Why I am such a horrible trader...

I am writing this entry to remind myself why the market has again got the best of me. Clearly after three years of trading I have yet to learn the most fundamental rules I have bestowed upon myself.

Rules:

1) Always set a stop. If I am profiting in a trade I must set a trailing stop. Whether it be a mindset stop or an actual price stop set in my brokerage account I must fully obey by it once I enter a trade. A mindset stop must be executed when price hits level. In short I must know when to get out of a trade before I get in.

2) Do not fight the tape. I can not go against the market if there is a trend. The trend is my friend only if I follow it. Repeat, the trend is your friend only if you follow it period.

3) Never use margins. Any leverage will only amplify my risk of losses. I will only lose the amount that I can afford to lose. (Probably every penny I have, but nothing beyond that.) Any further losses would entitle me to a death sentence. Why a death sentence? Without any capital I can not trade in the market, if I lose beyond the amount that I started with, then I can not make back any of the money I borrow and lost. What else can I do? Do not even set myself in that predicament period.

So the following graph and story is my lesson to myself. (Note I have repeated this to many times to count.)

Two Mondays ago I opened a short on 1100/1105 Calls spreads on the SPX that was set to expire in February '10. At that time the trend was sloping down, however I jumped into the trade too soon. Too soon because the SPX was able to go beyond the 1100 only one day after I made my trade. Hence I was losing in my trade significantly with the SPX peaking around 1105.

My first mistake was not stopping out of the trade when it was going against me. When I first entered the trade the SPX was around 1085, but I did not set a stop. The index shot all the way to 1105 on the following Tuesday with me having an unrealized lose somewhere around $3000.

My main reason for entering the trade was because I saw the 50 MA line trending down and the index broke the upward trend that began in March '09. With the trend turning in my favor by February 8 I was up over $4000. In a matter of four trading days the trade I made fluctuated over a $7000 span.

I should have exited the trade the following week as the trend began to turn upward. Unforgiving the market was I still stubbornly held my position. As the market turned upward gradually I was up about $2500 before entering the third week of February. My final exit point to still make a profit in the trade came around morning of Monday, February 15. My stubbornness and greed got the best of me and I stood with my trade. By the end of Thursday I concede with the largest lost I have this year to date. There is no reason I should have held the trade for this long.

I simply just could not get myself to admit to my mistakes. I wanted to win so badly and had the chance to exit with a profit. Clearly my greed and unwillingness to admit defeat were the cause of my demise. Is there nothing I can do to stop this from happening again? Yes there is, put in a g*d d*mn stop on my trades.

Why can't I get myself to do so is for one reason. I feel option spread prices are always fluctuating and usually it is never in a daily trader's favor. Market makers have the final say and can manipulate the prices to their favor. That type of manipulation does exist but I can not let that blind me from taking such a significant lost. It is my fault for holding out to the bitter end. I can not blame anyone but myself on that trade period. Yet somehow I had the decency to get out of the trade? But why so late?

My greed in trying to retain the unrealized profit was what set me back from exiting the trade. My complacency blinded me from thinking logically. The trend in the market was clearly up and I could have exited the trade Tuesday or Wednesday before the expiration day without significant loses, but I did not. I only conceded when I was totally demoralized.

My losing trade pales in comparison to what happened today in Austin, TX. Joseph Stack's actions today were totally inappropriate but if the suicide note is for real, I have total sympathy toward Jack. I to am unemployed and struggling to scrape by. Life is not as straight forward as I had hoped, but I live another day to do my best. Hurting others because I am going through a struggle is not right nor is it ethically moral.

Update: Talk about being very unlucky. The SPX Feb contracts do not expire until Friday Morning. They stop trading after Thursday, the day I exited my trade. At the end of the trade session the Treasury increases the interest rates and the market starts tanking. The SPX is below the 1100 point again. Just my luck, I lost any profit from the trade and on top of it lost $8600 in capital. Can it get any worse?

Weekly Review of the SPX

I just played around with moving averages today and spotted some interesting concerning support and resistance levels of the SPX. From the graph above I simple set the chart to weekly prices with a 20 and 50 SMA. While I used a 200 EMA for the longer trend in order to have recent closing prices effect the 200 MA value. It is clear the 20 MA line was broken in January '10 where the index was unable to hold above 1140. As half of February has passed the 50 DMA line has also been broken. As of last Friday the SPX closed below the 50 DMA, which has now become a resistance level, around 1078. The next MA support would be around 990 which is the 200 MA line. That is a way for the index to go and anything is possible. Furthermore the MACD has begun a very noticeable decline relative to the start of this rally since March of '09.

With the 20 DMA still in slight decline and the 50 DMA flatting it seems the index is in neutral territory. In April of '09 a similar declining 20 DMA and flatting 50 DMA also occurred as shown in the graph above. On the sides of the bulls it seems the market is posed to replicate the April '09 movement just by comparing the 20 and 50 MAs. Can the bulls continue this rally that began in March of '09?

"Price is King, Volume is Queen"

The title is from Mr. Wang of WangHappyTrading or MyHappyTrading. I give an example that exactly defines the meaning of the title. Today as I scanned through charts I wanted to make a note of what is happening to the S&P 500. The SPY ticker weekly chart is shown below.
As of now I am short the index since last Monday, 2-1-10, but after yesterday's amazing push upward in the final hour of the index I have become a little scare. My goal in this blog entry is to trying to get myself out of that worrying mode and anticipate what next week will bring.

The chart illustrates how much the market has gained in all of '09, but the previous four weeks the index has been trending lower. To confirm the most recent descending trend the volume has ramped upward week after week. Furthermore the gains in '09 were generally increasing in price while volume was decreasing. It looks I am trading in the trend that seems to be going down, but anything is still possible for the few weeks to come.

On the chart I also marked a somewhat similar descending trend that occurred in the beginning of '07. The index actually end up even though the trend was down initially for four weeks while volume also picked up. In a very similar situation we are in now, I think it a similar pattern may shape out again 2-4 months down the road. If next week the volume picks up but the index is flat or rising, I plan to exit my short positions.

Feb 05 Intraday SPX

After reading from a variety of stock traders' blogs and stocktwitters I decided to record today's $TICK symbol data. A value that many traders discussed about the tick, so called extreme levels on the $TICK were at +/-1000. At +1000 institutions with large quantities of cash would be purchasing equities, and vise verse -1000 institutions are heavy salers of equities. Below is the SPX 1min chart and $TICK 1min chart.
Throughout the day from initial open up until about 11:30am the market was fairly neutral. However around that time the $TICK was substantially in the negative. Between that time interval the $TICK had hit -1000 three times as marked as gray circles. As the day progressed there were more -1000 hits. Of course the overall market caved in on itself. Yet if I had identified that the $TICK was so ominously negative, before 11:30am I could have had a huge advantage in a risk/reward short index position. Note the $TICK never even hit 1000 as the day progressed, and with a negative trending day it is hard to believe that there will be any hits above 1000 for the rest of today's session.

As I write this post, just around 2:46pm there is another hit at -1000 but the SPX has gain about 5+ points from its days low. Seeing how negative the $TICK is today, I am predicting the SPX will have to test today's low, 1044, again.

Update: Novice trader I still am. Boy am I glad I did not short anything today, yikes. Market actually ended up today.

How Might Friday's Employment #'s Affect the Market?

With nothing better to do I decided to collect some data on www.BLS.gov on every January employment number for the past nine years. I compared the data with the three major indexes intraday closings and how they fared after the job numbers were announced in each year respectively. The chart is below.


To me the data seems pointless in predicting what will happen tomorrow in the overall markets. I only consider jobs #s affecting the market but there had to be other news factored in as to why the markets responded the way they did. For instance in '09 the job numbers looked awful but the indexes gains in the day session was by far the biggest in any day after the January employment #s came in. In the other direction '01 and '03 had terrific numbers but market got hammered. Maybe future expectations or market sentiments or technicals in the market had to do with gains and losses. So in conclusion I do not know if tomorrow's numbers will effect the markets or if it does effect, how much. Maybe you do?

Update: I took indexes numbers from Google Finance and think they maybe off. (For instance I just noticed in the chart for 2001 the Nasdaq dropped over 122? Maybe its the real deal but again I only took data from what was available to me.)