Wednesday, February 24, 2010

Confessions of a frustrated trader

I am going to keep the daily review short today as I would rather go talk more about my personal experiences in the market today. The S&P is close to MA(50), so tomorrow has the potential to be a crucial day. A good job number should probably do the trick. 1108.91 - that is your magic number for tomorrow.

Now on to my day. I will try and write my thoughts in the order that things transpired.

NEP - Well, I knew it was gonna sink today. They came out with a statement in after hours yesterday saying the SEC was forcing them to make changes to their financial statements of the last two years. I am sure all you readers know what news like this can do to a stock. So, I entered today prepared to see a brutal sell-off in this position.

AMR- Started the morning nicely. I had a sell target of 8.99, right below the resistance level of 9. Looked solid in the premarket and I was pretty confident it would have a shot at 9. It had a high of 8.97 and I got stopped out at 8.79 for a very little profit. It turned immediately from there and spend the rest of the day in 8.80s.

Seeing it turn made me a little frustrated. Normally, I am quite OK with something like this but I guess the 10% losses in NEP position as soon as the day started were affecting me a little.

I sensed the markets were going to turn and going further up at this point in time. So, I took a fairly large position in WFMI, a chart I pointed out yesterday. I still really like this play but while the rest of the market kept on going higher, as I had thought, this stock decided to consolidate. Nothing wrong with a stock doing that after a decent run up! But the fact that all other stocks on my screen kept were doing much better just added to my frustrations.

CSE - Another overnight position. I got out of it at 5.30. And what happened right afterwards? Yes, you guessed it right dear readers. It immediately turned and went to 5.38. More frustrated....

So, as you readers might have gathered by now, I wasn't exactly in my happy place at this point in time. If I were calm and composed at this time, I would have just accepted that today just wasn't my  day at the markets and called it quits for the day. Like I normally do.

But no, my mental condition at that time meant that I did just the opposite! I took a large short position in MTG at 5.62. It went down initially and then turned. I got stepped out at 5.66. And you know what happened next!! Well, the only saving grace from this stupid play was that I at least got away with only a small loss.

I took a position in PMI in the last 5 seconds of the day to complete my well, frustrating day.

Now, that I am calm and composed and I sit here writing my thoughts, I realize I didn't do too bad initially. Here is my rationale for saying this:

NEP - It started too low for me to do anything with it. I didn't want to sell it along with the panic sellers. As it transpired, it closed in 8.60s and did better than I had expected.

AMR - No way was I going to see a position I had decent profit in turn into a losing position! So, my stop was placed at 8.79, so I could get out with a small profit. Faced with the same circumstances, I would make the same decision all over again.

CSE - I sold it as it reports tomorrow and I saw it had trouble breaking 5.35. No was I was going to hold a financial stock going into earnings.

So, you see all my early decisions were actually well-rationalized. But at that time, by allowing myself to get frustrated, I wasn't thinking in this manner. All I was thinking about was the P/L of my account and the missed opportunities. The next time something like this  happens, I hope I will have the sense to just walk away. Actually, that's what I usually do. 

Trading is weird that way. In life, ever since we are kids, we are told not to give up and fight harder in times of adversity. But in trading, its best to admit defeat, bow to the market Gods and simply walk away. After all, tomorrow is always another day....a day full of exciting, endless opportunities.

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