". If I get into a breakout trade or if I buy at a support level and the stock does not move in my favor right away something is up. I will scratch the trade with a small loss. If your analysis is correct then you will have another opportunity to get to stock at better prices. I use other support factors to make my decision. Some things I look at include - how the tape is trading, the stocks relative strength/weakness, and how the broad market is trading(breakout day, inside day, down day). But since there are some many things I tend to do it subconciously because it's hard to take all these things and analyze them when I am in the heat of trading. That is why I choose to trust my intuition.

I am still a scalper

I tried adopting the dummy style used by many acclaimed trading bloggers, such as Trader X, King Jamie, Maoxian, The Addict, Anarco, OONR7, Trader Mike. I have had some success but I did not like my consistency. I am also not comfortable with having wider stop losses. I think the major thing that affected my consistency is my lack of experience. I did not know how to separate good dummy setups from mediocre ones.

I also had the honor to be a part of Dinosaur Trader's little rag tag Virtual Office. We did a little private chat room for a few weeks. I had a chance to observe how Miss Trade, Dinosaur Trader, and Evolution trade. Everyone had their own style and they made it work. I am on a journey to find my own trading style and I think I am going on this path until I retire from the markets.

Daily Summary - Where's the light in the tunnel?

Wednesday
6400 shares
-18

Thursday
5400 shares
+88


I am not sure what is happening to my trading. I was doing well the first two weeks of May. I thought I finally saw the light and steady improving gains are along the horizon. Then suddenly the power went out. I have been wading through the darkness this past two weeks and my trading is being crippled by fear. I told myself maybe the market trend has changed and I am looking for the wrong setups. Everyday I feel like I am trading blind and I cannot seem to see a decent setup. I take trades but I did not have the clear conviction. Most of the time I am worried that I will stop out and lose money and that came true.

After some soul searching I have come to the same conclusion. I have to conquer my fear and trade. There are moves in the market everyday. I missed them because I was fearful. I kept telling myself the market would be slow and I am going to lose money everyday. At the end of the day I either lost money or end up flat. I got to keep trading and follow my plan. I am going to cut my size down to 100 shares if that will help me trade without fear. I feel if I can get some positive days I can get my rhythm back again.

The Dinosaur had some breakthrough in his trading yesterday. Can you throw me a flashlight DT?

Can this Bull Market get a second wind?

The market continues to show strength. I thought there would be some weakness because of Google's earnings miss and the poor econ. numbers. From all the blogs I read there are a lot of bearish commentary and predictions. I feel bearish myself too because we are having lower highs and lower lows in the daily and weekly time frames.

There are two blogs that have a different view. Carl Futia sees the S&P rallying to 1600 in 3-4 months. He has been steadfastly bullish through our recent decline. He gives his reasons in his blog for his forecast. Another blog that I follow is Between the Hedges. This is his major reason for believing that the bull market is not over. If his data is correct then I too find it hard for the market to break lower with all these bearish sentiment. What do you guys think? Are we still in a bull market or are we starting a bear market?

"The AAII percentage of bulls rose to 25.1% this week from 24.3% the prior week. This reading is still at a very depressed level. The AAII percentage of bears rose to 59.0% this week from 54.4% the prior week. This reading is still at an extraordinarily elevated level. The last time the AAII % Bears was this high was October 18, 1990 after Iraq’s invasion of Kuwait and before Operation Desert Storm began on January 17, 1991. The peak of the 1990-1991 recession also occurred during 4Q 1990 as GDP fell 3.0%. The S&P 500 rose 65% over the next three years after this peak in bearishness. Moreover, the 10-week moving average of the percentage of bears is currently at 50.9%, also an extraordinarily elevated level. It has only been higher one other period in its history, which was September 1990-December 1990. Moreover, the 10-week moving average of the percentage of bears peaked at 43.0% right near the major bear market low during 2002. It is astonishing that the 10-week moving average of the % bears is currently 7.9 percentage points greater than at any time during the bubble bursting meltdown of 2000-2003, which was arguably the worst stock market decline since the Great Depression.

Furthermore, the 50-week moving average of the percentage of bears is currently 40.7%, also an extraordinarily elevated level seen during only one other period since tracking began in the 80s. That period was December 1990-April 1991, right near another major stock market bottom. The extreme reading of the 50-week moving average of the percentage of bears during that period peaked at 41.6% on Jan. 31, 1991. The current reading of 40.7% is above the peak in the % bears during the 2000-2003 bear market, which was 38.1% on April 10, 2003. I find this even more astonishing, notwithstanding the recent pullback, given that the S&P 500 is currently 86.3% higher from the October 2002 major bear market lows and 13.0% off its recent record high.

Individual investor pessimism towards US stocks remains deep-seated and historical in nature, which bodes very well for further outsized gains over the intermediate-term. This is just more evidence of the current “US negativity bubble.” It is also noteworthy that as investor pessimism grows ever thicker as short interest soars to new record highs, corporate insiders continue to display downright giddy behavior with their recent stock activity during this pullback. The retail sector saw substantial insider buying over the last six weeks, notwithstanding the current extreme investor pessimism towards the prospects for consumer spending. The Morgan Stanley Retail Index is up 14.0% over the last ten days. During the 2000 economic downturn after the bursting of the 90s technology stock bubble, insiders were bailing in droves. I still expect US stocks to rise sharply later this year as the undying belief in an imminent recession begins to fade and the uncertainty currently surrounding the financial sector continues to lift substantially." - Gary at Between the Hedges

Monster Stocks

I started having interest in the market in 1999 and I put some money in QCOM and IDCC in late September. I remember how I made an 800% gain on my $4000 in just a few months. I had over $35000 in January 2000. Well to make the long story short, I lost all my gains and around $5000 more by the end of 2000.

I am currently reading the book Monster Stocks, (a recommendation by Stockbee) and that got me to do some thinking. I studied some past monster stocks and here are my observations.

• Monster stocks can gain an average of 500%-1000% in less than 3 years. Most of them gain that much in 1 year. There are some exceptions. QCOM gained 2000% in a year.

• After they make their parabolic move they crash pretty hard.
  

YHOO and QCOM the tech bubble


HOV, the housing bubble



Are these bubble stocks unfolding before our eyes?

RL, a retailer


DRYS, Dryshippers



GOOG, RIMM, AAPL, LFC, CMI




Look over the charts and see what you guys think. Will our current leaders suffer the same fate? Google was up 750% at the top, so compared to other monsters there might me some more juice left. Maybe GOOG can go to $1000(1000%) or $2000(2000%).

Improve your trading by watching trading videos

A month or two ago I scoured Youtube for trading videos. I found a couple of good ones that are updated daily. All the creators are traders who have their methodology down and explain their analysis in an easy comprehensible manner. I have learned some new stuff from watching the videos. One thing good about watching the videos is that you can really get into the minds of the traders and see how they interpret chart action.

• Matt Monteith from Price-Trend.com offers daily commentary on the Emini S&P, Gold, Euro, Crude and Bonds. His trading style consist of trendlines, chart patterns and pivot points. I think it simple yet effective. One thing he stresses daily is not to try to pick tops or bottoms, wait for the market to confirm the move. Youtube link.

• Inthemoneystocks.com offers daily commentary of the major averages as well as some stock picks. He uses moving averages, trendlines, channels as well as some indicators like the stochastics and macds. Youtube link.

• Chart Pattern Trader offers daily market commentary. They also follow market breath indicators and combine them trendlines, channels, chart patterns and indicators such as the rsi, macd, and stochastics. Youtube link.

• Brian from Alpha Trends offers daily summary of the markets. He uses multiple time frame analysis, trendlines and moving averages. He's either the first or one of the earliest video bloggers.
  

Consistency

Trading should be easy, but sometimes traders make it too complicated. I have been thinking about one of the principles of trading consistency mentioned in Trading in the Zone.


I completely accept the risk or I am willing to let go of the trade.

I was doing well last Monday, and Tuesday but somehow lost my focus as the week progressed. When I was focused, I put on a trade with a stop and let it work. I knew and accepted my risk. During Wednesday I got stopped out frequently and fear crept in again. The same thing happened on Thursday. By Friday I was a bit discouraged and I lost my ability to see any setups. When I got good trades I often exited earlier and missed out on the gains I would have if I followed my exit criteria.

I think in order for me to really gain consistency I will have to let go of my fear of losing money and let my trades work.

Misstrade does video

Misstrade has added some video trading examples in his blog. Watch them and see how he trades.

Wish I was Calm Trading

Trading looks easy when you are Calm Trading like Gary. When you get a good entry and place a proper stop all you have to do is sit back and let the trade work.

I tried dummy trading in January and February. I had some success because I actually made some money. In March I did not know what I was doing. In April I went back to scalping and was able end the month with some profits. I really want to give dummy trading another shot again. When I first tried it I didn't know much and I got lucky. From what I learned the past two months, I think I might be able to use my new volume and tape reading observations to improve my dummy trade selection.

Gary shared some important rules in stock selection.

"It seems like I keep repeating my self but Do NOT enter on long bars--I dont know whats so hard to understand about this one, DO NOT enter too far away from 5 ema, DO NOT enter into stocks making long shadows above your entry- shadows only mean that stock tried to go there before and didn't succeed so it came back."

Jesse Livermore

The author did a good job in summarizing Jesse Livermore's quotes from Reminiscences of a Stock Operator. These are timeless trading wisdom that should be burned into memory.

Wisdom of Jesse Livermore
Wisdom of Jesse Livermore 2
Wisdom of Jesse Livermore 3
Wisdom of Jesse Livermore 4
Wisdom of Jesse Livermore 5
Wisdom of Jesse Livermore 6
Wisdom of Jesse Livermore 7
Wisdom of Jesse Livermore 8

You can download a PDF copy of the book here.

Name change

Ever since the release of the The Secretthe Law of Attraction has garnered a lot of attention. There are quite a number of blogs that talk about the LOA. One that I follow regularly is Breathing Prosperity. Ophelia, one of the authors has a new post titled "Law of Attraction:What's in a name?". When I started this blog I intended for it to be a journal of my bad trades. After I found out about the LOA I always wondered if I chose the wrong name for my blog. The Law of Attraction states that you attract what you think into your life. My blog's title is One Bad Trade, thus there could be a possibility that I may be attracting bad trades into my trading. Some of you guys reading this post might say, man OBT, you are so gullible and that sounds like an excuse for your mediocre performance. I think it does not hurt to make a minor change. If changing a name could make me trade better than I will give it a try. From now on the title of my blog would be changed to One Bad-Ass Trade. I hope I can show you guys some bad ass trading examples in the future.

A positive trading attitude

Last night I had a strong motivating insight. I took an honest look at my performance and results for the past two weeks. I probably lost around 200 bucks which is not a big deal. I realized that I have been having frequent negative thoughts. The lack of confidence in my trading ability probably further dampened my performance.

I am a big self help junkie and I have read about the law of attraction before in a couple of books. I also purchased a copy of the T.A.D. Principle a year ago, based on Trader-X's recommendation. One of my weaknesses is failing to follow through and really stick to something. I was all riled up and probably practiced with dedication for a period of time and then my enthusiasm slowly faded away. It is not because I did not see results, I think I just got preoccupied with other things.

Then one day Trader Mike posted a link about the law of attraction. Flatwallet also talked about it in one of his posts. That got me to take some action and do research on it again. I was checking out Elitetrader one day and saw a post about The Secret. A member shared a website where you can watch the Secret for free. It is an older version but the message should be the same. The documentary was motivating and it got me excited again.

I had a conversation with my wife about the Law of Attraction and she helped me figure something out. I saw how I have used the law in my life. I am sure all of us have used the law but we may not have realized it. I will give one example. Trading is a tough business and the percentage of people succeeding is not that high. When I started I lost money and did not make anything for around 8 months. I kept trading and I held on to the belief that I would become a profitable trader one day. I can clearly see myself making money and eventually my vision came true. I did not know I was applying the law of attraction at that time. Then I saw many other instances where I found success with the law of attraction.

I started reading The 7 Habits of Highly Effective People and I can see why this book is a bestseller. I just finished the first chapter and I see strong similarities between the T.A.D. principle, law of attraction and the 7 habits. I know what I must do now in my trading. I am going to have a positive trading attitude. I will monitor myself daily and make sure I practice this habit. Even when the going gets tough, I will focus on having a strong faith in my success as a trader. I picture myself as a patient trader who take only quality setups. Instead of fearing bad trades, I will embrace them because they are good learning experiences.