Using “Magic” To Be A More Profitable Trader

This post originally appeared on TraderPlanet.

I have a real issue with magicians. I put them in the same category with clowns, mimes, and Canadian teen idol singing sensations; they just creep me out. I mean just look at David Copperfield and the late Doug Henning…do I need to say more?

However, just because I don’t like magicians doesn’t mean I don’t like magic. Today I am going to show you some trading magic that will make you profitable even if you lose on two thirds of your trades.

RECENT PICKS
In the last month I have done three posts on three separate stock trades. The first in was in Morgan Stanley ($MS) where I suggested risking 50 cents for a potential $3.00 gain.

Then next was in Chesapeake Energy ($CHK) where the risk was $1.00 for a $5.00 reward.

The last was in Vocaltech Communications ($CALL) which risked $1.00 but didn’t have a specified reward target.

MS did trigger and hit its target. CHK triggered, but failed for a possible $1.00 loss. And CALL didn’t trigger, but let’s just say it did and you lost a buck on it.

But where is the magic O’ Great Lundini?

POSITION SIZING
The magic is in how you size your positions. By taking a set percentage of your account equity, you end up with a fixed dollar amount of risk capital on each trade. You divide that dollar amount by the spread between your entry and stop on each trade ($.50 on $MS, $1.00 on $CHK, and $1.00 on $CALL). That gives you your position size on each individual trade.

You then are risking a standard fixed amount or “R” on each trade.

DO THE MATH
On the $CHK trade you then lost 1R. On the $CALL trade, 1R as well. But you made 6R on the $MS trade, for a net profit of 4R.

So even though you lost on 66% of the trades I suggested, you are net profitable.

Alakazam…..!

See related post The Most Important Concept For Successful Trading.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).  Check out “The Best Of bclund” to get started.

9 Reasons Everyone (Yes Even You) Should Learn To Trade

Can everybody learn how to trade the markets?  Well, that’s a tricky question.

A better questions is “should everybody try to learn how to trade the markets,” to which I answer a resounding “Yes!”

It’s kind of like learning to swim; why wouldn’t you at least try it.  It may help you stay afloat when you need to and you might actually be good at it.

The problem is that the term “Trading” is intimidating and needs a re-definition.  Most see it as a high risk, all-or-nothing endeavor, much of which they only know about from watching movies like “Wall Street,’ or cheesy late night infomercials.

But what if you found out that trading was not about complex systems,  risking financial ruin, or “wrecking companies because they are ‘wreckable,'” but was more about being able to add an extra ten or twenty percent of your yearly salary to your income?

Would you be interested in learning to trade then?  Is the sky blue?  Do I like beer?  Is Justin Beiber a legendary talent.  The answer is “yes, yes, yes, and no friggin’ way.”

In the following weeks I will be expanding the ideas in this post into a book and if you want to be alerted when that happens make sure to subscribe to my blog for free Via E-mail or Via RSS, but for now let me give you the cliff notes as to why everyone should learn to trade.

The Markets Don’t  Care “What” You Are

Black…Brown….White.  Male or female.  Ugly or pretty.  Skinny or fat.  No matter what label society puts on you, the markets don’t care.  Your ability to trade successfully won’t be based on any of those things.  Trading is the purest form or meritocracy I know of.

It’s A Business Without The Drawbacks

If you trade correctly, you treat it like a business, but a business without all the bad things like employees, customers, regulations, business licenses, city and county taxes, HR issues, and competitors.

Your Social Class Is Irrelevant

Sure, having a big bankroll will help you get started in trading, but it is not necessary. Nor does your success matter if you grew up in Beverly Hills or in a two-horse town in West Texas.

The Market Doesn’t Care What Or Who You Know

Your college degree won’t help when you start to trade, nor will the fact that your Grandfather was the mayor.  You can be a high school dropout who came to this country as a refugee and you will have as equal a chance as anyone else to be successful in the markets.

It’s One Of The Few Situations In Life Where You Totally Control The Risk

I guarantee you this….when you trade, you will never lose more money than you allow yourself to.  Sounds funny right, but all risk decisions are made by you, and you alone.  You can even, depending on the style of trading you choose, create a situation where outsized risk is virtually zero.

You Can Prosper In Bad Economic Times

If you learn to trade properly, you can make money in both up or down markets.

Information On Trading Is Abundant and Free (or Cheap)

Want to be a doctor, lawyer, engineer, coal miner, truck driver, bartender, whatever, good luck on finding free or cheap quality info and more importantly real-world training on how to do it.  There are a tremendous number of experienced “virtual mentors” at your fingertips via social media when it comes to learning to trade.  And most won’t charge you a dime for the benefit of their wisdom.

The Market Doesn’t Care What You Did In The Past

When you have a traditional job and you screw something up, I mean really screw up bad, if you are lucky enough to keep your job you’ll be hard pressed to wipe the stigma of failure from your reputation going forward.  If you fail one day while trading the market, well tomorrow is another day where you are automatically reborn, clean as the virgin snow.

You Have More Freedom Than In Any Other Job

You might think that any business owner has freedom to do what they want, when they want, but as a former business owner myself I can tell you that is a myth.  You have employees who depend on you, customers who expect of you, and competitors who are ready to overtake you if you let up for a moment.  Traders, especially successful traders, have more flexibility with their time than any other profession.

So, What Is Your Point?

My point is not to tell you that trading is easy or that anyone can do it, but that more people than currently try it should give it a shot.  The public at large, both here in the US and abroad, have bought into a false and uninformed concept about what trading is about and what its purpose is.

If people were to understand what trading is really about and approach it with a methodology that is risk based, I believe it could benefit a much larger percentage of the population than it currently does.

Stayed tuned to blog in the coming weeks as I go into detail as to what exactly I mean and how trading might be for you.

 

5 Ways I Can Smell You Will Be A Failed Trader A Mile Away

In honor of my 45th birthday I went out to my favorite cigar bar this weekend, The Buena Vista Cigar Club owned by Rigo Hernandez.

The “club” is really just a hole in the wall, but it is a great little bar and one of the few places left in Southern California where you can actually enjoy a cigar, inside, with a cocktail.  Rigo has been in the business for over 40 years and he knows everything there is about cigars and the cigar business.

As he and I were chatting, a couple of heavy-set, very well dress ladies came into the bar.

“They are not cigar smokers,” Rigo immediately said to me.

I assumed he was taking a cue from the way they were dressed or the fact that they were women, which seemed like a bit of a superficial judgement, and very out of character for Rigo.

“Why, because they are women?” I replied.

“No certainly not,” he answered.  “I have plenty of women come in here who love cigars.  In fact my Abuelita in Cuba used to smoke three or four cigars a day.”

“Then why do you say that,” I continued.

“When you have been doing this as long as I have, you just develop a sixth sense for these things.”

Now being the gentleman that he is, Rigo wasn’t going to treat these ladies different than any other customer, no matter what he thought their proclivities were, and he went on over to greet them and take their order.  The conversation went like this….

“Welcome ladies, what can I get for you tonight?”

“Can we see a food menu?”

“Well, we don’t serve food here, however we have a menu from the Italian restaurant next door.  You can call them to order and they will deliver it here for you to eat.”

“Hmmm, okay…well then could we see a champagne list?”

“I only carry two types of champagne as we don’t get much call for that.  However, I have a very extensive selection of fine rums, scotches, cognacs, ports, and tequillas. Of course we also have a great wine list and a number of domestic and imported beers.”

“No champagne list, huh?  Do you have any Groupon deals?”

“No, I am sorry madame, we don’t.”

I was mesmerized by this conversation. Everything these two said or did screamed that they did not belong in a cigar bar, the final evidence coming when they asked Rigo if he had any “cherry flavored cigars.”

They eventually did order pizza from next door, had white wine spritzers, and a couple cigars….both of which they let burn out only three-quarters of the way smoked, and then asked for plastic bags for them so they could “take them to go.”

As the night went on and I thought more about this incident, I realized that it really wasn’t all that amazing.  Rigo was right, when you do something day in and day out for years on end you will often be able to pick up on cues and characteristics that can quickly let you “clock” somebody.

In fact, it is something I do all the time when I speak to people about trading.

Now first let me say that I think EVERYBODY should try to learn to trade.  I also believe that learning to trade takes a lot of work, and it is not always evident right away whether or not someone will ultimately end up as a successful trader.

But there are some characteristics that I see in people from time to time that are almost always “deal breakers” in terms of their ability to become successful traders.  As long as they posses these traits, in my opinion they will never be successful at trading no matter how long they try.

Assuming Expertise In Some Field Will Translate To Trading

This is the classic “doctor at the poker table” scenario.  Poker pros love it when a doctor sits down with them at the table, because doctors as a percentage are notoriously bad poker players.

Despite being able to complete tremendous amounts of study, survive intense on the job training, and at times having the power to snatch life back from the brink of death, none of those skills transfer to the poker table.

I don’t care how great you are in sales, chess, astrophysics, yoga, firefighting, electronics, engineering, bull riding, construction, or cinematography, none of those things will help you when you decide to learn to trade.

Those that come in wearing their extraneous successes as a badge of honor, sure it will give then a leg up in the markets, will almost always end up like the poker playing doctor….busted, broke, and bitter.

Having A ‘Know It All” Attitude.

We all know this person.  They know everything.  I mean EVERYTHING.

Who played keyboards on The White Album. The mean temperature on Pluto during winter. How the President can fix the economy.  Who built Stonehenge.

These types will find out how much they don’t know, and quickly, once they get in the markets. For them trading will be their worst nightmare, one they probably won’t survive.

It will be like they are in a street fight and the market is their opponent, hell-bent on teaching then a lesson they won’t soon forget.  Only it won’t be the type of fight where a few punches are thrown until somebody gets knocked down, and then the victor helps the defeated up, they shake hands and have a drink together at the local watering hole.

No, it will be the type of fight where when they get knocked down the market will start kicking them on the ground, in the head, with steel toed boots.  Then the market will go look for a pipe from a nearby construction site to start beating them with.  And if they haven’t crawled away in a bloody mess by then, the market will take a friggin’ cinder block and use it to try and crush their skull.

Not Knowing When You’ve Have Had Enough

In middle school I watched a guy taunt a bully all day long, and then run away when the bully came after him.  He kept doing this until the bully finally caught him, and I thought the guy would get what was coming to him.  But surprisingly, the guy begged and begged the bully for clemency, and perhaps feeling a momentary flash of compassion, the bully let him go.

And as soon as he did, they guy started taunting the bully again. Suffice to say, when the bully caught him the next time, he kicked his ass.

The guy didn’t know when to stop.  When he had pushed it enough.  He’s the same type that takes one to many drinks and crashes his car.  Throws one to many rolls and craps out. Lips off to the policeman one to many times and ends up in jail.

This type will always keep taking trades NOT because the setups are valid and warrant it, but because they never know when to say “that’s enough.”

He will be the guy that gets up for the day, but has to take “one more trade,” and gives it all back.  Being up 50K won’t be enough, because he could be up 100K, so he will push his positions and lose it all.

Not Understanding The Concept Of Risk/Reward

I knew a guy in college.  His standard move was, when drunk, he would climb to the top of the apartment complex he lived in off campus, and jump down into the pool in the center courtyard.  Everyone that was partying in the complex would be cheering as he stood atop the roof, egging him on for the big feat.  He loved this, as it gave him the distinction of being labeled a “party animal,” which was his “reward.”

Then one night he missed.  Came up a wee bit short. Smashed his foot into the edge of the pool as he came down.  Broke his foot and shattered his tibia and fibula.  That was his risk.

He still walks with a limp to this day.  He didn’t really understand the concept of risk/reward, but hey, all his drunk college buddies did think he was cool.

Those with this character flaw are made mince meat of in the markets.  They will take on three, four, five units of risk for one of reward.  When you practice this inverse risk/reward relationship you can be right on 80% of your trades and still blow your account out.

Being Afflicted With The “Babe Ruth” Syndrome

Everyone knows The Bambino was a home run king.  The mythical figure who pointed his bat skyward, picking the exact spot where he would crush a dinger for little orphan Timmy before he succumbed to rubella.

But “The Babe” was also the strikeout king.  Of his at bat outs, 24% of them were strikeouts. The average batter of his time only struck out 12% of the time, meaning Ruth struck out twice as much as his contemporaries.  It was all or nothing.  Home run or strike out.  Sydney or the bush.

In baseball you can get away with that, but in the markets you can’t.  You build your success with singles and doubles and if you are lucky, the occasional home run will pop up, but if that is all you are shooting for, you will in all likelihood have too many strikeouts.

Those strikeouts will deplete your capital until you will get to the point where you can no longer play in the game.

In Conclusion

Like Rigo I try to be a gentleman whenever I talk to people about trading, making sure to treat everybody with the same respect, and never disparaging them, even if my gut tells me that they possess one of  the previous traits.

If you possess one of these traits and are thinking of learning to trade, it’s best to seriously consider if this is something you are willing and able to change about yourself, or you risk having a very rough time in the markets.

 

Green Day’s Billie Joe Explains What “One F***ing Minute” Means

At Friday’s “I Heart Radio” festival in Las Vegas, Billie Joe Armstrong of Green Day didn’t like it when the producers cut their set short in order get Usher on.  Here is his live “punk rock” reaction to that.

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).  Check out “The Best Of bclund” to get started.

The 100 Percent Accurate Trading Newsletter

This past weekend I was in Colorado for my first ever public speaking engagement and I was fortunate enough to be able to bring my family along.

We visited Boulder, the town of Estes Park, and spent the day in the Rocky Mountain National Forest where I learned a very important lesson.

If a hiking trail says that it is .5 miles long…….and you have a three and six-year-old with you…..it really translates into about 3,423 miles.  Let’s just say I heard the phrase “Daddy can you carry me” a lot.

In many ways this trip was like coming fully circle for me.  Almost forty years ago, when my sister and I were about the same age as my kids are now, we piled into an orange Volkswagen Bus with my parents and embarked on a cross-country trip that ended up in Colorado.

This is the same VW Bus that many years later I had my first sexual experience in, and then had a second sexual experience in, but then later learned at my 20 year high school reunion that that second sexual experience didn’t actually happen.  The subject for another post and perhaps some therapy sessions, but I digress…..

After my speaking engagement was over, I hung out in the lobby area for a while answering questions from some of the attendees.  One lady in particular was telling me about a trading newsletter that she was thinking of subscribing to.

She explained that she had gotten an email solicitation from a company that put out a newsletter each week that gave you their one “special pick” based upon a “proprietary algorithmic system.”  And they even offered full six-week free trial period so that you could see how accurate the service was, so there was no risk.

I was about to go into a sanitized version of the anti-systems rant from my post “The Nexus Between Trading Systems And Ron Jeremy,” but she cut me off.

“….no, you don’t understand.  Every week for the last six weeks their pick has made money.  Every one.  It has been one hundred percent accurate.”

I could see on her face that she thought she had found the Golden Goose.  The Holy Grail.  The Keys To The Kingdom.  The Cache Of Meth Buried Beside The Train Tracks.

I hated to burst her bubble, but what could I do?  First I asked her two questions; do they give both long and short picks and can you subscribe monthly?

“Yes, their picks can either be short or long, but they only let you subscribe on an annual basis,” she answered.

BINGO…..!!!!!

“And how much is that annual subscription,” I asked.

“It’s $995.00 for the year, but that’s less than a hundred dollars a month,” she replied.  “You could pay for the whole year on just one of their picks.”

That’s when I told her that I was pretty sure that she was being scammed.  She protested, how could that be since they had been one hundred percent accurate for six weeks in a row?

I then explained to her what the “A/B” stock scam was.

In days past this scam was only limited by someone’s bankroll because it involved buying up names and addresses and then physically mailing solicitations to potential marks.  Nowadays with the invention of the internet and email, it doesn’t take much money to pull this off at all.  Here’s how it works.

Get a database of names, let’s say fifty thousand of them.  You then send them an email on Saturday evening talking about your “amazing system” built with “proprietary algorithms” by the children of former Nazi-rocket scientists.

You tell them that they don’t have to risk a penny and that you will give them a month, or six weeks, or whatever amount of free trial to verify the accuracy of their system.

Then you give then the first “pick.”  It goes something like this…

“We believe $IBM is in a strong position and blah, blah, blah, and look for it to be up for the week.”

But of course you only send it to twenty-five thousand on the list.  The other twenty-five thousand get something that says….

“We believe $IBM is in a WEAK position and blah, blah, blah, and look for it to be DOWN for the week.”

At the end of the week if $IBM is up you delete the “$IBM down” email recipients from your database.  Then you send half of the “$IBM up” email recipients a note saying…

“We believe $AAPL is in a strong position and blah, blah, blah, and look for it to be up for the week.”

The other half gets the, “We believe $AAPL is in a WEAK position and blah, blah, blah, and look for it to be DOWN for the week,” email.

And so on….

You keep eliminating the half of the list that gets the wrong pick that week, until the free trial runs out.  But by this time those that are left are ready to mortgage their house and kids to subscribe to your service.

Of course you only offer annual subscriptions, and once the money is collected, well the market is a unpredictable bitch-goddess and you never said there were any guarantees, right?

I have to give this lady credit though.  After I laid out the case she laughed about it and thanked me for explaining it to her and “letting her down gently.”

Not everybody reacts that way, and over the years I have had many people insist that I was wrong. Ultimately most ended up not just losing their subscription money, but even more on bad stock picks that were probably generated by no more than the flip of a coin.

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).  Check out “The Best Of bclund” to get started.

10 Thoughts That Went Through My Head Just Before My First CNBC Appearance.

CNBC was nice enough to have me on as a guest on yesterday’s “Tomorrow in 30:” segment on the “Closing Bell with Maria Bartiromo.”

I admit I was a bit apprehensive about doing my first ever live television shot, but that increased to “nervousness” once I saw the setup at the studio.  It was literally the definition of “flying blind.”

The were no monitors at all.  Not of me.  Not of the host.  Not of the guests.  I was in a darkened room with only two diffused spotlights directed at me and an audio feed in my ear.  There wasn’t even one of those red lights on top of the camera to tell you when you were live.

Suffice to say my mind was racing with all sorts of thoughts as the countdown to Maria saying, “Brian, you’re up.  30 seconds on the clock, what do you want to look at?” commenced.  They went roughly like this….

10 seconds……Hah, now all my prom dates will definitely be sorry they didn’t sleep with me.

9 seconds……..Only 3,564 more appearances before I catch up with that damn Josh Brown.

8 seconds……..Hmmm, perhaps I should edit out the “I’m getting long wood, ya know, lumber…” joke from my spot.

7 seconds……..Note to self, try not to say “Shitty Bank” while on air.

6  seconds…….How long until a producer comes in yelling, “wait…wait,  he’s just a loud-mouth with a blog.  Cut, cut…..good God CUUUUTTTT…!!!!!”

5 seconds……..I wonder which the viewers will vote as more distracting, my big nose, large forehead, or Dumbo ears?

4 seconds……..Can Snooki ever really find true happiness without a man in her life?

3 seconds……..I’m starting to relate to the “sweating scene” with Albert Brooks  in “Broadcast News.”

2 seconds……….Did they really think they could swap Dick York out for Dick Sargent and we wouldn’t notice?

1 second………..What the hell was I going to say again????


I have to dock myself points for bad enunciation, “winking” at the camera, and not being more dynamic.  I think it rated a “C+.”

If there is a “next time” I’ll know the routine and hopefully turn in a better performance.

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).  Check out “The Best Of bclund” to get started.

What You Can Learn About Trading From Playing Football

When I was a junior in high school I played on a football team that was ranked number six in the nation in USA Today’s pre-season poll and had three potential All-American’s.

I say “play” in the broadest sense of the word.  I was on the team (because we had a “no cut” policy), did all the practices and scrimmages, but I never set foot on the field at any time when the game clock was actually running. I  was however “the bomb” in pre-game stretching.

Football was a HUGE mistake in my life, and I have covered the way in which I ended up on the team in a previous post.  Basically what playing football meant to me was being on the “dummy” squad that ran plays against the starting lineup in practice.  The term “dummy” refers to “tackling dummy.”

I remember the first time I lined up with the dummy “D” against the first string offense.  They were running a “sweep left” play, where the far side guard would “pull” down the line to the left, kicking out the defensive end and creating a hole between the him and the tackle for the tailback to run through.

There were two major problems with this situation as I saw it.  First off, I was the one hundred and sixty-five pound defensive end. But more troubling was the fact that the guard that would be pulling down the line to “kick” me out, was Andy Sinclair, one of the six-foot four, two hundred and seventy-five pound All-American candidates I talked about before.

Andy had always been a big kid.  He was one year ahead of me and I had been acquainted with him since I was in first grade.  The funny thing about Andy was that even though he was always the biggest kid in his grade, (or the three grades ahead of him for that matter), he was really a nice guy.

I never saw him bully anyone and I even remember him occasionally stopping fights.  My interaction with him was limited to him asking me if he could have my lunch.  Not all my lunch mind you, just the vegetable part under the tinfoil that seperated it from the main dish in the our school’s hot lunch.

Like I said, Andy was a nice guy and never pressured or threatened me for my lunch.  I just wasn’t much of a vegetable fan back then so I gladly let him have them, unless it was something I liked like corn, and then I would politely decline and Andy would just go on his way.  Even back then he was trying to bulk up for ball.

That was about the extent of my relationship with Andy over the next ten years, and I didn’t think it would cut me any slack in our upcoming “confrontation.”  I decided that my only option was to go at him as hard as I could, putting my faith in that completely nonsensical football cliché’ that goes something like “you only get hurt when you give less than 100%.”

I set up off the line of scrimmage, getting ready for my certain death.  One of the line coaches, knowing I would be the focal point of the play yelled, “Give us a good look Lund,”….whatever the fuck that meant.

“Forty-two, sixty-eight, hike, hike…HIKE!

With that the ball snapped and I charged towards the backfield.  Andy was coming down the line at full speed, his trajectory firmly locked on me.  I closed my eyes at the last second, sure that my next memory would be one of waking up in the training room to the pleasant scent of smelling salts.  But then something unexpected happened.

Andy grabbed me my jersey, smoothly posted me up, and gently walked me back out of the play.

I was alive, but still not sure what had just happened.  Was this karmic payoff for all those vegetable offerings or had Andy realized that he could crush me at will and had nothing to gain by proving it here in practice?  I assumed it was the later.

Either way a great relief came over me and I started to relax.  Until three plays later.

Same play.  Sweep left.  Right guard pulls and kicks out the end.

As the ball was hiked I ambled into the backfield, and waited for Andy to come down the line, ease up, and walk me out of the play.

I’ve always been fascinated by the stars.  The way they sparkle and shine is a mysterious tease as to what lies out there in the depths of the universe.  Problem is, they’re not supposed to be out in the middle of the day.  However I was definitely seeing them, lots of them from my vantage point laying flat on the ground.

For some reason unknown to me, Andy had changed plans and cleaned my clock on the play.  I thought I had him down.  I thought I knew what he was going to do.  I thought his actions were going to be predictable.  I was wrong.

For the rest of the season I lived in semi-terror, never knowing “which” Andy I would end up seeing as he steamed down the line, headed straight for me.

In the markets you often hear traders talking about “getting to know” their stocks, and it’s true; certain stock do exhibit a “personality” that can be exploited to your benefit.  However, if you get too complacent, sure that you know the traits of a stock, and that it will always adhere to those traits, you will be setting yourself up for disaster.

You never know what you will get from a stock once you are in a trade, and your only defense against “seeing stars” is to make sure you have a pre-determined, objective risk level set.

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).  Check out “The Best Of bclund” to get started.

My Most Irrelevant Post Ever…..

I recently started writing a weekly “analysis” type column on TraderPlanet.  Wednesday night I submitted the following post which became irrelevant before the first hour of trading was done on Thursday morning….

Have Some Warm Milk And Wait Out The SPX Flag

In this day and age of information overload scientists estimate that we get hit with a new piece of information every seven seconds on average. Okay, I just made that up, but here’s my point.

We are exposed to so much data at such a rapid pace that we rarely get a chance to fully process it, which ultimately causes our attention span to narrow dramatically.

It changes our mindset to one of “resolution now.” Of instant gratification. Conclusion before the commercial break, because we sure as heck can’t wait til next week’s episode.

MARKETS ARE DIFFERENT
But that’s not how the markets work. Despite the ADHD nature of day trading, the macro trends that move the broader averages still take time to work themselves out. However a large number of traders I’ve talked to lately lament the fact that the market, represented by the SPX, didn’t break into new highs in mid-August.

LOW VOLUME FLAG
But it’s okay, because the market is doing what it is supposed to do. Flagging in a tight range, with low volume, below a resistance level that goes back to March of 2008 is healthy action.

SPX_Flag.png

IT JUST TAKES TIME
A break of the March highs straight up from the June lows would have most likely failed because there would not have been enough time to properly digest the move. It would have been even more suspect if broken during the traditionally slow summer months.

As long at the consolidation stays up at this level there will be no need to ring the warning bell. And it may in fact take until after the November elections until we get some resolution in the markets to the upside.

Until then have a warm glass of milk or some Adderall and just relax.

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Are You Making Your Trading Too Complicated?

I never did like my best friend David’s ex-wife.  I don’t know what it was about her that rubbed me the wrong way, but out of respect for our friendship I never mentioned anything to him while they were together.

Eventually, after twelve years of marriage and one child, she decided that she wanted a divorce.  It wasn’t because my friend had cheated, or failed to provide, or wasn’t a good father, it was that according to her, he had “changed” and had become “distant” in the previous two years.

When I heard the news, even though I did not like her, I tried to stay objective and think back two years to see if I could remember any specific event that might have caused the change in my friend’s demeanor that she was claiming.

He didn’t have any job changes or any trouble at work that I was aware of at that time.

I couldn’t remember any issues with his son back then, who had always been a good kid.

And though not a rich man, his finances were always stable and he was reasonably comfortable in the best upper-middle class sense.

Oh, wait a minute….maybe it was when he found his older brother dead on the bathroom floor at his parents house in the middle of their family’s Thanksgiving celebration?  Hmmmm….yeah, that could have been it.

David’s older brother Brian was a miracle baby who was plagued with serious heart troubles from birth and was never expected to live past childhood.  However after numerous surgeries that left him with a collection of scars across his chest, he had not only survived but thrived, becoming a school teacher and living as normal life as anyone else; until one fateful morning.

As generations of family and friends talked and laughed at his parents house, looking forward to Thanksgiving dinner later that evening, Brian excused himself to use the restroom.  About twenty minutes passed before somebody asked, “Where’s Brian?”

A casual search began to turn slightly more tense when it was realized that he was still in the restroom.  After knocks on the door and no response to the panicked “Brian, are okay in there?” question, my friend broke the door down, only to find his brother lying on the floor…dead.

He tried frantically to resuscitate him, but it was too late.  He was gone.  The coroner later found that Brian died instantly which he described as “just like flipping a light switch off.”

I don’t know about you, but that could put me in a “distant” state of mind.

Problem is, his ex did in this situation what she always did in every situation; made it more complicated than it needed to be.

I once went to dinner with the two of them and both she and I ordered a garden salad. The salad came stacked in layers; bed of lettuce at the base, then tomatoes, sliced carrots, onions, radishes, and on the very top peak, mushrooms.  It was served “dry” with the dressing on the side in a boat.

I don’t like mushrooms so I took my fork, lifted them off, and put them on the side of my plate.  David’s ex apparently didn’t like them either, but she chose a different, more complicated solution.

Holding the plate up as if it was radioactive and with a look on her face like Mike “The Situation” Sorrentino had just peeled his tank top off after a particularly sweaty workout, wrung it into a glass, and asked her to take a swig of it, she looked at the waiter and said, “I don’t like mushrooms.”

So now the waiter had to take it all the way back into the kitchen, pretend that they were making a totally new salad (when in all likelihood they were probably just doing what I did), and then bring it back out with the requisite genuflecting apology.

Complicated….!!!

The best part though was that as she was in mid-digust and handing the plate back, she glanced over at me and saw me simply moving my mushrooms to the side.  When our eyes met I admit I did give her my best “what a complete idiot” look.

So after sensing some “distance” from my friend following the annoying fact that his brother checked out without warning during a family function, did she do the simple thing which would have been to talk to David about it, and find him some help if he needed it?  Nah!

Instead she began a two-year affair with a married father of three (with one on the way), whom she described as her true “soul mate,” which apparently translates as “one you go down on in a car parked in back of 7-11 after you drop your kid at school.”

Complicated…..!!!

Every day I see new and even experienced traders who try to make trading more complicated that it needs to be, and their P&L suffers because of it.  They use multiple monitors, multiple programs, and a half a dozen or more indicators, 99% of which are all based on price and volume.

Complicated….!!!

I don’t begrudge those who are successful with complex setups and strategies, but for the vast majority of us who are not running the quant desk at Goldman Sachs, simple is better.

Some of the best traders I know only use one or two monitors at most and focus on price, volume, support/resistance levels, a few core patterns, and perhaps an oscillator thrown in for confirmation.  After that it is all about proper sizing and trade management.

If your trading returns are less than you hope for, the first thing you should do is strip down your system to the basics; price and volume.  Then look at your indicators and studies to see if you really need them all or if they are just causing you distraction. Check out of all the patterns you trade, and determine which ones show the highest reliability.

Then throw the superfluous things away and keep only what you need and what works.

And remember that the money you make in the markets is no more valuable if you make it in a “complicated” way than if you make it in a “simple” way.

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Time Is Killing My Little Girl

I have no right to do a post like this, because I am the luckiest guy in the world, and I know it.

There are parents who have experienced unspeakable loss that would give everything they have to get back just five minutes of what I get twenty-four hours a day.  I should be ashamed to write this post; to be the guy that complains about having to pay taxes after he wins the lottery.

But lately I can’t get over the feeling that I am losing my little girl.

The little girl that I never wanted.  The little girl that I was afraid of having.  My little girl, who gave the ambling, vapid, pointless, “too-cool-for-the-room” life I lived a purpose and a point the moment she came into this world.

I am terrified that she is dying, and not in purely figurative terms.

Last week I awoke suddenly in the dark morning hours with a terrible realization that the little six-year-old girl sleeping peacefully in the next room would someday cease to exist.  She would be gone.  Lost to the movement of time, with only digital remnants and memories of her left behind.

Yes, God willing she will still continue to grow and thrive, remaining as full of life as she is now.  I will still have that eleven year old, or sixteen, or twenty-one, or thirty year old to hug and hold.  But though I will love each one of them with every ounce of my being, I fear they will never fully soothe the loss of my little girl.

The little girl singing to her favorite song while doodling at the kitchen table.  The little girl who yells “daddy’s home” as she runs towards me to deliver a hug that negates the hardest day.  The little girl who still thinks I am the greatest person in the world and can protect her from anything bad.

I love that little girl so much.  I don’t want her to leave.  I don’t want her to go.  But I know she will.

Too many things are out there conspiring to “kill” her.

First Communion.  Nail polish and pierced ears.  Mean girls.  School dances.  First loves.  First broken heart.  They will all take a part of my little girl away from me.

As a child I hated the first day of school more than anything else.  It meant the end of carefree summer days, family vacations, and staying out til the street lights came on. But after high school it became irrelevant to me as the realities and responsibilities of adulthood took center stage.  I have learned to loathe it again.

It now signifies another year lost in my daughter’s childhood.  Another step closer to hearing things like “I am taking to the car out,” “he only has two piercings,” or “yea, I got accepted,” when reading a letter from that out-of-state college.

People tell me that this is part of “the cycle of life,” and that “growing up is a marvelous adventure,” and though factually right, it still does not relieve me of the urge to punch them right in the nose.

The worst thing about this all is that I haven’t been able to slow time down anymore.  It’s just been moving too fast.

When she was still a babe in arms, those days seemed to go on forever.  They seemed as if they would never end.  I felt so present, so lucid, so “in the moment” during those times.

Today we went to the park to fly her kite and I tried to slow each moment down, in a desperate attempt to grasp on to something I have no right to posses,  yet I couldn’t. All I could do was feel time slipping through my hands as I watched my little girl “die.”


Then something hit me like a ton of bricks and made me feel foolish.   I realized that I have been so focused on “losing” her lately that it has prevented me from fully embracing the time I have left with her as my little girl.  To lose this part of her life is sad but inevitable.  But to have “missed out” on any of that precious time due to my own emotional fatality would be inexcusable.

There is a moment in life that I call the “Golden Time.”  What that time “is” has varied for me over the years depending on what stage I was at in my life.

At one point it was the time between 5:00pm and 8:00pm on a Friday night when the work week was done and I could play my drums for three hours straight, while pounding a six-pack, before heading out to the bar with friends.

At another point it was before I had children of my own, when my god-daughter and her siblings were young.  My wife and I would go to my in-laws, where they would already be, and I would play with them in the cul-de-sac as we waited for dinner to be ready.  As the summer sun would set over the top of the neighboring houses, it would give off a light that seemed to envelop the scene with a magical warmth.

I have had so many “Golden Times” with my daughter I can’t count them all.  They have all come naturally and without effort.  But now I realized how important it is that I “make them” whenever I can, for as long as I can, with my less and less little girl.

So I stopped thinking.  I stopped worrying.  And I stopped fearing.  I went back to just “being” and scooped her up onto my shoulders.


I closed my eyes and listened to her voice and to the sound of the kite flapping in the wind.  I felt the sun shine down on us and the joy the moment brought me.  I was once again “present.”  I was able to slow time down again.  I was in the “Golden Time” with my little girl once more.

Her brother is just three.  He still seems like a babe, especially compared to his older sister, and it is easy now to think he will always be my little boy, though I know that is not true.  I need to remember what I have learned with my daughter so I don’t waste one moment of his childhood worrying about the “death” of my little boy instead of making all the time with him as “golden” as it can be.

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