I find I'm still having some issues with acting too soon and jumping the gun on trades. At least now it's ameliorated with a slowdown in leverage building. In other words, I'm jumping the gun, but at least I'm keeping my position size smaller.

The latter has helped me to average down and make it out with a fair profit, although I miss the lion's share by being too early.

I did this on just about all my entries this week, although I improved slightly as the week wore on.  Result was a fair week, but nothing close to the record performance I had last week. This would have been a superb week with better entries.

As punishment/training this weekend, I have to go over the entire week of trades and examine my entries versus the best entry points and make some timing adjustments.

My skill in using options is also picking up. They can be a great hedge and boost returns. One of the interesting things is you can use them to profit even if you don't have a direction bias in the market- as in not knowing if the market will be up or down. If you do have a direction bias, and are correct, they can be even more valuable and enable you to increase your leverage with less risk than owning stock. 

 

 

The week started out with one big question- how would my CRM options fare? This was the last week before my options expired and CRM had given me mucho grief with looking like it was set to break out, only to give back its gains. Then it went in slo-mo mode and didn't move much, which eats up options time premium value.

CRM started moving up last week, but I wasn't sure it would continue or once again fall back. With one week left, I was worried that time was going to run out and I'd take a nice hit.

Well that wasn't the case as it finally followed through on its break out move and continued moving up. It took long enough, but better late than never - payday! Relieved and happy to cash them out for a nice profit. I even rolled the dice and waited for Friday (expiration day) to finish closing out some positions as the trend pointed to higher prices.

Day trading continued to be a challenge in a low volatility environment, but now I was better prepared to deal with it. It had to happen eventually, but I was able to be patient enough to scale into a long position in the area of market lows. When the market finally made a sizable move up, I had a decent sized position loaded with profits. Payday, part 2.

Adding the positive option, swing, and day trades together made for a record week - as in my best trading week ever. This week goes to the top of the list.

One interesting observation is my prior all time high week was made a few weeks after the initial main light bulb went off last year...last summer as a matter of fact.

Another is the market is truly devised to act in a way to get you to do the wrong thing when trading. Day trading is made extra hard due to the mental games played by the market in how it moves.

I was able to get into a great position, but for several days the market behaved as if was going to do the exact opposite of what I wanted. My gut was warning me I was wrong but my mental training told me to stay the course and not give in to my doubts. Technical analysis is helpful at this stage, but the market is aware of what people look at and gives out false signals to try to neutralize much of it. This means you really have to have a good understanding of market flow and behavior not to get psyched out and emotional control is paramount.

I also realize that again being patient is a key factor in getting the optimum entry points. The mistake is thinking an opportunity will be missed and it requires quick action.

 

I caught bits and pieces of the Olympics closing ceremony this evening and what I saw was okay, but nothing really grabbed my attention so I just kept it in the background while I did other things.

Then I went by when there was a group performing what I found out was the closing song before the cauldron was put out.

I never heard of the group before but the song tune immediately grabbed my attention and drew me in. It went together beautifully with the fireworks finale along with the final scene with the fire cauldron and Phoenix.

I'm not sure why, but my eyes got a little watery listening....eh,...TMI.

 

 

 

Awesome. The couldn't have picked a better closing song.

 

 

This story is quite amazing-

Karen was a CFO for a small company who didn't actively manage her investments - she had a financial adviser for that.

Sometime in the year 2000, her friend got her to go to a seminar on investing and she decided to take a 1.5 year $22K specialized investment course. I would never take such a course as I would immediately be wary of a scam with pricing like that.

After that, in 2002, she opens her own account with $10K and begins trading.

In 2007, a "light bulb" in her head goes on and she takes a leap of faith to move on to attempting to trade full time for a living and leaves her job as CFO. She starts her initial account with her liquid life savings at $100K that she got from her former financial adviser.

In 2008, she had a 50% return, and some of her friends gave her money to manage/invest.

 

Fast forward to 2011, and Karen has made $41 million in profits!!

 

The video is an interview of her telling her story. I wholeheartedly agree with her work ethic about needing to diligently put time in studying and analyzing mistakes for improvement to reach higher levels.

 

 

By the way, regardless of her great success, I do NOT recommend anyone spending $22K for an investment course. That is waaaaaay too much- I don't care how good they claim their training is. With some searching, I think all the info you need is freely available via the library and other sources.

 

 

The summer heat wave finally reached Cali - that nasty brew of heat plus humidity that makes you feel like you need a shower again to refresh shortly after you've taken one. Can't really complain though - June and July were very decent with moderate temps and cool evenings.

Trading this week introduced the challenge of very low volatility and volume. The market meandered in a small range and drove most traders crazy including myself. You get in a position expecting a big moves that never happen. After several weeks of trending moves, I was very rusty in handling small ranging movement- trying to figure out where the market was headed.

It turned out being basically a scratch week with a small loss- the only money winner was the broker with all the transaction fees.

I'd say it would have been better to take the week off, but I got some excellent practice in small range analysis and better determination of position entries/exits. The market is like one big classroom, especially when it comes to day trading. I spent some time manually back testing to make sure the additional analysis works and is consistent over time.

In other news,  Facebook and Zynga stock got hammered last week on earnings and made new lows. Those that got in on the Facebook IPO have had one rotten summer so far.

Source: link

 

Words to describe my trading experience this month: difficult, scary, ugly, stressful, volatile, frustrating, enlightening, painful, challenging, revealing, transforming.

I spent some time looking for an illustration representative of my experience to no avail until I discovered the above drawing. It fit perfectly, especially considering the tie in with June's "Icarus Edition" performance blog.

After my original "wings" melted off in the market heat, I had to work on developing more natural and robust wings, reflecting a deeper knowledge and understanding of trading and market timing. I thought the difficulties I had in June had given me all the info on what I needed to advance, but July trading removed that notion quickly.

 

 

 

 

 

This is not a pretty chart by any standard. Here's what went wrong in detail:

1) The volatility is huge with +/- swings of around 24% . Positive volatility is great- negative volatility, on the other hand, not so much.

2) On two occasions I was facing nearly 20% losses, as if once wasn't enough. This is just bad trade management which I obviously have to improve on. A loss of 20% requires a 25% gain just to break even. A loss of 30% needs a gain of about 43% to break even. Deeper losses require even greater gains just to recoup, so it's best to keep losses small.

Worse yet, by holding onto a losing position, opportunities are also lost. A 20% trading loss and return to break even had the potential of being as much as a 40% gain- 20% gained shorting and 20% reversing to long. So looking at the chart I kissed off BIG trading opportunities that in a perfect scenario could have netted ~ 75+% in gains! Even more than that was lost since once I'm back at the break even stage, I error on the opposite side and get too risk averse and miss the follow-on rallies. 

 

The chart isn't all bad news, however.

 

While it shows I managed to trade into a deep loss, I was also able to trade back out of it, which is typically no easy task. When the market has you on the ropes, that's the time when it usually applies heavy pressure to get you to close out your position for the biggest loss.

Visually, the process is similar to this:

 

 

 

As you can see, it's a situation that's best avoided.

 

The market can be merciless in exposing any flaws in one's techniques, and that's what happened this month when I tried implementing changes to my trading plan. The good part of that is that once you know where the flaws are, they can be corrected. You can learn a lot more when things don't work out as planned than when things are going right.

My problem is apparently "jumping the gun". I'm correctly analyzing coming moves, but I'm getting into positions far too soon before the current counter move completes which gets me in trouble. My predicted move does happen which bails me out, but I'm no longer in the best position to capitalize off it.  I need to be more patient and wait for the event to confirm it has started before taking action.

 

July Performance vs Market Indices:

All in all, it was a positive month and I ended up with the pack, but the risk/reward was HORRENDOUS. This pic can be used as a poster for those who don't believe successful day trading is possible- showing that someone who actively trades exposes themselves to excessive risk while winding up with the same performance as someone who doesn't trade.  

 

The good news to this stressful month is it was like intense summer school for trading. Being under the gun has the ability to increase awareness of all the sub details of market movement normally missed during non stressful times. By months end, all the challenges and difficulties gave me an even more hands on understanding of market behavior with what I expect will lead to big improvements in timing and trade management. I now have a new checklist to help me be patient and WAIT until the time is right before jumping into battle.

My new "wings" should be able to handle the heat and rigors of the market more effectively.

 

I can see it already in the 1st few days of August trading.

Here's the standard learning curve:

 

 

Here's July + the 1st few days of August performance:

 

 

 

 

 

The week got off to a good start on Monday. However, by the time Friday was here I'd forgotten I even placed any trades on Monday and was surprised to see transactions that day- that's how stressful/busy it got! Trader stress induced amnesia.

On Tuesday I saw indications that the market would be breaking out in a Bullish move up so I started entering a position. At the last moment of the day the market dropped several points, which I thought was weird, and just market makers playing games to go after stop loss positions.

Wednesday the market had risen overnight, but sold off again heavy shortly before the close as a negative response to what Bernanke had to say. During the day my position fluctuated between profit and loss and ended the day slightly negative. I saw more indications of an impending breakout so I kept my position open.

On Thursday, the market is behaving great overnight and looks like the breakout is in progress...until the market gets wind of what the European leaders said at the last meeting, which wasn't much, decided they didn't like it and sold off the market heavily before the opening bell. Once the market opened, it started climbing, then collapsed and fell lower. Once again I found myself behind the eight ball with deep intraday losses. I can't believe this is happening AGAIN!!

Having learned a few things from my prior bad experiences, I wasn't as leveraged so this time after confirming that my Bullish analysis was still in place, I bought at the lower levels to get better price average. The day ended with the market down big and online Bears gloating and predicting a bigger drop to come. There was a glimmer of hope though since the market ended with rising about 10 points off the lows of the day, which supported my analysis and let me feel better about my position. Employment numbers were scheduled to be released on Friday before the opening bell which was expected to be another market mover.

Thursday night the market continued to rise and Friday and I got up early ahead of the jobs report. If the numbers were bad I wanted to be able to react immediately. The report was positive with more jobs created than anticipated, so that was a relief.

After that, the market DID BREAKOUT and kept going up the majority of the day- so then the stress went to best managing my position to maximize gain and not exit too early. This time around I was more prepared and fared much better.

I wound up FINALLY having a very decent week instead of battling just to get positive.

 

Coming up.....monthly performance stats for July.

 

Caterpillar in the midst of record profits and very generous executive bonuses, wants to freeze salaries/pensions of lower level workers.

 

 

 

 Reading: http://www.nytimes.com/2012/07/23/business/profitable-caterpillar-pushes-workers-for-steep-cuts.html

 

 

I happened to be watching a show on TV about how Twitter got started. One of the original founders was the guy who created "Blogger", Evan Williams, before it was bought by Google and became "Blogspot". When he transferred to Google, he convinced his rival and one of the main creators of Xanga, Biz Stone, to join him.

Eventually they left Google, and brought on another guy, Jack Dorsey, who had the idea of a short broadcast kind of service, which became Twitter.

 

Some interesting notes:

1) When Google bought Blogger, they changed the business model by making all features free where they used to be charged.

2) Before the Twitter idea, they were originally going to start a podcast business but Apple changed the business model there by making them free.

 

It's interesting to think of a time back in the early 2000's when Xanga was actually contending as one of the top blogging sites. What might have happened if Google bought Xanga instead of Blogger...

 

The internet is still ripe with opportunity - you come up with the right idea at the right time and your fortunes can change overnight.

 

 

This week has been a walk down memory lane in letting bad trades and overconfidence team up to make another "crisis" trading situation.

Had a great trading day last Friday using my new methods and I felt so "confident" in them then I entered a new long position expecting the market to bounce and head back up.

Once again, I neglected one tiny detail of the golden rules of trading - wait for a confirmation of a reversal. But I was so sure I figured it wasn't needed....famous last words...

The market opened this week and I was put back in "bad trade groundhog day" as I wound up with a swing position deep in the red. There was a difference this time, and that was my methods were correct, but I needed to wait for the confirmation of whether the upcoming move would be bullish or bearish. I just assumed a bullish move, and we all know what happens when you make assumptions...

So now I'm not fearful as much as I'm irritated as we move to the lows of the week since I believe I know where the market is going. I'm irritated because if I waited for the confirmation, I would have known this move in advance and profited from it rather than being on the opposite side and losing money.

The market goes to my predicted lows and starts moving up. This is where I should have entered long in the market from the beginning, but instead, I'm just gaining back the losses. The market pops up Thursday and I'm back from losses and close out with a profit.....dodged another bullet.

I felt the market was likely to go higher but my position was bad so I had to exit to be safe in case the market reversed. This time I was unwilling to stay in until I received a confirming signal.

So Friday comes and I see the bullish confirmation, but I couldn't figure out an entry point and the market took off without me- making me witness that I missed a boatload of profits that could have been mine- all stemming from that bad trade last Friday. More irritation.

 

So while I'm glad I avoided another potential trading disaster by not bailing at the market lows, I missed some great profit making opportunities this week. Losing money is painful, but losing profit you feel you should have had also generates pain.

More importantly though, is that I feel good about my updated methods - I just need to be patient and this time WAIT for the proper confirmations and I should see a big jump in performance.

 

 

 

In other news, my CRM trade has been giving me grief. It's  ironic that almost to the day I switch to go long, CRM has been under heavy selling pressure moving lower. I could have closed out my short for a nice profit if I had waited. My analysis still pointed in the bullish direction so I added to my options as it moved lower trusting in my analysis. Today it once again made a strong move up in the overall rally, which I hope will continue into next week and beyond. I always thought stocks were easier to trade than the futures market, but I'm finding the opposite to be true.