Sunday, November 4, 2007

One Step Forward, Three Steps Back

This year, and especially this month, has been very difficult for me. A run of bad luck coupled with some poor trading has resulted in my account being up only a few percent for the year. This is after being up almost 20%, twice.


In short, I feel much like this guy looks. Hat tip to Michelle Malkin for the image.

The run of bad luck started a few weeks ago with SLB closing down 10+ points after earnings. Then came TRAK, which gapped down 10 points, but managed to recover half of the loss. BLUD came along with its FCC investigation and cost me another 5 points. And who can forget BWLD, which cost me another 10 points? That's roughly 30 points lost, in positions which were worth almost 1/2 of my capital.

So when Friday comes, and the market looks like it might be gearing up for another leg down, my emotions got the better of me, and I liquidated most of my positions. This was pretty ridiculous, considering that I had charted out where I thought the Nasdaq might bounce, and the index conformed perfectly to the scenario I had charted.

But I didn't let the pain and frustration stop after liquidation. I then added index shorts. I should add that I did liquidate on bounces--it wasn't a free for all, and I did get some relatively decent prices on the double inverse shorts. However, this adding of index shorts likely just added another level of complexity for this coming week's trading. Complexity is not good right now.

As I consider where I am going wrong, I keep coming back to the emotional trading. In fact, the traders that I follow who are systems-oriented are all doing well for the year. I feel even more strongly now than I did earlier in the year that I have to decide on a system and stick with it. I could probably allocate capital to several different profitable systems and do okay. The fact is, I have to become more mechanical, and less emotional.

I definitely do not want to get back in negative territory on the year, so what I will be doing over the next several weeks needs to be done well, and done without emotion. To that end, I've polished off some old filters and screens I used to use. One in particular has backtested very well. I may start taking some of those signals again, as it has 74% win rate, and I really need some high probability trades to undo all the major gap downs and sell-offs I've endured.



The chart shows a perfectly executed pull-back on the Nasdaq. Most indicators are in neutral territory, with the Stochs showing overbought/sell signal. I still have the distinct feeling that the market is topping. However, the indexes may move too far against my shorts in the nearterm for me to hold them long enough to see any gains.

31 comments:

mdawsz said...

The pic is fuckin funny!

Woodshedder said...

I liked it!

M- what do you have against gold and silver? It has been doing well for me.

mdawsz said...

IMO, gold isn't for investing, it can act as a hedge or you can position trade it, but I don't see it as a long term investment. Have you considered that if there is new gold supply of maybe 3-4% coming on per year then that's the same impact as inflation on your savings, yes?

Although one thing I do find interesting is wealth creation in China and India could drive the price.

Who knows...basically I prefer to invest elsewhere so I smack talk people who buy pounds of gold and stick it under the bed.

mdawsz said...

Gold is for poltroons.

Anonymous said...

I suggest you close out of the inverse etf first thing Monday before you get hurt. It is possible the markets drop a few points but highly unlikely. You need to get back to basics and add to your MVIS for the year end run.

Woodshedder said...

Anon- I'm inclined to agree with you re: inverse etfs. I would like to know what in your experience makes you feel strongly that there will not be more weakness next week.

mdawsz said...

I for one have quite enough MVIS.

Anonymous said...

I am down $80K for the year and am trading with a capital of $35K now. Wonder if I will ever be able to recover. Most of my losses were with BX

Woodshedder said...

Anon- that really sux. You can recover. What were your major mistakes? Did you hold BX too long? Too much $$$ on one trade?

Anonymous said...

Yes, I bought too much of BX when it went IPO thinking it will really shoot up ..but it crashed and I held and held

Anonymous said...

I am now making a 4 year plan to recover the losses ...about $370 per week

Sierra Water said...

MDAWSZ,

I have had good success investing in other things than Gold and Silver, the reason why I was able to invest a substantial amount of money in Gold and Silver at the age of 28 in 2004-2005. I feel I can still buy stocks on any given day that have the potential to make me a good return(little companies that nobody knows about, like SUMR..entered position last week). I have a return of over 100% on my bullion positions since 2004 and 2-3xs on my unleveraged gold share positions. This is a very healthy Return on "Investment" and it will continue to blow your socks off. The only thing that could get me to liquidate is a breakdown of Gold's Primary Uptrend line which we are nowhere near or Gold 1600. Gold 1600 is the very obvious winning bet to me as the market for OTC derivatives is gone and the World banks will melt the dollar to .50 on the index before the proverbial shit hits the proverbial fan and social order eventually turns to chaos.. This is Gold $2000/ounce and a blowoff top. Am I a "fear monger"??..well I really think that is a very quick and uneducated, off the cuff response by those who are not fully aware of the facts..I actually think I am a pretty even keeled and would enjoy a beer with any of you on any given night.. I don't mean to sound pompous or antagonistic.. in anyway.. M, where did I say Gold was going to double by 2025? I said it will double by 2011 from current levels and unleveraged shares will double,triple. I have posted my picks numerous times. Gold is overbought, but if you read my blog 2 1/2 months ago I said gold could stay overbought for as much as three months. well we are 2 1/2 months into that prediction. We will seem some chop and downward volatility here but extreme higher lows and highs will be the price action over the next 2-3 years. I have studied the gold market everyday of my life since 2004 and nothing will change my mind as this has become a mathematical equation. Mark to model becomes mark to market which eventually marks at zero as the "market" has run for the hills. Marking down of these type of assets will become the new jargon of the day in the coming months and will shock the average investor. If you took the time to understand the systemic disease that is just now mutating into credit default derivatives, you would not be so quick to rebuke what those who understand this mess say. This is serious shit coming down the pipe and will take no prisoners. The potential of a catastrophic event in our Financial System is really funny and "crazy" sounding until it actually happens. The crowd has always been quick to try and discredit these things, but now that we are finnally in the process of such an event, just maybe some will take my advice and at least prepare themselves. Which of you are going to start preparing for the obvious "White Squall" that is approaching clear for many to see including those who run the most powerful financial companies?
Have a good night, and try and hold back the attacks. Why not just observe what happens and if I'm wrong you can tell me what I am.


http://youtube.com/watch?v=dirHWM7VP6g
A "White Squall" is the culprit of many sea stories and blamed for quite a few tragedies. It is described as a sudden increase in wind velocity in tropical and sub-tropical waters, and lacks the usual dark, ominous squall clouds. The white squall may be myth, or it may be a microburst. If they form during daylight they can be seen as a line of broken water or whitecaps rushing across the surface of the water, but usually they appear out of nowhere.[1]

Anonymous said...

The second anon talking about BX is someone else. The reason is because I held inverse etf earlier this year thinking the market would go back down and eventually had to sell for a loss. Timing the tops is hard to do in a bull market and I got caught short without any meaningful dips to cover my position. However, if you use stops then you should be fine.

mdawsz said...

Sierra,

I read the first couple lines and then decided I didn't give a fuck about your post.

Sierra Water said...

That's fine M. Sorry I pissed you off again.

HIMX looks like it may make a run for $5. Nice intraday break above the 50sma.

mdawsz said...

Sierra bong water, you're one strange dude, where exactly is it that anyone got pissed off?

Fuckin weirdo.

Sierra Water said...

OK. tough guy.

IIO said...

Sierra,
Where is your blog? You make the most sense of anyone I've come across. Your thinking and timeline is so eerily similar to my own. Where did you get your views?

IIO said...

Woodshedder,

Don't let the losses get you down. Emotions were always my worst enemy in trading too.

Andy said...

I would think, at least in the short and medium term, that the inverse financial, SKF would be a logical play right now. There's still a whole lot of bad news and hurt in the financial sector yet to come out.

Woodshedder said...

Good point Andy.

IIO- Sierra's blog is still linked in my blogroll, despite the fact that he has shut it down for like the 4th time. I enjoy his blog too. Maybe if we razz him enough he will open her back up.

Anonymous said...

I bet those ETF's are feeling, pretty good this morning. I think we are seeing an accelerating down move. But heck, take your profits today, and live to fight another day.

When I feel like I'm segnificantly behind the curve, I tend to cash out and take a few days to get my crap back together.

With the limited growth, relative to expectations, of Q4, and the Weak Dollar benifit being discounted by the inflation. It seems to me like the possible downside is much larger than the upside.

Guess that just makes me a Bearshitter.

And sierra could be the smartest guy in the room, but aparently likes to turn it off from time to time, he is a tease that way.

kmorph said...
This comment has been removed by the author.
newequity said...

Market ready to go positive...Ride those double shorts down Woody.

kmorph said...

Newequity, you are an asshole. Your bad will towards Shedder will take the market down 300 points today. Shut the fuck up.

Woodshedder said...

I have set stops on my inverse shorts. A couple of strong up days will take me out of them. Until, they ride.

Newquity- Don't forget, I nailed the July top, almost to the day. My mistake was not getting short fast enough.

Not saying this is a top. Just saying that my timing is often better than my trading, if that makes sense.

Anon- I do the same thing re: cashing and screwing my head back on.

newequity said...

kmorph, It's all in good fun and you need to calm down fucker.

kmorph said...

Although I have some strong opinions about religion in general, I find that stockmarket is the main evidence of a higher power here on earth. All this "good fun" will get you struck by a ball of financial lightning. I wouldn't have given a shit, but disasters are notorious for collateral damage.

GUNNERS said...

where's JJ today? isn't it funny that just by posting comments like a fucking jack ass, JJ has made me root against SWC so that I can laugh at his misfortunes when he loses all his money. read this JJ and rethink your position in life. People you don't even know root for you to fail. cash out... try again.

ducati998 said...

sierra;

Interesting figure Gold $1600.00
How have you arrived at this figure?

It would seem from some combination [calculation] of the US$ and Derivatives from the reading of your comment.

Care to expand?

jog on
grant

kyel said...

Wood, first of all I want to apologize for my sarcastic comments earlier this year when I was the Anon that called you "Fly Buy".

To make it up I would suggest getting some GME before they announce. ERTS, MSFT, ATVI, NTDOY all positive on gaming business. Gamestop has a virtual monopoly in the used game business with profit margins of 50-60% and no real competitor unless you count Best Buy, Target, and Walmart. If you are not a gamer, there are several gotta have games coming out in Nov that should drive guidance up. The stock has been stuck in the 50-60 range since it's last call. It seems ready to move ahead to 70.