With ACAD at 21.78 my small cap biotechs are all stopped out. I guess
I should pat myself on the back that I did not swoop in and remove
the stops, as is my first instinct.
Is this the first sign of discipline in me? Baby steps.
I don't like the looks of this market. It does not look healthy to me, and I am
no longer buying the melt-up-in-a-chase-of-performance argument for the rest of the
So I am going to sit on the sidelines, do a bunch of studying, maybe some paper
trading until we have a clear trend.
I am reluctantly (no, eagerly!) learning how to read charts. I decided to try a
paper trade of FAZ at 25.95. My reasoning for the trade was based on a steep
slope on the SMI breaking over 40, which should indicate momentum. FAZ
then proceeded to fiddle around the rest of the day and then close strong on
In retrospect, I think I should have broken my rule on intra-day trading and
closed this out with a tiny profit at the close, because FAZ is pretty volatile and
frequently gaps up and down in the afterhours. We shall see.
I am going to keep practicing these paper trades with an eye on SMI slope.
Another paper trade, KERX at 10.30, up 2.9%. Like ACAD and ONVO, another
one of those biotechs I would like to own forever. Anyway, I am not in love, this
is just a trade, right? T1 is 11.06 and stop is 9.99. Gonna play this one by the book.
In the past couple of days the consciousness settled in on me of "Aw f$ck it, I am
going to go all in and really learn to be a trader." I am going to spend the 1000s of
hours to learn how to do this very hard thing.
And why not? What am I going to do with those 1000s of hours instead? Sit around and
do Facebook? Lemme tell ya, I quit Facebook a while back, and I found it freed up an
extra two hours or so per day to spend on other things. Like learn to trade.
I have a hard time reading books these days, or making much progress with books, but
I can consume Youtube videos, and there are some tremendous trading videos out there.
Right now I am watching the totally awesome Mike McMahon videos from the Online
Trading Academy course. Amazing how much you can learn from watching videos.
0. Follow the rules, lather, rinse, repeat
1. Follow trading plan with defined entry, stop and targets
2. No trades more than 10% of trading capital
3. No more than 3% risk on any trade
4. All positions have stops at all times
5. No ULTRAs, 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. No CNBC, Bloomberg TV, Cramer
Note that #2 defines the trade size in terms of "trading capital" as I suddenly understand
that trading capital is not the same thing as capital. Most of my capital needs to be invested
in something safe and slow moving. Consequently, I realize that the size of my trades has
been much, much bigger than they should have been. This will mean that I have to slow
my expectations way down, but more importantly, as I pare the size of the trades way down,
the losses will become much smaller. I expect to keep losing. This could go on for a year,
two years, who knows. The smaller the losses, though the more time get to learn this craft
Note that No. 5 adds ULTRAs. Ok, this is more basic risk management. Those ULTRAs are
just too risky for someone like me to be playing with. Look what happened with USLV. I
ended up stuck with a position in USLV that's now way underwater and the only thing I have
now is HOPE. Which word, HOPE, is not in the trader's vocabulary.
So, I have no F$CKING business trading ULTRAs as a newbie trader. No more than I should be
fooling around with VXX/XIV.
That being said, I did a whole bunch of paper trading of FAZ after Lehman, in early 2008, and
the results were spectacular. Great for scalping, but when I went to hold FAZ overnight half
the time it would gap down on me and blow through my stop and I would be sitting on a 5% or
even 10% loss.
So why have I been fooling around with these ULTRAs anyway? I've read all the articles vilifying
UTRAs, I know about daily resets and leverage decay. I know I should't be doing it but still I
want to do it. It's like an alcoholic saying to himself, "Just the one drink."
I kept doing it over and over, and I would ascribe this to greed and arrogance. Arrogance being
the attitude that ULTRAs may be widowmakers for the other guy, but I will somehow skate or
dance my way through to monster profits. In other words, I am somehow immune from the
downside that everybody else experiences.
This is pure MAGIC THINKING.
That's what most of this boils down to is pure MAGIC THINKING.
Anyway, now I have put the ULTRAs on my list of rules, sniff, sniff. I feel like I wanna cry.
Following up from the last post and my magic thinking that the
"rules don't apply to me." Thinking the rules don't apply to you is the
definition of arrogance in my book.
Which is not necessarily a bad thing. A certain amount of arrogance is
a very valuable quality. This applies for maybe all of the seven deadly
sins and other character defects. A little bit of all of these is what makes
you human. A little bit of arrogance keeps you from being sheeple.
How about virtues?
Humility. Humility is not about humiliation. I define it as an honest assessment
of who and what you are, where you are, what your place is in the universe.
Etc. Let's just say "an honest assessment."
In other words, humility is not about wallowing in your failures, such as in the last post
about ULTRAs. It's about giving credit where it's due and taking criticism where it's
I have a tendency to wallow in my failures very negatively -- again that's poor me,
poor me, pour me a drink, and make it a double. This is a self-indulgence. If I want to
indulge in self-abasement, I should just pay a pro domme to abase me for an hour and
be done with it. Not wallow in it all day.
This kind of negativity is the opposite of the mentality I need as a trader. For one thing,
negativity feeds fear, and fear causes you to stampede with the herd. Which is untraderlike.
So, to return to ULTRAs. The biggest success I have had in trading lately has been in BIB, the
biotech 3x bull. I've done three trades thus far, with pretty good execution (for a monkey trader),
and all three of them have made money. I made considerably more money on one trade in BIB
than I lost on any of my losers. So an honest assessment would be that I kinda get
how to trade ULTRAs, I just need to do the work to get to a place where I really know what I
I think that if I had decided to specialize in biotech three months ago, and focused all of my
mental energy on just trading BIB I would have done a lot better. I know that's not diversification.
But the thing is, OTOH, diversification is actually one of my main weaknesses. I tend to diversify my efforts,
in a very ADHD type way, I am all over the place. If anything, I should forget about diversification and
focus on one thing like one of Vernor Vinge's proverbial zipheads.
I take a lot of pride in this "diversification of effort," but this pride is perhaps just a consolation
because I have never made a lot of money in my career(s). You make money by being specialized, not by
being a generalist.
As the Japanese proverb says, "Many skills means no skill." From this one saying, which I would
say is one of the deepest Japanese cultural values, you can immediately understand how it is that
the Japanese get such wicked skills and produce such magical things. They focus like there's
That's been my career failing, the fact that I always give into ADHD well before I get to the level of
expertise where there's a payoff. And let's be honest, this is a self-indulgence. It's much easier
just to move on when the going gets tough than to stay put in the pain zone and keep fighting to
get to the next level. As Anne-Marie Baiynd says, "I'd rather lick payment than do what I have to do
to trade like this."
Last edited by suko; November 1st, 2013 at 11:39 PM.
Question: is smart money analogous to the early adopter?
I don't know the answer to this, but I suspect there is some
contiguity or congruence between these two.
I can tell you that I am not an early adopter, never have been.
I am sort of a middle of the road adopter. For instance, my first
iPhone was an iPhone4. Although, to be fair, it was my fourth
I got to thinking about this because of the following sentences from
a blog post about the solar boom of 2013:
I wrote that solar stocks will be to 2013 what housing-related
stocks were to 2012 Ė the best performers coming from a place no one
expects, I was ridiculed or ignored. I did not believe enough in my arguments,
so I was an early seller and I traded the solar names, rather than holding them
for a longer period of time. The lesson Ė the best performing stocks in any given
year often come from industries that no one expects. Be open-minded. When you
see widely disliked stocks breaking out to new 52-week highs from perfect technical
bases, buy some
My ears pricked up on the phrase "When you see widely disliked stocks breaking out" . I admit
to having been prejudiced against solar, myself. And if you told me in January 2013 that solar would be
the next big thing I would have resisted you. Even though I knew the Japanese alone were rolling out one
nuke's worth of solar per quarter by the start of of 2013. That's a tremendous amount of solar, and it was
obvious there'd been a sea change.
It kind of reminds me of the price of RAM back in the 1990s. Back when a gig of ram was about $1000 dollars.
The mere idea of UNIX on the desktop was risible, because everybody knew that RAM was too expensive
and UNIX needed too much RAM. Etc.
And then one day, like the flipping of a switch, RAM was cheap and the whole world changed. Now we have
64 bits UNIX in the palm.
But it took me quite a while to overcome my skepticism that things had really changed. This is the part
of me that is not an early adopter, is slow to follow the change of trend. I have mental resistance to
the idea of change, to turn on a dime like Soros. To just change my mind.
I wonder if this is more fossilization. My dislike for solar was fossilised in my mind long ago, during some
distant market downturn. Just like my love of GERN was fossilized an eternity ago, when they were a leader
in stem cells.
It's almost as though my negative idea about the possibility of change is fossilized in there by
magic thinking. Like the idea that the Soviet Union could never fall. Back in the 1970's, when I was a
Russian major, and the future in the field looked all bleak and Soviet-forever, it seemed absurdly
optimistic to think that the Soviet Union would collapse, even though the end was evident in a lot of ways
even then. I still couldn't believe it when I saw the Berlin Wall in pieces.
In conclusion, now that I am aware of this, I need to focus on my resistance to change, and keep my
eyes sharp for a change in the trend.
And get my ass out there and buy an iPad Air as soon as they are in the stores!
Since starting to write this journal, my panicky me-to-ism has subsided, and I have
become much calmer and more patient toward the market. I don't feel the urge to
jump in there and chase the action. So, it's working.
My KERX jumped 18% today, heading toward T2, still not there. Patience. GILD was
also up some, working toward T1.
I've been doing a long march through Norman Hallett's excellent Disciplined Trader videos on Youtube.
These things are a fantastic inspirational resource. I am not going to spend $1000 for his training,
but I will watch his videos. Because I am learning a great deal from them. And because I can just
visualize Norman saying, "Go on, kid, make that stupid trade. I'm waiting right here to take your trade."
In a recent video he says that in this market environment, one of his top three rules is taking only
A or A+ trades. Only the best, most promising setups.
With that in mind, I look at the signals that the black box is giving me. Then I look at the SMI, and, all other
things being equal, if the pick is not showing signs of momentum with a good slope above 20 for the fast SMI,
I am just not going to pull the trigger, regardless of what the black box says.
Now, am I confusing two approaches? Should I just follow the black box, regardless of what it says,
and just let statistics sort out the results?
To give credit where credit is due, that's part of humility. When you screw up, you take the blame,
when you nail it, you take it.
Having finished my post-game, chatted with the black box guys, looked at the carnage in biotech
over the past day, all's I can say is, by leaving KERX to run, and deciding not to heed the
black box after looking at the SMI for its various picks, saying "Nah, I'm gonna pass on these"
-- I really nailed it. Beautifully.
Maybe the first indication I have seen that there's hope for me in this biz.