Have Some Perspective

I puked once during a losing trade.  It wasn’t like a full-on “too many shots of Jäger” puke, but more like one of those sick to your stomach, “I can hold it in, I can hold it in”, dry heave type of pukes.

Puking has no place in the world of trading.  It should be reserved for rollercoaster’s, twenty-first birthday parties, and State of the Union addresses, and it was a sign that I was way too emotionally invested, instead of being objective and dispassionate.

I couldn’t help it though.  Each losing tick of that trade was like a dagger to my stomach.  I wasn’t even losing that much money, but it seemed as if I was in a tail-spin that I could not pull out of.

My field of vision narrowed to the point where the only thing that I knew still existed anymore was my trading screen.  Like Billy Mumy’s character in the Twilight Zone, I had wished everything except that damn screen into the cornfield.

All perspective was lost on that trade. That trade had become my whole world and everything about me.  My value as a human being and my place in this universe was dependent on the outcome of that trade.

In retrospect it’s not surprising that my trading was out of control, as I was going through a tough period in my life.

I was recently married, imprisoned in a business I hated but was too afraid to walk away from, and my ultimate fear, having children, seemed to be coming towards me like a runaway freight train. All this was messing with my head and I couldn’t trade my way out of a paper bag.  Day after day I was making bad choices, ignoring risk management, and pulling my stops, and it felt like there was nothing I could do to change.

Then John Nutting died.

My first memories of John start right after my family moved into our brand new tract home back in 72′.  He and his family were “original settlers” as well, having moved in just a week before we did.  One day there was a knock on our door and when my dad opened it, there was John.  He explained that he was getting all the “guys” in the neighborhood together to help out on a project.

It seemed that when the movers delivered all their belongings to the Harker family down the street, they refused to move the piano into the house and had just left it out on the driveway. John reasoned that if all the guys put their heads (and backs) together, they could figure a way to get that sucker in.  That’s the type of guy John was.

I will never forget the wonderful scene I watched that warm summer day as my new friends and I rode our bikes around the cul-de-sac.  There had to be ten fathers standing around that piano, studying it with intent looks; each proposing options and methods of ingress.

But the best part of the show was how after all the grunting, and yelling, and sweating was done, a case of cold domestic beer miraculously showed up, and this newly formed “band of brothers” luxuriated in the afternoon shade, reveling in their Herculean feat.

My father liked John right off the bat, which is probably why I initially liked him as well. Like my dad he too was handy, and his garage was full of old radios, vintage bikes, and a 57′ Chevy, all of which were in various states of repair.

When you’re a kid you regard adults as if they are entities from another world. You can’t relate to them, and the more they try to relate to you, the weirder it gets.  But with John it never seemed that way.  As a kid, talking with him was like talking to a best friend; always a relaxing and easy endeavor.

A fixture in the neighborhood; if you didn’t see him on one of his twice daily jogs, or working on a project in his garage, you would inevitably run into him at the local supermarket where he was the manager.  He was always there to help, always there to lend a hand, always the embodiment of the concisely descriptive Yiddish word “Mensch.”

As I got older and moved away from my parent’s house I saw John less frequently. When I would go to visit, it was strangely reassuring though to drive by his house and receive the same friendly wave I had remembered since I was a kid.

After my father died, John always made a point of checking in on my mom to see if she was okay or if there was anything she needed fixed around the house.  My mother would talk to him on a regular basis, and on some level he became a proxy male presence in her life in all the best and most platonic ways.

One day in 2003, after forty plus years in the grocery industry, John had finally decided to retire.  His wife and he planned to travel the country in the new RV that was already parked in front of their house.  A large portion of that travel involved visiting his grown daughters and his numerous grandchildren of whom he spoke about with great joy.

One month to the day that he was to retire, John got a call from the manager of one of his company’s other locations wanting to know if he could cover his shift.  Always willing to help out a fellow employee John agreed.  He phoned his wife at work to let her know the change of plans and walked out the door.

Less than three hours later he was dead, lying in a pool of his own blood, with a samurai sword driven through his heart.

That morning a mentally deranged employee entered the store, spoke to the floor manager, then drew a sword from under his coat and in one stroke nearly decapitated her.

A fellow employee recalled at John’s funeral what happened next.

Customer’s and employees ran for cover as the swordsman looked for other victims. People were running away and those trapped in the store began to grab items off the shelves like trashcan lids and beach chairs to defend themselves.

John was in his office away from the initial attack, but came running out when he heard the commotion.  As he saw the killer chase after and wound other victims, he ran towards him trying to distract his attention, putting himself directly in harm’s way.

He tried to talk to him and reason with him but the attacker took his sword and ran it through John.

John died a public but lonely death.  There was no last kiss from his high school sweetheart wife.  No final encouraging words for his loving daughters.  No last press of a slight hand from the grandchildren he cherished so much.  All there was, was a cold steel blade robbing him of every moment he had ever lived or ever would live.

Perspective can come to us in both subtle and dramatic fashion.  John’s death brought it crashing into my life in a way that made me feel small and petty.

Just days before my head was “messed up.”  I was going through a “tough period in my life.”  I was “spinning out of control” and I was puking.  Why?  Because the red and green lines on my computer screen were not doing what I wanted them to do.

It’s easy at times to forget that this is what we are doing; trying to make money off the movements of the red and green lines on our screens.

And it’s hard on a daily basis to keep macro events like John’s senseless death in mind to provide us with perspective.  Our brains are not wired that way.  But without perspective, we often lose the context that keeps us balanced and reminds of this great gift called life, and the good things it has given us.

I try to remember that when I am at a light and see a man in a wheelchair cross in front of me.  Or when I read of the wife and child that a fallen soldier or policeman has left behind.  Or when I feel that I don’t have enough, when I have so much.

Although I still occasionally wring my hands or shout out a brief curse word when a trade doesn’t go my way; I haven’t puked ever since John’s death.  And the thought that I could have lost so much perspective that I once did, makes me feel silly and ashamed.

The Los Angeles Times Report On The Incident That Caused John’s Death

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(Note: If you are new to my blog, I post about all sorts of things.  Sometimes it involves something extremely personal, like creating a 30K baby or my Monster Trades.  Other times it deals with hot ex-porn stars who trade stocks.  And sometimes it’s about how to avoid “suicide”.  But a good place to start is The Best of bclund.  If you like what you read, please tell a friend.  If you don’t, please tell two friends.)

Making Trade Setups Come To You.

About once every five years, against my better judgment, I get roped into going to a professional baseball game with my friends.  I always rationalize how “it might be fun this time,” but sure enough, by the time we get to the fourth or fifth inning I am bored out of my mind.

I mean I can only put up with so much….

…..ball…..strike….step out of batter’s box…..foul ball……foul ball……throw to first to keep runner honest……foul ball……foul ball……naked guy on field…..foul ball….foul ball…….balk……

If I’m going to go to a sporting event it has to be something with some action, like hockey, or basketball, or curling.

Last season I ended up going to a Los Angeles Angels game, and just as I suspected, it was a snoozefest.

However one of the things that I have to admit was pretty cool was how the servers now come to your seat to take your order, and then deliver the food right to you.

In life we are taught from an early age that we have to go after what we want, and that anything worth having is worth is worth pursuing.  But sometimes it’s nice to just sit on your ass and have a mega-beer and a double jalapeño nachos placed gently in your lap.

Can you believe that this guy actually got up to get his food.  Hah….what a loser!!!

When trading, it can also be to your advantage to have setups brought to you instead of having to hunt them down.  By using the “Triple F” method, you can set up your watch list’s to do just that.

The first “F” stands for “filtering”, the process by which you take your macro list of stocks and bring it down to an actionable one.  This can be done with EOD technical and fundamental scans or by just visually reviewing charts one by one in order to find candidates that are approaching entry points.

The results can then be put into three different groups; day trades, swing trades, and long-term trades (or no setup).  Transferring over your day trade and swing trade lists to your real-time charting software then sets the stage for the second “F”, which is “focus.”

Here you can configure and organize your stocks in a way that will keep non-movers out of your way, and bring potential trade setups right to you.

Swing trade candidates by definition will usually be farther away from entry points than day trade candidates, and you don’t want them to get in your way until they are ready to go.  Set alerts on these stocks at 50 cents below your intended buys points, and then minimize the list so it does not take up valuable screen real estate.

Now focus on your day trade list.  Set alerts there as well, which will tend to be closer to entry points than those on the swing list, but also make sure to set your list to auto sort every 5-10 seconds.  If your software has the capability, you want to sort by the “% change in average volume” column criteria.

This will then constantly push stocks to the top of your list that have the highest increase in volume relative to their average, and volume is what moves stocks.  If you don’t have that column criteria available, you can just use “Volume” instead, which although not as effective, will still push movers to the top of the list.

You can now limit yourself to monitoring the stocks on your day trade list that are constantly being brought to the top, and forget about those at the bottom.  If any stocks on your lists get near entry points, your alerts will trigger causing them to automatically be loaded into your chart windows.  Setups literally are brought to you.

This gives you the freedom to watch the indexes or market barometers, monitor news feeds, or look for intraday setups without worrying that you will miss a potential trade.  This system works best when looking for breakout trades, long or short, but can be modified to work for trades off of pullbacks to support or resistance.

And the third “F”….well there isn’t really one, but the “Triple F” system just sounded better than the “Double F” system.


“….we don’t need no stinking (third) F.”

(Note: If you are new to my blog, I post about all sorts of things.  Sometimes it involves something extremely personal, like creating a 30K baby or my Monster Trades.  Other times it deals with hot ex-porn stars who trade stocks.  And sometimes it’s about how to avoid “suicide”.  But a good place to start is The Best of bclund.  If you like what you read, please tell a friend.  If you don’t, please tell two friends.)

How To Determine Overall Market Health: Talk To Your Dentist.

The market has been on a nice run lately and many people think that the worst of our economic problems are behind us.  In fact recently somebody told me that they were beginning to buy stocks “like crazy.”

The problem is, the person who told me that was my dentist.

There is an old saying that goes something along the lines of “when your dentist tells you to buy stocks, it’s time to sell,” (a variation on the “Time magazine cover” theory).

The concept behind this saying is that there always has to be a “greater fool” to sell your stocks to at a higher price in order to make money.  This greater fool is also referred to as “dumb money.”

Your dentist’s day is presumably filled up with important dentally things like patients, cavities, and spit.  He doesn’t have time to watch the markets on tick by tick basis because his focus is on running his practice.  The theory goes, that by the time the markets have come into his purview, it’s usually via the constant attention given to them by the general mass media.

By that point everybody that is going go be in the market already is, and when the dentist buys he will have nobody else to sell his stocks to at a higher price and thus becomes a “bicuspid bagholder.”   Hahaaa…hah…hah….biscup bag…..see….cause he works on teeth…hah…hah…..get it?   Meh….!

Besides the dentist indicator, I have seen other non-traditional indicators of market health over the years.

For a long time, the amount of space my local bookstore dedicated to “Investing” titles could give me a clue.  When the market was going crazy in the dot-com bubble of the late 90′s, it seemed as if they occupied shelves that went on for miles.  But after the bubble popped they were reduced to one lonely “Charlie Brown” type shelf in the back corner of the store.

The sudden appearance of TV commercials for trading services or study courses can often be an indicator that you might want to start raising cash.  And if you hear the terms “Ka-Chin-Go” or “Gorilla Trades,” run for cover.

But in the last couple of years I have started to see some correlation between the actions of what I call “Financial Superstars” and that of the market.  It’s something you might want to keep on your radar.

Take for example the following chart showing the Dow Industrials topping on April 29th,  2011….

Now look at this article from the New York Times, dated April 29th, 2011….

Coincidence……?????

Hey, I’m not saying that Erin Burnett’s move to CNN “top-ticked” the market……but if Maria Bartiromo suddenly changes networks, I’m getting the survival gear out and moving my family to a cave in the mountains.

30 Years Of Time Magazine Covers & The Stock Market (via The Big Picture)

The American Dental Association

(Note: If you are new to my blog, I post about all sorts of things.  Sometimes it involves something extremely personal, like creating a 30K baby or my Monster Trades.  Other times it deals with hot ex-porn stars who trade stocks.  And sometimes it’s about how to avoid “suicide”.  But a good place to start is The Best of bclund.  If you like what you read, please tell a friend.  If you don’t, please tell two friends.)

 

 

 

 

 

Understanding The NR7 Trade.

(Select 720pHD and enlarge when video starts)

(Note: If you are new to my blog, I post about all sorts of things.  Sometimes it involves something extremely personal, like creating a 30K baby or my Monster Trades.  Other times it deals with hot ex-porn stars who trade stocks.  And sometimes it’s about how to avoid “suicide”.  But a good place to start is The Best of bclund.  If you like what you read, please tell a friend.  If you don’t, please tell two friends.)

Thoughts On Paper Trading (And What Sugar Tastes Like).

From time to time when I am at a social event, out playing poker, or rooting through the dumpster behind Arby’s, someone will ask me, “what do you do for a living?”  I usually respond that I do a “number of things”, one of which is trading stocks.

After that they generally ask me a series of questions about my trading style and how I feel about the market in general.  Often they will tell me about their own forays into trading and then say something like this…

“I have been paper trading for about six months now, and I am KILLING IT!!! I am thinking about quitting my job and starting to trade full-time.  By the way, where is the local Ferrari dealership?”

Since I like to see people in terrible pain and suffering, I always encourage them to “go for it!” (Just kidding).

I am no fan of paper trading because it gives you an artificial sense of detachment from your trades, both losses as well as wins, since you are not using real money.

Almost every person out there will change their “real money” trading methodology once they experience the euphoria of a winning trade or the depression of a losing one.

Occasionally I will find someone from a very “rules based” background (think engineers, airline pilots, etc) who will actually trade real money the same way that they paper trade, but for vast majority of people, they just can’t.

Ooooh...."The Rack". Yeah, real scary. Try day trading!

I have a lot of issues with Alexander Elder, as well as any author whom I suspect makes more money from writing books about trading than actually trading.  That being said, I remember reading  ”Trading For a Living” and thinking the book spent too much time on the psychology of trading.

Being young and foolish, I also remember thinking, “what the hell does all this crap have to do with trading?  You buy a stock, if it goes up, you make money, and if it goes down, you lose.”

Needless to say, the point of that book was to try to save the novice trader from blowing their account out before they really began to understand how important emotions, mindset, and pre-conceived perceptions about the market are in their trading success.  Those who paper trade can never understand that.

It is like trying to find out what sugar tastes like without actually tasting it.  You can read about it, you can talk to friends about it, you can study its molecular structure, but until you actually take some and put it on your tongue, you can never know what it really is all about.

So to that would-be trader I suggest a better alternative, which is to trade with a very small amount of money.  Even if you are only risking $50 or $100 dollars on a trade I believe it will tell you more about your abilities in trading than any amount of paper trading.

It will give you “skin in the game” and focus your trading.  It also gives you time to build a methodology, which if proven sound over time, can be scaled up as your trading experience and account equity grow.

And for more (and better) books on the psychology of trading, try Trading In The Zone by Ari Kiev, and The Disciplined Trader by Mark Douglas.

(Note: If you are new to my blog, I post about all sorts of things.  Sometimes it involves something extremely personal, like creating a 30K baby or my Monster Trades.  Other times it deals with hot ex-porn stars who trade stocks.  And sometimes it’s about how to avoid “suicide”.  But a good place to start is The Best of bclund.  If you like what you read, please tell a friend.  If you don’t, please tell two friends.)