Understanding that cycles exist. Market cycles, trading cycles, individual cycles, and individual stock cycles. Plan for them.
Inger Daily Briefing.
"One thought that cannot change by virtue of experience, is an understanding of what capitulation looks like, of what excess smells like, of what investor neurosis reads like. Investing success isn't an entitlement either; and there's no assurance that money put into the stock market over these next years until the bleeding edge of the baby boomers begins to take their money out (by law as a matter of fact, which isn't something you generally hear much about from fund sales forces). Its been a bearish capitulation early in the year, again in late April, again in early July, and again it's been seen last week, at an unusual time of year. That's why we're certainly open-minded (if they can sustain it, and we have our doubts) to higher highs, but very much respecting our own work."
This is a quote from the Inger Letter. A service I subscribe to. This guy does not day trade stocks. He does day trade index futures. You can read his bio at the Inger site. He is older, semi-retired and seems to have a very sharp head on his shoulders. He picks stocks for the long term trends and has done a very good job over the past 1 1/2 years I have been reading him. He has been trading since the 60's.
The reason I subscribe to his service is that he greatly broadens my perspective of the market. He often covers the current situations on foreign currencies, money movements, fed stuff, leveraged derivatives, hedge funds, etc.
While I am day trading stocks from the TA movements and stay focused on that, I do not ever want to forget the bigger picture. I certainly have little or no experience with anything remotely resembling a large extended market downturn. The 2-3 month downturns I have been through have been are enough to make me worry about a real downturn. Inger's letter is good for me because he gives me input that improves my general sense of direction without actually giving me any advice on daily picks or the process of trading in and of itself.
Because I derive my income solely from the market, I must be prepared to trade up or down and have survivor level money management skills. This is why it is critical for me to stay away from sites like Kimberlie's. I must have my own ongoing, tip proof, methods. I must understand and be able to implement stock picking and money management from a position of strength. I have to know it deeply enough to survive an experience similar to a capsized boat in the middle of the ocean. Who knows how long, how tough, how severe the elements can be?
My most interesting experiences in the past two years are my down cycles. There is a consistent pattern I go through. When I finally get beat up enough in my own down cycles, my trading pattern changes. Last week I made about 1500 for the whole week. I was grimly please. Grim because that amount is lower on a weekly basis than what I choose to need for my own paycheck. Pleased because it is a hard earned halt to the capital destruction that has been taking place the prior 3 weeks. Further pleased because I have been through this process before and I know that I am trading again as I should always be trading. I read a quote somewhere a couple weeks ago. "When we become successful, we quit doing the things that made us successful".
Inger Daily Briefing
"We think it's wise to temper everyone's zeal about this market, where that remains untempered. This year we've had at least a half dozen stocks that advanced 20-50%, which should be terrific, and all one would ask for. That some expected more shows how unrealistic they are. This year we have had at least three or four stocks that advanced by what's called "ten-bagger" multiples. Normally you get three or four of those in your lifetime, if you're lucky, not in a single year. For us it has been a terrific year; here (and we appreciate a vast majority of supportive reflections from you), and in our own portfolios. There's nothing I'm saying here that isn't based on very sincere thinking and wishes for everyone to do well; the thinking is sometimes better than others (and in semi-retirement that's going to be the case occasionally, as this is not a huge firm after all even if some think these efforts are somehow automatically generated, as we definitely wish they were)."
Again the depth of perspective. Folks that have traded their lifetime view the past few years from an entirely different perspective than we do. I have in my limited years of trading found that I manage to find and time about 3-5 superior trades situ's per year. That's right per year. Every now and then I stumble across something at the right time and will have a huge trading week or maybe two. I trade a 50K account, non margined. In the last year I have had 10 days or more that I made over 10K, 2 days I made over 15K, and 2 days I made over 24K. Now that totals out to about 15 excellent days out of 250-275 trading days.
What about all those other days? Many moderately successful days. A few really bad days and a few really bad weeks. My point is this. When I am getting hammered and am in a down cycle my trading changes and I slowly painfully bring the carnage to a halt. Without fail, I will slowly have very small up days. Last week I had 2 days I made less than 100.00. With extreme caution, instant kill the losses, careful entries, I managed to put together about 1500. If the pattern stays true, what will happen next week is more of the same. Continuing to trade in this very alert, deep study, careful entries and exits, I will likely pull out another couple K. Then momentum will begin to build as I begin to fill the pipeline with stock picks that I have harvested. These will be picks that I have found PRIOR to their lift off. Sometimes weeks in advance. Stocks I have been watching build a base. I have been watching their daily patterns, I have made contact with their ebb and flow. I can almost taste the breakout before it happens.
Then boom, my own lift off. I will again be having 5-10K weeks. It will build with crescendo, then Wham, a 15K day, several 20K weeks, I am rocking and rolling. Nothing is impossible. I kick back start surfing the web, jumping in and out of stocks, rolling the dice on "thread picks". First I lose 5K, then another 5K, no problem for a stepper like me. I refuse to see the change. I accept the losses as part of the game.
BUT they are not. My downward spiral begins. Two weeks go by, and I can't pick a stock to save my life. Everything I touch goes in the crapper, 30-40K later I sober up. I stop all trading. I refuse to scan the boards. I go back to studying stocks. I look for my own picks. I wait. I am patient. I stop the bleeding. Then I grind out my first up week. I make 50.00 one day, then 70.00, I am grimly happy. Then a small loss, I kill them quickly now. No more casually accepting a 5K down-draft. When a stock moves against me 1/16th I am on the kill button. Capital preservation becomes my only goal. When a small profit shows up I book it. The cycle is complete.
I share this story with you to remind us all. We live on the edge. Balance is the difference between life and death. Study constantly. Know your profession. Do not grow your capital on someone else's knowledge, skill, or efforts. I believe sharing and communications amongst dedicated professionals is helpful and profitable, and can be beneficial, otherwise there would be no reason for this post. However, your trading must come from within.
Premium Hands, KK
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