Better Luck in 2007?

Man ... it's been a long time since I've blogged. I suppose as a reader you could view that one of two ways:
1. No news is good news, or
2. If you don't have anything good to say, don't say it at all

As much as I wish I could say it was #1, I am pretty sure you could guess it is #2. Quite frankly, I am tired of chronicling my failures on a regular basis. The past 3 weeks of work have been nothing but disappointment. Add the holidays into the mix and another minor health scare, and the holidays have been emotionally draining. As optimistic as I was at the beginning of this year, I have to say that I am at the complete opposite end of the spectrum now that the year has come to an end.

I wrote several posts ago that I had pretty much realized that I wasn't going to make it in the trading game. I said I was starting to look for other jobs. However, being the stubborn German I am, I haven't given up that easily. I have kept "fighting" and trying to find something that will make me successful. However, my biggest enemy is myself and it's a battle I continuously lose. For 9 months now, I basically know what my problem has been, but I have not been able to change. I get into a trade where I know I need to change the way I normally think, but my "panic" instincts take over, I exit the trade too early and leave hundreds of dollars on the table. Day in and day out with pretty much no exceptions. Everyday I spend going over my botched trades swearing that tomorrow will be different. But the next day is just like the last. There are instincts as a trader that you need to have and no matter how hard I have worked to develop those instincts, I just don't seem to be able to. I have really started to believe a lot of the trading articles I have read concerning the innate ability to trade. Just like someone has the innate ability to play a professional sport or understand what it takes to be a software programmer, there is also that innate trader ability. I know what it is, I just can't seem to get it. You wanna know what it is? OK, here it is.

The innate trader ability is to remain convicted in your beliefs and follow your system, even ... no, especially, in the face of apparent failure. Having grown up playing and coaching sports for many years, I have really learned to hate losing, but it is something that you have to deal with. As a coach, I have coached different caliber of teams. I have coached ones that are athletically gifted and driven and believe they will always find a way to win. I have coached some that are athletic and successful, but when their backs are against the wall, it is easier to accept failure rather than put their heart out on the line and believe they can win. I have also coached teams that aren't athletic, that play for the fun of it, andd believe they never have a chance at winning anything. They give up easily and expect failure.

I believe my trading falls somewhere between the second and third teams I mentioned above. I don't think I have the best mind for trading, but I think I do see patterns and tendencies in charts that other people don't. In fact, I helped a very successful and experienced trader make about $3k on Thursday when I pointed out a chart pattern that was forming. He agreed, got into the position, and made money. I sat on my hands and afterwards berated myself for not believing in my abilities. So, problem number 1: I see opportunities, but fail to act. Why do I fail to act? Probably because I don't want to lose or fail. But, dealing with losing is part of this game. Which leads to problem number 2, and the biggest reason I haven't been successful. As soon I get into a position, I look for a reason to get out. At the first sign of failure, I typically give up and don't stay in the position and fight -- I am like the second team I mentioned. In volleyball, a game is played to 25. The way I trade is equivalent to a team in volleyball being down 5 to 0 and saying, "You know what, we can't come back. Let's just quit." So the team walks off the court. However, everyone knows there is a lot more game to be played and anything can happen until the score reaches 25. Similarly, when I am actually profitable in a trade, it's like I am up 5 to 0 and say, "OK, I've won", and I walk off the court. So why do I "walk off the court" in my trades? That is pretty simple. I monitor the "Level 2" window way too much. The "Level 2" windows show all the market participants and their interest in a particular stock. This window is like the fans at a sporting event. Basically, I let the fans dictate whether I stay in or leave the game. How stupid is that? I should only let the score (or actual trades being made) determine whether I remain in the game or not.

This all sounds pretty simple, but putting it into practice has been very difficult for me. It is so easy in trading to get caught up in things that have nothing to do with the system you are trading. The good traders maintain focus and in the face of "unruly fans" stay convicted and believe in what they are doing. Here is hoping that the light bulb will come on for me in the next few weeks.

So, how much longer am I giving myself? Well, the savings are running out quickly. As I see it, I have about 2 to 3 more months before I am really pushed into dire straights. I am receiving some income from coaching volleyball and that will help, but it will definitely not be enough. I have said this before, but what would really keep me in the game is finding some type of part-time job. I just don't know what I would want to do. Then, there is the inevitable fact that I may need to find a real job in 2 to 3 months. I have NO idea what I want to do. Trust me ... I have thought about this a lot, and have no idea. Maybe I need to spend more time thinking about this than I do. But the second I do that, I will most certainly seal my fate.

So, 2006 .... not necessarily a "dream year" for me. There have been a lot of difficulties, but I have enjoyed the job and all the challenges it presents. I am just disappointed I am not more successful in it than what I am.

I hope everyone had a great Holiday Season. Have a Happy New Year and I will be back in 2007. New Year ... New Luck ... let's hope.

Wouldn't you know ....

First off, I want to thank everyone who wrote comments on my last post. Thanks for taking the time to write something and for all the encouraging words. They are much appreciated. I have realized that there isn't quite something right with me and have made arrangements to get some help. I owe it to everyone, including myself, to do so. Who knows ... maybe a few drugs won't be so bad after all.

After this past week, I have realized a couple of things outside the obvious that have led me to where I am. First, about two months ago, I switched where I was sitting because my coach had a new student coming in. I moved to the other half of the office floor - the half my coach refers to as the "Library". Most of the traders on the side I moved to were hyper-scalpers. They have to focus intensely for short periods of time, but always have to be ready for the opportunities when they arise. The side I came from mainly has position traders (which I am). The traders need to focus but it is a much more relaxed atmosphere. The traders put on a position, put in their stops and let their systems work for them. As a result, the mood is a lot more light-hearted on this side. In fact, my coach likens it to a "good bar" - you just want to keep coming back. Well, late last week, I realized I had to change something because my performance since the switch to the "library" had been crappy. Last Tuesday, I moved back to the "good bar." And whaddya know ... three out of the last 5 days since have been my highest days in the last 3 months. I trade much more relaxed at "the bar." So, I guess you can say I returned home, and it has helped me.

Hindsight being 20/20, I suppose I am a little upset with myself for trading at the "library" for as long as I did. I realized early on that I wasn't having as much fun but I continued to stay there. In fact, I can't remember laughing once. I sat next to a guy who was a great trader, but he was so stoic that I can probably count on one hand how many times I saw him even smile. The guy was just out of college and making $3K/day on average, and it didn't look like he was having fun at all. I think I also resented the fact that he was constantly asking questions about my system and why I was trading what I was trading. Yet, whenever I asked him for "help", he was always brief and seemed disinterested in helping me. Although I tried to block it out, subconsciously, I believe it took its toll on me.

So, I am back at the "bar" - happier and performing better. The one main thing the "bar" has going for it is one trader ("patron"), in particular, who may be one of the funniest people I have ever met. The guy continuously spouts off one-liners all day that keep a smile on people's faces and the mood light. I guess humor runs in his family because his sister is actually a touring professional comedian. Anyway, I am glad I decided to switch back. I feel a lot better, and if I am not making enough money to survive, well ... at least I am getting a good laugh everyday.

So, does this mean the dream is still alive? Not quite. I have been looking for other jobs, but nothing has hit me yet. I don't think I want to go back into the software industry unless it could be with financial or trading software. I have thought about possibly going back into teaching, but having to deal with kids all day doesn't necessarily appeal to me at this point in my life. I wouldn't mind being some type of trading instructor. After all, those who can't "do", teach ... right? The only problem is I think those kind of jobs are few and far between. I have proven over several months that I can spot good trades and call them out to others who take advantage of them. I just don't want to take the risk myself. Maybe I can be entrepreneurial and setup my own daytrading chat room service or something like that. Or maybe I can do the same thing with options. Regardless, I really like the financial industry and all the challenges that it presents. I would like to continue in this field with my next job. I just don't know what I could do though.

Speaking of the industry and the market, up until this point, I have really refrained from sharing my view with where the market is headed in the immediate future. However, I think there are so many things brewing right now that spell disaster that I want to share them with those of you who may not follow these things as closely. In fact, I think sometime after the first of the year, between January and March, we could be in for some tough times downward. So, take this for what it is worth. I am not recommending anything, so decide for yourself what an appropriate action should be.

There were four events that took place last week which, after today, the market has basically shrugged off. The first event was the collapse of the dollar. This means several things. First, the US market may be up 14% this year, but to foreigners, particularly those using Euros, the market is only up a measly 5%. Those foreigners might be inclined to pull their money out of the US markets if they feel they can get a better return somewhere else. Then, you have the problem with US treasuries and bond rates. If the dollar is collapsing and foreign governments aren't getting a good return rate with US bonds, something may have to give. Basically, the dollar right now is in really bad shape and that does not bode well for the US economy.

Secondly, last week, the Institute for Supply Management (ISM) warned that the U.S. factory sector contracted in November for the first time in more than three years. This means the US economy could be softening so much that the Federal Reserve might have to cut interest rates to stimulate demand. The Fed may cut and they may not. If the Fed lowers rates again, the dollar will most likely weaken even further, and inflation will likely explode.

Third, a drop in construction spending was announced. This was the seventh month in a row and the longest on record. The housing sector was a big reason for the bull market over the past couple of years, and with a drop in spending this means fewer construction jobs, which leads to the next item.

Fourth, the number of U.S. workers applying for jobless benefits saw its biggest increase in more than a year last week, according to Labor Department. Bad news.

So, with all this staring investors in the face, why on earth did the market rise strongly today? Simple, it is the end of the year, and there are bonuses at stake for a lot of people in the financial industry (not me of course). For this reason, I really don't think the market is going to fall between now and the end of the year. But come January. look out.

I read an article last night which was written probably sometime in early October which talked about a possible recession happening the beginning of next year. Here is the link. Now, two months later and given the events listed above, things are really starting to take shape. Once again, I am not telling anyone to do anything, but if things start going south, you can say you read it here first. If not, well, I guess it will just prove to all of you and myself, that I have no idea what I am talking about and I have no business working in this industry (even if I like it so much).