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1. Follow trading plan with defined entry, stop and targets
1. No trades more than 10% of portfolio
2. No more than 3% risk on any trade
4. All positions have stops at all times
5. No intraday trading, shorting, futures, options, Forex, penny stocks or margin trading
6. No trading after hours or first 30 minutes of session
7. Published journal with analysis of trade numbers and behavior/psychology
9. Avoid CNBC and Cramer
Can you help answer these questions from other members on NexusFi?
That's a catchy little Twelve Step slogan for recovering alcoholics. How do I know this, you might ask.
Self-pity is I think one of the greatest weaknesses in my trading psychology. Self-pity in combination with envy.
Right now I am saying to myself that everybody else in this market has been making tons of money and I am the only one bleeding out my ass. And I need to get in there and get a piece of what that guy next door is getting. Get my snout right up to the trough.
This has particularly been driving me crazy because since the start of 2013, as Abenomics began to kick in here in Japan and the NIKKEI doubled in the space of a few months, everybody on my street went out and bought a new German car.
And meanwhile all my money was tied up and I couldn't get into the market until just before it corrected in May. This is exactly what happened to me in 1999. I just get money into the market when all the smart money has already sold.
Self-pity, greed, impatience, lust, envy -- what else is on the list here?
OK, I am going to get my German car. But I am going to do it by patiently mastering these emotions and executing well, not by letting myself get slaughtered crowding up to the trough behind everybody else.
I was listening to that famous Charlie Munger speech yesterday
and at some point he says that envy drives the market more than
anything else.
I've got a book here on my desk called "The Seven Deadly Sins of
Investing," by Maury Fertig. Which makes no reference at all to
behavior economics or psychology and just approaches this a
"sins."
Obviously not easy to overcome these "sins," any more than it is
easy to stop being a rule breaker.
But awareness is a good start. To be able to identify "stinking thinking"
is maybe half the battle.
Entered at 4.75 and stopped out 10 days later at 3.90 for a loss of
1.3% of my capital. My account is now down about 4% from the start.
I could probably keep doing stupid trades like this for another year or
so, at the current rate, before I burn through all my capital.
12 months is all I've got. Actually, if I go down another 20% from here
I am going to pull the plug and go back to all cash.
OK, so what was my thinking on GERN?
1. no thinking, just chasing momo reflexively like a dog chasing a car
2. listening to voices on Stocktwits (which I should add to my trading rules,
except I love Stocktwits so much I doubt I could give it up)
3. emotional attachment to the stock (due to the fact that I already made
a little money trading GERN earlier in the month on an earlier breakout)
over a long period of time (I have this idea fossilized in my brain that GERN
is going to be the monster stem cell winnner, when in actuality they are no
longer in stem cells)
Anyway, my key takeaway here is that I have a long-term investor mindset
involving long term narratives (ONVO is another favorite of mine for exactly
the same reason) when I am trying to function as a short term trader.
I need to reaffirm my mission, I am a short-term trader, not a value investor.
I am trying to pretend to myself that I am actually a value investor in short
term trader's clothing, because in my mind trading is associated with stupidity
and losing money. I really think it may even be a moral judgement. Value
investors are wise and moral, traders are foolish and immoral.
OK, I will admit it, I didn't even look at the GERN chart before executing the trade.
Part of the reason for that is that, again, I have a fossilized negative attitude about
charts and technical analysis. I am deeply suspicious of it, it's all a bunch of voodoo,
right?
But now I am starting to learn about charting. I am going to try to post a chart of
my GERN entry. Let's see if I can do this.
Newbie analysis, I'd say from looking at the SMI that there was good momentum after
the upward triangle crossing on OCT 17, with an entry right about where it crosses the
dotted line.
But I entered on OCT 22 right at the inflection point where weak momentum died, and should
have been short there. So if I had been looking at the SMI no way would I have made that
trade.
OTOH stop was timed right around support, so I ended up getting that $1600 chopped
right out of me. Looking at the final upward triangle on the SMI, I would venture to say that
GERN has bounced off support enough to head upward again. Doesn't look like strong
momentum where the chart ends though.
Where should I have set the stop in the first place, when making the trade?
I hate to be crass, or to wallow in this, but I need to bear in mind
that, in real terms, the $1600 I just lost on that GERN trade is almost
exactly the price of something that a special person covets. This could have
been a possible "catalyst" that would have overcome a layer of "resistance"
and lead to a whole new kind of action.
Maybe I should print this picture out and wear it around on my
forehead all day.
It's not as simple as follow the money. As an abstraction, like the desire to provide for my retirement,
money is not a very good incentive.Heck I don't ever intend to retire. When I cannot work and earn
my keep, then shoot me and use a big gun.
For me, pure, unadulterated heart heart pounding lust is what unlocks the motivation, generates
the wave of enthusiasm that allows me to get the big stuff done. Not some far-away abstraction.
It needs to be immediate, concrete, and realizable.
I am going to need that kind of motivation and enthusiasm to drill deep enough into this trading
thing to find the zone where I can be profitable.
We don't get Gordon Ramsay over here in Japan, so I have just recently discovered his TV shows.
I watch his shows slackjawed, and think about them constantly afterward. I like to think I don't do this for
the scenes of the F-word and all the bollickings people get. What I love is the perfectionism in shows
like Best Restaurant. The attention to detail, to craft, by undisputedly one of the world's masters. The
insight.
He's unapologetic "What we're doing here is not easy, we are aiming for perfection." I think that the
bollickings that he gives to people are probably nothing compared to the bollickings he gives himself
with his own inner voice.
You don't get to the top of anything by being easy on yourself.
In the case of trading, with a 90% failure rate, you don't even survive by being easy on yourself.
I can just hear Gordon, "What the F$CK did you think you were doing with that GERN trade! You
donkey! You ass. That's my money you are pissing away."