This time of year is very special to me and when I was just a little trader I used to love the annual holiday tradition we had at our prop shop.
We would all gather round the warm glow of the quote screens and listen to the head of Risk Management tell us wonderous stories of “The Great Compensation Committee” located far back East, and how each year they would bestow fantastic gifts on deserving traders.
At the end of the evening we would join hands and sing this, my favorite trading carol.
(Sung to the tune of “Enter Sandman” by Metallica).
On the 1st day of trading the markets gave to me, a spike from high frequency
On the 2nd day of trading the markets gave to me, two blow off tops, and a spike from high frequency.
On the 3rd day of trading the markets gave to me, three missed fills, two blow off tops, and a spike from high frequency.
On the 4th day of trading the markets gave to me, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 5th day of trading the markets gave to me, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 6th day of trading the markets gave to me, six Goldman upgrades, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 7th day of trading the markets gave to me, seven rogue traders, six Goldman upgrades, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 8th day of trading the markets gave to me, eight flash crashes, seven rogue traders, six Goldman upgrades, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 9th day of trading the markets gave to me, nine false breakouts, eight flash crashes, seven rogue traders, six Goldman upgrades, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 10th day of trading the markets gave to me, ten pumping analysts, nine false breakouts, eight flash crashes, seven rogue traders, six Goldman upgrades, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 11th day of trading the markets gave to me, eleven anchors rambling, ten analysts pumping, nine false breakouts, eight flash crashes, seven rogue traders, six Goldman upgrades, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
On the 12th day of trading the markets gave to me, twelve double baggers, eleven anchors rambling, ten analysts pumping, nine false breakouts, eight flash crashes, seven rogue traders, six Goldman upgrades, five boooo-yaaaaahs, four phantom bids, three missed fills, two blow off tops, and a spike from high frequency.
Here’s hoping that you and your loved ones have a great holiday season.
The phone rang. It was 2:17 in the morning. It’s never a “good” phone call at 2:17 in the morning.
For almost a week I had been expecting this call, but some part of me was hoping that it was a wrong number. Perhaps my roommate’s ex-girlfriend drunk dialing him after the bar closed? However it was a Wednesday, so that was a long shot.
When I answered, the voice on the other end of the phone was the one I most feared, my mother’s. Her normally stoic nature was absent and all I could make out was, “your father is gone.”
“I’ll be right there,” I replied.
I threw on some clothes and ran down the stairs to head over to my parent’s house. I remember thinking how cold it was when I got in my car, even for December. I remember thinking that the place I was going to was no longer my “parent’s” house, plural. Now it was just my mom’s house, singular. I remember thinking that I was now one of “those” people. You know, the people who get spoken about at parties.
“Did you hear what happened to Brian? His father died of a brain tumor. Only 47 years old.”
“Oh, I have no idea what I would do if something like that happened to me.”
But it did. It did happen to me.
I know now as a father myself, that the worst pain in the world would be to lose a child. But at twenty years of age, I didn’t yet have that perspective on life.
Back then the worst pain I could imagine would be losing the person you loved most in life. The person you looked up to. The one who protected you when you were frightened. The one who taught you how to fish, to throw a baseball, and to charm your mother when she was mad at you.
That was my dad. And now he was gone.
There is an age-old debate about whether it is best to go “quick,” or “slow.” The consensus is always that “quick” is the best. But here’s a secret…it depends on who is answering the question; the victim, or those they leave behind.
There was nothing unspoken between my father and I. He regularly told me that he loved me and I told him the same in return. There were no long simmering grudges or stretches without speaking that needed to be reconciled before his final exit. If he had died suddenly, in a car crash on the way home from work, it would have been cleaner. Neater. More dignified, certainly for him.
But the fact of the matter is, no matter how tough it was on him, I was glad to have him for those eighteen months in which I knew he was going to eventually die.
I used to feel guilty when I thought about this. How could I be so selfish? Those last months were hard on him as the tumor began to shut down parts of his body and mind day after day. What sort of non-caring, narcissistic person would want his own father to linger on in that state just to stave off his own fears and insecurities of a life without him?
With no kids of my own, I often assumed he would have rather gone quick if he could have. But now, as a parent myself, I know that that wasn’t the case.
If, God forbid, I was ever diagnosed with a fatal disease, I would put every ounce of my being into staying alive as long as I could. I would endure any amount of discomfort or suffering in order for more time with my children. A year. A month. Even days or hours would be worth any pain I would have to endure.
I would want every precious moment I could grab in order to help ensure that my children were that much closer to being able to live and prosper on their own after I was gone.
Back in 1985, if you lived six months past the time you were diagnosed with a brain tumor you were considered “lucky.” I think the reason my father tripled that “lucky” number was because of me and my sister. I think he felt then just like I feel now. I don’t think he regretted one extra moment with us, no matter how much he suffered.
I always carry my father’s spirit within, but at times he feels like a ghost to me. A fleeting vision or dream of a time that never really existed. I can see the man who was my father in the yellowing photos of camping trips, soccer games, and birthday parties past, but they don’t connect with me like I think they should.
In the world we live in today everyone has a video camera in their purse or pocket, but I feel somewhat cheated that there are only fourteen seconds that exist of my father on film.
Just fourteen seconds of a random video my aunt and uncle shot on their visit here from Australia. If it wasn’t for them being 1985’s tech version of “first adopters” there might not be any moving images of him at all.
This video was shot just months before he had the seizure that first alerted us that the clock was ticking on his time left on Earth. Though my mother naturally is “dominating” the conversation, he is very quiet in the video. Too quiet. Uncharacteristically quiet, focusing his attention on my young cousin instead of joining the conversation. I often wonder if he had any clue at that moment that things were not right?
Were there any pains in his head that woke him in the middle of the night? Did he begin to forget things he should know? Was there an inner sense in him that something was wrong? It’s a question I will never know the answer to.
In the months and years that passed after he died I would feel extremely guilty if I had a day where I was happy. Or a day where I didn’t think about him for a few hours here and there. I thought that that meant that I was forgetting him, or that I wasn’t missing him like I should.
Then one day it hit me. It was the cliché’ of all cliché’s but somehow it rang so true. I realized that my father, being the type of person he was; happy, outgoing, friendly, funny, warm, and loving, would not want me to cry over him. He would want me to live my life. To take all the best parts of him and make them part of me. He would want me to remember him, but to move on with my life.
I have tried to do that in the years since he left me as a very young man, unsure about myself, my life, and my future.
A quarter of century is a long time. I have lived more of my life without my father than I did with him. And sometimes I wonder if I have moved on too much.
In the last few years, as my daughter has gotten older she has begun asking me certain questions like, “where is YOUR daddy.” I have explained to her best I could about my father, who he was, and why he is not here with us. With the godsend that is youthful naiveté, she has only soaked up the joy of his story and not the sadness of his loss.
And for some unknown reason, instead of “Grandpa Kelly” he has become “Uncle Kelly” to her. And when her school had a project where the children brought a picture of someone in their family who had “gone to heaven” she brought a photo of my dad.
The other day she asked me if we could go to see where he was buried. Taken aback a bit I asked, “why do you want to do that?”
“I just want to remember him,” she replied.
“Remember him?” I said.
“Yes. I want to remember all the times when he played with me when I was a baby. And all the fun I had with him.”
“But sweetheart, ‘Uncle Kelly’ died a long time before you were born,” I explained to her. “You never got to play with him.”
“Oh,” she said pondering my statement for moment. “But I just want to go there and think about him daddy. It that okay?”
“Yes,” I told her as I held back my tears. “Yes, that is okay. That is very okay. I want to think about him too.”
I have been pounding the table for a few weeks in my Monday “Trade Ideas” posts about $TEX. Everything about the setup looked great from a swing trade standpoint.
And if you have followed me for any amount of time, you know I have written about how traditional patterns in the market can be distorted and that you have to account for that in your trading (see “How To Place More Effective Stops”).
So why is it that I got shaken out of my $TEX trade last Thursday and missed the move that I had been predicting would come?
Because I was swing trading with a day trader’s mentality.
At the risk of putting too many links in the first 150 words of my post; I recently wrote about how I am transitioning back from a day trading style to more of a swing trade style, but I obviously haven’t completed that process yet. Let’s go to the tape.
Here is the setup I was looking at; $TEX coming out of a nice large down channel, where I got long. Then it even got better as a small consolidation area formed, which gave me an objective stop level.
But the trouble began when the stock tried to break out above that resistance and was turned back, creating an inverted hammer. This was a potential “failed breakout” and I waited til the next day to get confirmation.
Confirmation did come the next day, however here is where I made my mistake. I sold when the stock was at the low of the day, instead of letting the day finish out. Of course price came right back up and formed a red hammer, just below the breakout point.
And thus the painful part. $TEX broke out the next day and continued with a beautiful picture perfect follow through today. Ouch!
The problem with this trade is that I reacted too quickly, a la day trading.
Even at the low of the day when I sold out I was just a hair below break even. Now if the stock had been at that low going into the close I would have probably been justified in selling out there, wanting to avoid a possible gap down the next morning.
But intraday I could have, should have given it more room.
Normally I would inset some sage advice to myself here, but this time I think I will skip it, as I need to find a fiscal cliff to jump off.
This week I want to tell you about an amazing trading blog that those of you who are trying to take their skills up to the next level should definitely check out.
It’s written by an experienced trader who does a nightly recap of each of his trades, meticulously deconstructing them in order to give you a contemporaneous view of what he was thinking at the time.
He details not only his stock selection process, but his setups, his entries, his trade management, and his reasons for exiting the trades when he did.
But one of the best things about his blog is that he is willing to share his knowledge with anybody who asks, and is always open to answering questions about his trades and analysis, both in the comments section and via email.
I know that many of you right now are waiting for me to give you this blog’s URL so you can check it out, but first let me tell you something that I recently discovered about the author.
He’s not really trading. He’s just pretending that he is.
Do you still want to know the URL for the blog? No? Well you should.
I’m going to let you in on a secret. A lot of people who claim they are trading in the blogosphere and on social media really aren’t.
To which I say, “so what?”
Long before trading blogs became ubiquitous across the web I used to religiously follow the blog of a guy named “Trader X.” His specialty was in trading gap stocks, and he was the best at it.
Every night I used to go through his posts and match them up with my own charts. I would study the setups, his risk/reward criteria, and his trade management rules. Often I would ask him to clarify or expand on a trade he had illustrated, and he was always gracious enough to do so.
After a number of months someone emailed me and told me that they were positive that Trader X wasn’t really trading, and that he was just cherry picking trades after the market closed and analyzing them as if he had traded them.
I was aghast. I was incensed. I was angry and upset. Oh, and I was able to trade gaps pretty damn good.
Wait, what was that? Oh, yeah, I had become pretty good at trading gaps, apparently by studying the analysis of a guy that wasn’t really trading.
That’s when I first realized that it didn’t matter if the author of trading advice really traded or not, anymore than it mattered if they were short, tall, male, female, ugly, or beautiful. All that mattered was if the content that they put out was of value.
This is a good point to remember as you wade through the noise that we are all bombarded with each day when it comes to the markets and trading. Don’t waste your time getting involved in guessing games, trying to divine who is REALLY trading and who isn’t. It’s pointless and serves no purpose.
Find and follow those out there who produce good content on a consistent basis, that you can relate to, and that helps improve your trading, and let others spend their precious time going on “witch hunts.”
Recently I have really gotten into the series The Walking Dead. I love the story lines, the character development, the imagery, and most of all, the plot twists.
But even as the dynamics of the series change on a weekly basis, there is this overwhelming, foreboding feeling I get, that at the end of the day when the final episode is aired, everybody gets wiped out. It just seems inevitable.
That’s what I feel is going to happen to the masses of $AAPL perma-bulls out there. They are the walking dead, but they don’t even know it.
This multi-year run in $AAPL is more than long enough to teach a whole new generation of Kool-aid drinkers that “buy-the-dip” is the best way to make money in the stock. They are convinced that no matter what happens to the markets, or to other stocks, “that won’t happen” to their beloved $AAPL.
They make the iPhone….remember?
But those that have been in the markets for longer than it takes to get a college education know that the music will stop eventually. It always stops. And when it does, those without a seat are going to get their heads handed to them.
And the thing is, it won’t even take a massive haircut in the price of the stock to wipe out the $AAPL infected. Margin will wipe out most of the faithful $AAPL bulls. The pattern is always the same.
Buy the first dip using SOME of your capital. Buy the second dip using ALL your capital. Buy the third dip using SOME of your margin. Buy the fourth dip using ALL your margin. You never get to the fifth dip. Those of you who are already on full margin in $AAPL and were down 10% today at the lows know what I am talking about.
I think we have thoroughly covered the topic of my “dorky” youth, but in case I haven’t publicly flayed myself sufficiently on that subject, read on.
When I was in high school I always got “nervous” around the time of school dances. In order to attend one of those satanic social events I had to actually go up to a girl, mumble something about going with me, and then hope that not only didn’t she say “no,” but also refrained from throwing rotten eggs at me in the middle of the quad while screaming at the top of her lungs…
“Can you believe this dork asked me to the dance?”
And why was it so nerve-wracking for me? Because I had built the event up to ridiculous proportions in my mind by asking a question with no context.
The question I was always asking myself was, “Does she like me?”
But what does that question mean? Does she like me enough to go steady? To marry me? To have sex with me? It’s silly because those weren’t even options I was looking at (although the “sex” one would have been just fine).
All I wanted to do was get a date for the dance, so the question I needed to ask myself was, “Does she like me enough to go to the dance with me?” And of course the answer to that question was generally “yes.”
Last week I was watching the market action in $AAPL and I found a spot where it looked like it needed to hold resistance so I tweeted my thoughts out….
It did in fact bounce in that area and instantly I became the $AAPL guru du jour.
Phone calls, letters, and even a proclamation from President Obama came in congratulating me on my fantastic ability to look at a support area on a chart and ubiquitously tweet about it.
Now that I was the “axe” in $AAPL for the day I then got this tweet (shown in text to protect the innocent).
“Hey Brian, what’s your target on $AAPL?”
I didn’t have an answer to that question because not unlike in my wacky high school dance analogy, the question that was being asked was the wrong one. One without context.
What’s my target for $AAPL in the next five minutes? Thirty minutes? Day? Week? Month? Quarter? I wasn’t even trading $AAPL, I just pointed out where it needed to hold, so I didn’t even have a target in mind.
But this type of generalized question and others like it get asked all the time by traders.
The market is by definition dynamic, ever changing, and moving in multiple time frames and dimensions simultaneously. It’s kinda like that Twilight Zone episode where the kid rolls under the bed and they can’t find her or that stupid 3D chess game on Star Trek.
You just can’t ask linear, non-contextual questions about the markets or stocks, because to quote Mr. Spock, “that would be fucking stupid, Jim.”
Ambiguous information in trading kills. It kills your trades. Kills you success and will kill your P&L because you can’t act on information that is too general. The more objective, the more in context, and the more specific your trading information is, the easier it is to act on, and the more it will benefit your trading.
So in order to get that actionable information, work to craft the questions you ask, both of others and of yourself, that illicit targeted and specific responses.
A better version of the question asked of me would be;
What are the next resistance levels on $AAPL?
What do you think a reasonable swing trade target would be on $AAPL?
Once you get in the habit of asking more focused questions about trading, you will find that they become second nature and an integral part of your analysis process going forward.