I had a game plan, though, and it had nothing to do with frequency. It had a lot to do with specifics and caution. I will never profess to be the most sound, technical and fundamental trader on Planet Earth, but I had my devices and they served me fairly well when I re-entered the market in 2010: seven winning trades, one loser and three ties in my first 11 round trips back. All short-term trades from mid-February to the end of March.
The ratio of profit to loss was +48 for each dollar lost (including commissions). Yeah, I was on a roll, and it could've been far better if not for some bumbling decisions that left profits on the table.
Since then, I've had just two winners, three losers (including one enormous bust of a loser) and one tie in the short-term category. What happened? Some of it had to do with the market. Some of it had to do with sleep debt, seriously. Getting up at 1:45 a.m. (Hawaii time) ain't easy, so I usually just stay up through the night; my normal sleep time is 4 to 11 a.m. anyway.
But the many impurities in my trading system come to light in a schizo market, which we had this week. Especially when I became enamored with the idea of frequency and became impatient at times, settling for average (at best) entry points while disavowing hard stop-loss exits many times.
The result is a very disappointing April. Not to dwell on the disappointments forever, I've got two dorky analogies for the average guy (or girl) like myself who is far from a pro.
• Traffic
The best way to avoid traffic, at least in
Honolulu, is to travel when the roads are fairly empty. That means hitting the freeway before after-school hour. Or leaving after the rush-hour traffic passes. Better to wait an hour or two and get home quickly than to sit in that hellish muck anyway and get home in a sour mood.
The notion of traffic applies to trading in some ways. Take NFLX, for example. It traded down to 86 or so the day of its recent earnings report. Already on a huge ru
n, there were doubters, no doubt, before the report came out after the closing bell. Then when the news hit the airwaves and internet, it sold off immediately to 80.
I had no shares, wasn't familiar with the fundamentals of the company, but was finding the going entertaining. But as NFLX hit 80 in after-hours trading, it turned. 82. 84. 86. It kept going. What gives, I thought. Did people panic at the initial numbers, then find out more ... the kind of 'more' that was beyond impressive?
Turned out NFLX beat its numbers, to no surprise. But when it raised guidance, all heck broke loose. Within a week, the stock was above 100. Traders who stepped in on "game day" (earnings) got their reward. They entered when traffic was at a relative minimum. Then as they sat with their shares, it turned into a logjam on the buy side and drove the smallish float into a tizzy. NFLX has struggled this week, as many stocks did, but still closed above the century mark. Some smart traders sold above 100. Others are holding longer.
Bottom line: beating the traffic on NFLX led to a superb profit.
• Ice Cubes
Again, in the sense that a short-term trade can't and shouldn't sit in traffic, ice cubes don't belong out of the freezer very long. In fact, if ice cubes are in a container — a cup, mug, jug, whatever — they really shouldn't be in a deep well of water or beverage. Picture the ice cubes still visible and peeking out over the top of the water or drink. That's what makes it effective, when there isn't an oversupply of beverage. That's when ice cubes work best.
Yeah, it's a silly analogy, but hear me out. If your ice cubes are left there too long, of course they'll melt, especially if the beverage poured in has too much mass. Then it'll melt faster. The time horizon for ice cubes, or shares, has to be limited. There's only a certain span that permits them to be efficient.
I have way too much time on my hands (almost entirely as I drive), no doubt. Yet, I'll be more than happy to hear more analogies that have to do with household items or daily habits. No snark here. Just bring it on. It's a long weekend coming...
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