For a few weeks now, I’ve meant to get around to writing about the extreme importance of having balance in my life in order to be successful. This is still not that post, but such thoughts will be forthcoming.
I’m pretty embarrassed at my conduct today, market-wise, and I blame the stupidity of my actions on the recent self-inflicted imbalance my routine has taken. I’ll work my way backwards, here and now discussing and addressing the stupidly made errors.
I say stupidly made, because a few of them are repeats. An error is acceptable, providing that I learn something from it. A second time, means I didn’t take the time to view that error as a lesson carrying the seeds of success, rather than an affliction, driving me toward failure.
Briefly, here’s the time-line of events:
- I cashed out of my stock positions yesterday with the rationale that I had made some good trades, but did not have conviction to hold them beyond a “lucky” day. The stock market was showing mixed signals–breakouts in small stocks, on one hand, but possible reversal signals in the broader market. I figured that I didn’t really have a grip on what was going to happen, and instead of attempting to decipher the code, to get out with some coin. This was a good, soberly made, rational decision.
- I stayed up late last night, digging through charts, reading blogs and news, a little “high” from the profits clenched yesterday. I noticed a few charts looking primed for break-outs. I made some notes of break-out points, and went to sleep late. This is still alright, though I did my stock “homework” at the cost of other tasks left undone. Hence, an unbalanced mindset start coming out of the woodwork.
- I wake up exhausted and get to work a little late. My boss reminds me to show up on time. He’s right! I was late because I had stopped to get a box of donuts for the office, but that’s no excuse. Why do I include this? I usually show up early, or at the latest, on time. Something was off, and I should have stopped to consider the implications such a “red flag” would have for later in the day.
- After logging on to check the market, I see breakouts! Cool. However, a small detail toward which I turned a blind eye: I had $0 in “settled funds” in my trading account, after going “crazy” banking coin yesterday. I was 100% cash, but w/out any “settled” funds. You can buy with unsettled funds, but you can’t sell securities purchased with unsettled funds until they settle, which takes 2-3 days. This was one of my “NEVER GET YOURSELF INTO THIS SITUATION AGAIN” lessons I learned in the past. I did not heed this lesson, and proceeded to buy securities with unsettled funds. I am now not allowed to sell them for a few days. This is potentially disastrous.
- Having backed myself into a corner, I saw the S&P start to make a new intra-day downtrend at around 850. Could I sell ? Nope. My recent gains receded into losses. I couldn’t really hedge against each stock, so I “hedged” by getting short via an inverse, leveraged ETF. This was probably a smart move for my shitty situation, but definitely not ideal. Why? Well, what if the market rallies? That position can’t be sold either, so I lose. I could buy a leveraged long ETF to cancelthat out, but then I’d be stock with my long equities and no further possibility of hedging!
That’s where I lie now. It’ll take a few days to un-fuck my account, and I’ll definitely get a hair-cut on the bottom line, regardless of what happens. Here are some warning signals I should have seen, aside from the “red flag” of showing up 5 minutes late to work. This is starting to get into the issue of maintaining balance in life:
- Starting yesterday, I stopped posting trade plans and explanation for each trade. Documenting my trades on my personal blog is a method for future review, but is also a safe-guard against compulsive, thoughtless trading. It forces me to vocalize why a stock is good enough to buy. I usually do some chart-work, giving a visual picture too. Most of the stuff I bought today, I had previously charted, but the fact that I didn’t take the time to follow my habit shows I was lacking patience and discipline. Instead of trading with confidence and caution, I traded with recklessness and compulsion.
- A crazy sleep schedule lends to exhaustion and fuzzy thinking. When I’m running on low sleep, it’s easy to lose perspective and forethought.
The unsettled funds trading shows a complete departure from a sober approach to trading. I am not beating myself up for it; the market will take care of that. The stock market is merciless toward the slightest mistakes made. An “efficient” market also means that people who act stupidly will lose their money.
I’m glad I “awoke” from this daze. Sometimes, losing in the stock market helps me to remember to invest in the OTHER parts of my life. I figure that I’ve lost some money, but I can grow richer in other ways: by reading and learning more about the world, by getting in a good workout, by studying my profession of warfighting.
Hopefully this kind of review will prevent future mistakes from being made in the future. Pointing out the mistakes made and the signals missed will make them more noticeable next time. Tomorrow is another day!
Note: I appreciate any feedback! I’m always appreciative of constructive criticism. If you think I’m missing something, full of shit, or am spot on, let me know in a comment!
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You are out of control hammy. I recognize the symptoms. You are going to have to un-tilt yourself and recognize that this is a marathon, not a sprint. And for goodness sakes, always keep some cash on hand.
yeah that sucks. you cant sell with unsettled funds
You’re aware of when you’re making mistakes. That puts you ahead of most of the crowd.
You’re not beating yourself up over the mistake; you’re just documenting the failure chain, and looking for places where – next time – you can break the failure chain before it puts your account at risk. That puts you way ahead of most of the crowd.
And now that you’ve posted about it, you won’t forget this mistake, which means you’re less likely to make it again.
Good on ya.
When in doubt, dial back your risk and repeat “The markets will be there tomorrow.” (As long as we’re fessing up, my biggest mistake in ’08 was doing the second part of that without first dialing back the risk by going to cash. I’d forgotten it was a two-part process, and wondered why I couldn’t sleep… Duh!)
i totally hear you, scummy!
Journaling is proving its usefulness right here, Equalizer. Thanks for the comment– dialing back risk, and working on patience is something I’m just starting to learn. I’m learning that patience is probably one of the most important things in trading.
josher- yeah it totally sucks, but i get what i deserve here. stupid mistake.
Excellent post Hammy, you had the guts to view it as a learning experience and to analyze in detail and then post it in public view. That takes a certain strength that will serve you well.
Two of my main areas where I can slip up are rushing through the thought process, and not being aware of important events because I didn’t take the time to update my research when I had too many things going on in my life or business, which I guess is kind of related to rushing.
Anyway I’m glad to know I’m not the only one who’s ever slipped up by rushing. We’ve all made mistakes and I know I’ve learned a lot from mine, more from some mistakes than from some victories. Always keep putting one foot in front of the other and keep going, stay in the game for the long haul.
When I read the Market Wizards books by Jack Schwager I was struck by how many of the traders interviewed in the book talked about their mistakes and losing it all, or almost all, when they started out. Even the best make mistakes.
That’s a lesson I learned the hard way as well. Now I always have cash on hand in my account.
And that the stock market will always be there another day.
Oh, and priceless – this is a marathon, not a sprint.
Advice to live by.
You know what else I am learning, is to trust myself. I may follow others into a stock (if I already follow them and trust their judgement, like on the PPT and here), but once I am in a stock, I am on my own. It bothers me far more to follow someone out of a stock than into one, if that makes any sense. Not that that is your problem, and I state it only because part of the process is getting to know yourself and what your weaknesses are. That is what you have just learned, and that is a good thing.
I lost so much money last year, but this year I am making money. If I would have beaten myself senseless over it, I may have never tried again.
Also, Hammy, young people are way too hard on themselves, and you are very young. Lots of time, lots of losses and most of all lots of life and winning ahead of you.
Hi Chanci! Glad to hear your trading is going better, that is a real accomplishment in a tough market.
Ditto that, Boca!
I loved those two Market Wizard books. Also “The Money Game”. Sometimes remembering that book, the humor the author wrote with regarding the crazy market, is what keeps me thinking that I can really do this, and that I really want to do this.
BTW, welcome back, it is so good to see you posting again, Boca. Happy trading and good luck with the blogging contest!
@Hammy: If I write down a plan and fail to stick to it, I’m the only one who knows, and I’ve done that more times over the years than I care to mention. But if I tell everyone my plan and then deviate from it…
If I write “bot XYZ @ 11, speculating on earnings, will stop out at 10” and the stock opens at $9 the next day after they miss, the next thing I type had better include “stopped out”, and not “averaged down”, because I’m going to be re-reading them every time I visit XYZ’s page of user notes. Even if nobody cares, everyone knows.
@chanci: Totally normal. When you follow someone into a stock, you do so knowing that their exit conditions might not be right for your risk tolerance and portfolio mix. There’s nothing really wrong with “buying XYZ because everyone else is!”, as long as you’re able to articulate your exit strategy at the time you place the trade.
@boca: Yeah, the Market Wizards books, and Livermore’s Reminiscences, for the win. I try to re-read these books, cover to cover, at least once every couple of years. Thanks for reminding me I’m overdue.
boca, equalizer, chanci, thanks for the feedback.
boca – the “rushing” is definitely something I need to work on, too. my keeping a trading journal has been one of the best guards against that kind of thing.
Last night I flipped through Market Wizards, which I recently bought but haven’t read yet. It looks like there is some *awesome* stuff in there in terms of lessons learned and the mindsets of wise traders.
chanci- thanks for the time-line perspective. Also, are you saying you get “scared out” of a position by someone saying they’ve dumped it? That’s an interesting problem i don’t think i’ve considered, but now that you mention it, I’ve done the same thing. Thanks for giving me something else to look out for!
equalizer – yes, for some reason, posting stuff publicly makes me follow my own rules and stick to the plan. even the perception or possibility of an audience keeps me a little sharper than otherwise
There are several Market Wizards books in the series, they are all worth reading. They’re among my favorites in my mini-library of trading books. You’ll love them, it exposes you to so many different trading styles and concepts in a very conversational way.
Im indecisive as fuck, my only problem. (OK one of many problems)
Hammy, my man … Its just one off-day. You’ve already recognized some areas for improvement and that’s gonna go a long-way in your future success. Hang in there and yep, I agree with scummy – its a marathon. You’ll be trading and investing for a long time to come, and there are certainly more mistakes to be made down the road – its how we pick ourselves up and move on, man …
Stay well!
could you avoid the settled funds issue by changing your account to a margin account? It is usually just a few simple forms.
Are you addicted to trading/over trading? go to a 12 step site and do one of those quizzes and substitute trading for drinking….if you are then you can be aware of it and prevent over trading or trading just for the rush of it. Trading does have a lot of gambling components and the rush is awesome, but you have to be careful it does not seduce you too much. I write as someone with trading addict tendencies…my mood often up and down with my portfolio.
good luck
Not the same but, I once left my “auto send in active trader” button checked and my kid started clicking around with the mouse (he’s 3 so it was funny).
Made his first trade – short 4 Euro futures. The thing was actually dropping pretty fast and I picked up 17 pips before I could close it.
I love that kid.
thanks tampa trader and amateur
“addictive trading” is definitely something to at least keep in the back of my mind. fortunately my day job usually doesn’t allow me to put nearly as much time and energy into “investing” as I am right now. It’s in a lull right now, and I’m trying to take advantage of the idle time to pack away lessons for the future.
yeah, this is just an off-day. it’s healthy to get a slap every now and then to correct errors. I think the ultimate loser traders are the ones that try, never learn, and eventually give up, thinking that making money in stocks is impossible or only for the really “lucky”
with some time to think, I might have a decent position. the good habits I *have* developed led me to notice things changing for the worse, and I acted the only way I could. I’m long a few decent stocks at or near break-out points, and short the overall market.
The market is sending mixed signals.
Who knows.. by the time my funds settle, I may be up on all the trades. I’d be lucky.
The point is, I backed myself into a serious corner. I made some repeated errors. It’s time to take note, and move on.
Hammy,
I’ve recommended this book a week back on IBC. You should really consider reading “Trading in the Zone” By:Mark Douglas. Really GOOD read!
I read this book prior to reading “The Market Wizards” and I found that the book pretty much sums up HOW the “Top Traders” think. This book helped me A LOT!!
JR
thanks for the rec
i put it on my amazon wishlist
This isn’t legal advice.
I assume you are using a cash only account. If you must take desperate measures and have to sell, as long as you did not violate the free-riding rule before, you can violate it once. Your broker will give you a warning the first time. Do not do it more than once.
Hammy,
My main trading account is a cash only account. It belongs to the corporation I work for and my boss doesn’t want me to be able to use margin. I have been in that situation many times over the past two years and here is what happened when I sold early…1st violation gets a nicely worded letter from Schwab warning me not to do it again. Second time I get a letter from then (not as nicely worded) telling me that I have a 90 day trading restriction. This means that I can not purchase without settled funds. I personally like this better than having to keep track of what I can sell or not.
I went through both of these steps about three times before they called my boss at home and told him that I would have a permanent trading restriction on the account. I tried to use that as leverage to get a margin account going but to no avail. No fines were imposed or anything like that, and I really would rather have it this way. The only downsides are that I can’t breeze in and out of trades as fast as most (The Fly), and of course I can’t short anything because there is no margin account present. I’m stuck with evil inverse ETFs when I’m feeling bearish.
that’s an interesting story. i was wondering today what would happen if you continue doing free-rides.
I think i’d rather not incur a restriction, but seek to restrict myself. However, it’s nice to know that if a real emergency happens, I won’t be banned from ever trading again by the SEC or something.
thanks for the comment Controller.