An NYSE Scalper's Tale - A Trader's Diary

Thursday, June 15, 2006

8 Losers In A Row

Gross: +$473.01
Net: +$241.79
Loss From Top: $439.39
Trades: 86
Shares Traded: 213534

Stocks Traded Today (net profit/loss):
Bank of America (BAC): +$341.31
General Electric (GE): +$203.64
JP Morgan (JPM): +$117.40
Corning (GLW): +$102.18
Walmart (WMT): +$97.75
Home Depot (HD): +$3.25
Citigroup (C): -$208.55
Hewlett Packard (HPQ): -$415.20

On a typical trading day (when I keep my emotions in check), I will usually have 5 to 10 losing trades spread out throughout the day.

Today however, between 2PM and 3PM, I put on 8 losing trades in a row (and losing close to $900 in the process). When this happens, I can almost assure you that I was not in the proper state of mind. My trading strategy has about a 75% - 80% success rate (i.e. 75% - 80% of the time, I get the desired outcome of a trade), so to have 8 losing trades in a row means that something was not quite right.

It's almost as if I asked you to roll some dice 8 times in a row and all 8 times, you roll the same number. It just doesn't happen - unless something is wrong with the dice.

My day was going great - coming up to 2PM, I was up almost $700. But a bad trade on Hewlett Packard (HPQ) set things off and 8 trades later, I found myself down almost $200 (about $900 loss from top). I tried to clear my thoughts between trades, but I found myself in another losing trade shortly afterwards and the burst of losing trades were in rapid succession. On the very last of the bad trades, I was banging down on the desk and I was swearing out loud even before I realized I was doing it.

You know, it takes a lot to get me angry (I'm a happy-go-lucky kind of guy), and people who really know me probably can't even picture me getting mad. So when I found myself banging on the desk, I knew it was time for a little break.

I've read about a lot of great traders who are into meditation and yoga. And I can see why those traders are so great. It allows them to be emotionally free from the world, which allows them to focus on the task at hand. This is something I haven't tried yet, so I don't know what real impact it will have on my trading (maybe sometime in the future I'll give it a try).

Anyways, I re-gained my focus and managed to cut my loss from top in half and made about $450 back during the last hour.

Had I not lost focus and went off track, I would have probably ended the day up $1200 (instead of having to battle back from minus $200).

What I propose is this: any time I put on a bad trade (in which I lose $100 or more), I will not trade for the next 10 minutes and I will go for a walk; perhaps go downstairs and walk to Yonge street and back.

In our office, there are 2 "Master Traders" (traders who have made $120,000 within one calendar year). If you ever get a chance to watch a "Master Trader" trade, you'll see that they are essentially emotionless throughout most of the day. Every now and then, they'll tell their buddy a great trade they just executed, but if you were to look at them, you wouldn't be able to tell if they were having a good day or a bad day. Both of them are strong enough to avoid the pitfalls of emotional trading.

There's a great book called "Trading in the Zone" which basically goes over your mental state of mind and getting yourself psychologically prepared for trading and tries to steer you to a path of emotion free trading.

But today from 2PM and 3PM, I was clearly trading out of the zone.

Anyways, it's a great book and I'll probably re-read it again for the 3rd time - if only I have stronger will power to prevent myself from getting too emotionally involved.

That being said, can you see what kind of difference "Trading in the Zone" can make? For me, it was the difference between a $200 day and a $1200 day.

Good Trades
1:59PM - General Electric (GE) was flat, but looked like it was at a support level while the Futures were curving up. There was big size on the bid and on the ask, and when the Futures looked like it was going to rip, I went long 10,000 shares. Got out as follows: 1-cent winner (2000 shares), 4-cent winner (8000 shares) ($340 profit before fees)

Bad Trades
2:18PM - Hewlett Packard (HPQ) and the Futures were uptrending. When the Futures ripped up, I went long 6000 shares. While the Futures kept ripping up, I didn't know why HPQ decided to go down. I was forced out of my position for a 3-cent loser ($180 loser before fees)
  • This trade was the first of a string of 8 losing trades in a row
  • The setup for this trade was perfect and my timing was great, but HPQ just didn't co-operate
  • I think that's why this trade sparked my losing streak - because everything about the trade was perfect, but I lost money (which in turn really pissed me off)
  • To make matters worse, while trying to exit this trade, I accidentally got overfilled and I ended up 2200 shares short (which I ended up dumping for a 2-cent loser)
2:32PM - Citigroup (C) and the Futures were ripping up. I got long 6000 shares, but unfortunately the Futures finished ripping and started tanking back down. I got out as follows: 2-cent loser (4000 shares), 5-cent loser (2000 shares) ($180 loser before fees)
  • Yup - this just added more fuel to the fire
  • I think at this point, I was still angry at the previous trade on HPQ and wasn't smart enough to avoid taking a position after the Futures finished ripping up and as a result, I got long at Citi's intermediate high
2:39PM - Corning (GLW) and the Futures were uptrending. I got long 4000 shares when I saw some size on the offer break. Well, how much worse could it get? I ended up taking a loser on this trade because the Futures stalled for a bit and GLW decided to tank. Got out as follows: 3-cent loser (2000 shares), 4-cent loser (2000 shares) ($140 loser before fees)
  • You can really see the rapid succession of bad trades...this doesn't even include those losing trades that were less than $100
  • There were 3 more losing trades after this one, but nonetheless, this trade really got me roiled up
  • The reason I was getting more and more pissed was because the Futures and all stocks were moving up hard, but for some reason, every stock I touched went down
  • Because my thinking was not clear at the time, it never occurred to me to continue holding these positions...instead I would see that it turned into a losing trade and angrily place orders to get out of my position like 10-cents out of the money (of course, the specialist will give me the best price possible)


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