VERY IMPORTANT POST FOR YOU.
sit down and analyze yourself each month. that's the best way to learn..
1) you put the time into stocks. you will make money
2) notice his opinion on TA and how it helped his trades.
3) notice his emphasis on "trend".. TA helps you define the trend!
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Market Trends: The Rational Analyst
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To: dave horne (663 )
From: Rainier Trinidad Sunday, Apr 19 1998 6:04AM ET
Reply # of 666
[ Self Critique and Evaluation ]
I just completed the most interesting project about myself. I plotted on an Excel spreadsheet the profitability/unprofitability of all my trades on record as a function of time. The results display my evolution during the course of my trading career.
I bare myself to my readers with the results:
The results reflected my forays into various trading and investment styles from the beginning of my career up to Friday's trading. The records only reflect the trades I executed that were electronically tracked by E*Trade, so some data were omitted.
Some of the trading and investment styles were: buying and holding, buying FA-attractive issues on extreme pessimism and selling when the Street got its senses back, blind-trading during my self-initiated one year experimental trading period (which includes a number of short sales and other crazy stunts), FA-only based trades/investments, TA-only based trades/investments, and finally, the combination of FA and TA-based trades and investments.
I make no excuses for my results: my initial involvement with the markets was characterized by naivete and a constant effort to operate on "what worked." One can see that in my beginning stages, statistically random results were very often extrapolated from and misinterpreted as "winning strategies." This naivete combined with poor risk management (I didn't acknowledge it at the time, nor was I even aware of the concept) resulted in massive losses at the beginning of my career, and almost ended it before it had a chance to grow and develop.
Despite the knowledge I had accumulated from numerous texts on the markets (long, short, growth/value trading/investing, history, financial analysis, etc.), I found that no success would be granted to me unless I exerted discipline to my style and incorporated a risk management program into my trading. I proceeded to acquire texts on the most successful traders, and learned that their successes also stemmed from their ability to manage and control their risks (after all, what is it that Warren Buffett seeks to do in his investments? Reduce his risk by looking for the best managed companies). I also secluded myself to a period of further study and self-reflection. This is where most of my growth took place, I believe.
I internalized the information and proceeded to intensely study and incorporate Technical Analysis into my trades. I mentioned it to others before, and I will mention it again: I use technical analysis as a risk management tool, and nothing more. The concepts inherent in TA are so powerful in my opinion that I seriously feel that those who are not capable of it or do not attempt to incorporate it into their market activity are at a severe disadvantage to those who use it as a risk management tool. I am my own best example of the greatest fool I know and of the greatest benefactor of it.
Three years, two mentors (a Head Trader/Technical Analyst and a Buffett-like mentor), and hundreds of trades later, I managed to put it all together (or so I currently believe). On the chart of my performance, I "broke out" of my downtrend about September of 1997 by gaining control of my downside. Establish a good defense first before establishing a strong offense. I learned to play better and better defense, defense, defense, and that's all I did for three months.
From my three month "base", after I felt I had it all together, I began the thread that was the culmination of my work, readings, and experiences on the "trading floor," and named it The Rational Analyst. I consider this point to be my true beginning after my period of initiation.
In around December of last year, I "broke out" a little and retested my base, where I played defense again for an entire month. In March, I broke out to the upside, and played a tremendous game of offense while always taking into consideration and implementing my downside risk defenses.
As of this writing, I am up 63% for the year. My initial target was 40% for the year (10% per quarter), but I took that out and leapfrogged it with my OMGA trade this past week. I am currently considering restricting my trading this week because of my extraordinary performance last week. I fear that complacency might slip into the equation, and I am exerting every effort to avoid it. Currently, I am in a Flag formation (of the bullish variety), so who knows what's going to happen next :o)
On another note, and in hindsight:
Trading/investing is not a game. I will draw many parallels to the risk management aspects of Blackjack, but that's as far as the analogy goes. My Mentor recommended that I read John Krakauer's Into Thin Air. Strong analogies to trading were drawn: like trading, climbing Mount Everest has attracted the fancy of the uninitiated and untrained. Many who are unprepared to face the risks involved become victims of their ignorance.
Treat the endeavor seriously as if your life depended on it, for it is not a game, nor should it be taken lightly.
I hope this post has been instructive, if not interesting. I hope that others are able to take something from my past errors so that the same mistakes need not be made. Comments and observations are very welcome. Feel free to add your experiences so we can all learn from each other.
Regards,
Rainier Trinidad
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Market Trends: The Rational Analyst
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To: Rainier Trinidad (665 )
From: Rainier Trinidad Sunday, Apr 19 1998 12:09PM ET
Reply # of 666
[ Further Analysis ]
To give you a better idea of the cause of my poor performance in the past, I categorized the losses into certain groups:
By far, the greatest cause of loss was Trading Against The Trend, which accounted for over 70% of my losses. Another 15% came from being impatient, and the rest was just being plain dumb. And most of these came from the one year trading period I undertook to get a better understanding of the dynamics of trading and TA (which came near the end).
Throughout this period, it was in fact my longer term investments that I took the time to analyze that was providing me with the majority of the profits to fund my losses.
Embarassiing? Certainly. But I value these experiences more than any of my successes in the market, for as Primo Levi once said, "More is learned from one's errors than from one's successes."
What I did to turn the situation around was to (1) Eliminate all trades that ran counter to the trend and (2) Exert patience and discipline in my trading. These experiences might explain why I am adamant about trading stocks that only go with the trend.
What has happened now is that (1) My longer term investments continue to provide me with my profits, and (2) My trading is now providing me with profits as well, now that I trade with the trend. Both results are showing on the bottom line,whereas before, my undisciplined hyper-trading outpaced the slow-going profits from my long term investments.
I think it's scary to expose my past faults and weaknesses on the public forums like this, especially when a few hundred people read this thread regularly (or so I estimate), but I believe it's more valuable to pass on these lessons to others than to keep it hidden for the sake of not looking dumb.
I think some disappointment will be felt by some readers, for I am not omniscient and infallible. Far from it. I have gone through my period of initiation through loss and disappointment, but what has transformed me and made me stronger was learning from these lessons so I don't repeat the mistakes again in the future. "What does not kill me makes me stronger."
Manage your downside, and attempt to eliminate loss, and you will find success.
To close, let me quote Jack Schwager's conclusions from his interviews with the nation's top traders in Market Wizards:
1. All those involved had a driving desire to become successful traders--in many cases, overcoming significant obstacles to reach their goal.
2. All reflected confidence that they could continue to win over the long run. Almost invariably, they considered their own trading as the best and safest investment for their money.
3. Each trader had found a methodology that worked for him and remained true to that approach. It is significant that discipline was the word most frequently mentioned.
4. The top traders take their trading very seriously; most devote a substantial amount of their waking hours to market analysis and trading strategy.
5. Rigid risk control is one of the key elements in the trading strategy of virtually all those interviewed.
6. In a variety of ways, many of the traders stressed the importance of having the patience to wait for the right trading opportunity to present itself.
7. The importance of acting independent of the crowd was a frequently emphasized point.
8. All the top traders understand that losing is part of the game.
9. The all love what they are doing.
I think some similarities can be drawn from my development. I intend to become as successful as those profiled in Market Wizards, and I believe I am on track to achieve these long term goals.
Regards,
Rainier Trinidad
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