As the bulls take a breather on wall street...so too will i...on off days, it is best to look back at recent trades to evaluate your strategy and see key flaws that might be holding down your portfolio and digging into your hard earned profits. looking back, i see that i have many reoccuring flaws that ruin the performance of my portfolio. despite the knowledge of it and efforts to keep level headed during trading, better judgment does not always prevail and i become a slave of the overly mentioned and all too true problem of "greed and fear. "
as a new trader...just one year in the market, i see myself fitting the amateur trader...the dumb trader all too often...much more often during the un-bull markets and during consolidation of trends...the main reason for this post as well as any post on this blog or even the creation of the blog is to help myself with the psychology of trading. i tell myself all too often that i learned from my mistakes...and i do...problem is, i forget the lessons quickly...its like people and news...we are affected strongly when they come out and vow that they have changed our lives and our perception of life and the world...but after a month, year or several years, the past news is all a blur and the lesson learned disappears with it...
my biggest flaws:
1. i love gaps...i chase and love to chase them...they are the most risky and i make it even more risky by buying overpriced, overly volatile options to try to get a lil piece of the run up despite very bad risk / reward ratios...
the solution: don't buy at the end of the day...in the last 1/2 hour on a gap day, chances a real high that buyers are in it just for greed, not technical or fundamental reasons...basically in it chasing with the crowd instead of in it because its a good buy. the days after...such as today with FXI and PTR after yesterday's huge run-ups...drop on a pullback gap...profit takers come in overnight and in the morning...good traders see that yesterday moved too much for it to be sustainable and rather get out of their positions and hold onto quick big profits instead of risking it all on a little bit more...they are the smart ones...the un-greedy...the disciplined...follow these people...
2. i love earnings...i never learn...well...i haven't learned yet...earnings move fast and despite companies beating the street or falling short of it, it does not correlate with the stock movement 100%. what does that mean? means that you are risking a lot...putting a lot on the line, to take a stab in the dark...fundamentals might get u right on the company's earnings but not on the price movement...and technicals might give u a better estimate of the price movement, but crazy earnings ...unpredictable news and bad or good conference calls can mess up your positions....
solutions: earnings are fun as hell...don't shut yourself off from them. but most of your money should be out of them. the wild ride of earnings is most profitable and most fun in the longterm when you are on the sidelines just watching. the heartbreaks are killer...don't get yourself involved...if u can't fight the itch...put less than $100 in it...i mean it...less than $100. don't think about percentages of your portfolio...think the biggest bill in your wallet...its a pair of shoes u are putting at risk...no more...so during earnings, have fun watching and setting up strong technical trades for when earnings for the company is over...thats what real titans of the market do...
3. worst probably of all my flaws is to get mad and cheated to find myself on the sidelines during huge price moves in companies. this is the reason for the reoccurance of flaw #1 and 2 by the way. its easier to preach staying out of the market when its volatile than it is to do it....when i see a huge spike in FXI, GOOG, AAPL, STP, LDK, i see that i lost money even though in reality i lost nothing. i care too much about the potential gains that i lost. In fact, when i am not staring at Ms. Bartoromo and Ms. Brennan, i am mostly concentrated on the stock ticker and looking at all the huge numbers, double digit gainers...its a real bad habit...should learn to be happy and most concerned with my own portfolio...not potential moves i missed out on...very similar to how i look at life and how i waste my energy chasing the past and getting mad at the missed opportunities instead of looking forward looking for the next big thing.
solution: this is all experience...that is how i am to learn...i am still new and haven't learned to keep huge emotions out of my trading decisions...i don't know how else to solve this other than getting used to huge gains and realizing that the best thing i can do is learn from them by seeing how they developed and looking for the next stock that might do the same.
UPDATE: solution to #3...look at stockcharts with fresh eyes everyday. buy if it is a buy at the moment...hold if its a buy...and sell if it just doesnt look like what u hoped...like my mentor Brian Shannon, defence and price pays...thats it!...great advice from a disciplined trader. take some time to support his blog at alphatrends.blogspot.com....great advice without the emotions and huge amateur flaws
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