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Zachary G. - Equities Trader

Black Keys Win the Grammy

This evening, the rock/blues duo known as the Black Keys took home the Grammy for Best Alternative Music Album for Brothers.  The first time I heard this album I was completely blown away by the groups adherence to the gritty, wrenching, soulful blues that made me a fan overnight.  Brothers showcases the group’s continued ability to produce monster beats, red-hot guitar lines, and tactful lyrics.  If you haven’t heard the ablum yet, buy it.  If the Keys come to your town, see them.  Here’s a cut from the album to enjoy in the meantime.

Limericks for the Day Trader II

There once was a man named Machado
Who traded his book with bravado
Ka-ching ka-ching, yeaaaa boy!, bling bling
Fuck your lines, cause my name is Dean-O.

In Egypt the scene was a blazer.
The people got crazy and crazier.
A hero emerged, Hosni was submerged,
By new PM Brenden Frasier

The market began to look heinous,
Our portfolio was starting to pain us.
I know what is wrong, the Spooz can’t be strong
While Jupiter’s stuck in Uranus

It’s Big to be Small

Biggie Smalls

Today I made $114 and I am thrilled about it.  While this profit has been meager in comparison to recent drawdowns, the psychological effects of booking just one green day are immeasurable.  Given my string of losing sessions, the possibility of making money has seemed nearly impossible.  This state of mind has led me to enter too many positions, size improperly, and worst of all I have become a hoper rather than a trader.  In order to break this destructive cycle I finally decided to follow a cardinal rule of trading; when the going gets tough, get small.

Keeping one’s share sizing small has several inherent advantages.  First, when positions move in an unfavorable direction, the losses become more palatable.  As I mentioned in previous blogs, $100,000 of exposure is not simply $100,000 worth of potential reward; it is also $100,000 of risk.  When positions begin to inflict pain, staying small will also allow a trader to have free hands and add into positions strategically.  Finally, and perhaps most importantly, limiting one’s size helps remove emotions from the trade.  Large swings in P&L are often liable to beget large swings in emotion; by sizing appropriately, a trader can maintain an even keel and make disciplined trading decisions.

My Greatest Mistake and How You Can Avoid It


Hope everyone enjoyed playing the Guessing Game…oh wait, no one responded.  Since I’m such a good sport, I’ll refresh everyone’s memory so that we can all learn the lesson I learned last week.  The question was what is inherently wrong with this logic: “I have $75,000 of short exposure.  All I need is a two handle move in the market and I will make a new high in my P&L.”  The answer; this type of mindset focuses solely on reward and ignores risk.  The truth of the matter is that having a large amount of market exposure can wipe out your entire day just as easily as it can put money in your pocket.  Ignoring this universal truth has been my cardinal mistake.  Furthermore, a traders must acknowledge this fact even when he or she is trading from a position of weakness.  We often convince ourselves that a move in our favor will readily recoup one’s losses; however, ignoring market risk can dig a deeper hole than expected.  Remember, just because we believe the market will move in our favor does not mean it will, and when it doesn’t a good trader must have a plan of action and the ability to stomach the risk.


Halftime Update

Packers have truly gassed up the momo bus, turning big interceptions into points on the board.  Rodgers and co. have been able to punch holes in the veritable Steeler defense with their unrelenting ground and aerial assault.  A big touchdown before the half may put some wind back into the Steeler’s sails but the Packers should continue to maintain a tight defense and make the opposition work for every inch.

Superbowl commercials have been fairly mundane this year with no clear exceptions.  Perhaps the only moment that caught my eye was when I witnessed Vin Diesel and Paul Walker simultaneously; could it really be?  The Hollywood shit machine never fails to inspire shock and awe.  In this time of economic recovery and geopolitical unrest, a savior has finally emerged; The Fast and the Furious 5.  Getting ready for the halftime show.  I am sure the hackneyed performance of the Black Eyed Peas will surely suck.  One final note, I truly enjoyed when the commentators called out Ben Rapelsberger for his “sexual indiscretions.”  Go Packers.

Guessing Game

At 10:00 this morning I was staring $450 of positive P&L right in the face.  Through a series of early short trades, I was able to capture the 7 handle precipitation that played out in the first half hour of the trading session.  Rather than book my profit, a suggestion that was made by the principles before the market opened, I chose to offer more stock and press my trades.   As I began to giveback my profit, I said to myself  “I have $75,000 of short exposure.  All I need is a two handle move in the market and I will make a new high in my P&L.”  There’s something inherently flawed in this mindset; can you guess what it is?  Leave a comment…

The Lost Art of the Socratic Trade Review

Back in the halcyon days of Hedge Fund Live, from the fires of Mordor emerged the organic concept of a Socratic Trade Review.  When I first began trading, I used to write two Socratic Reviews each day as a way to review my trading and take a critical look at my decision making process.  The  STR follows the Socratic logic format of premise, premise, conclusion; the two premises provide reasons for making a trade and the conclusion describes the actual execution of the trade.  Hopefully our newer traders and members will benefit from the revival of this old tool and discover its inherent value.

J.P. Morgan (JPM)

February 1st, 2011

Premise I: JP Morgan was a relatively strong name, making an early R4 breakout on the intraday chart

Premise II: The stock pulled into support from the 50 SMA (blue line) during a period when the market was moving lower.

Conclusion: Buying the stock against support at the moving average provided a high probability of success and a clearly defined exit point should the stock break the moving average.

Commentary: On the day of this trade, the market was in a strong uptrend.  I knew that buying pullbacks, especially into support, would provide a high probability of success.  Furthermore, JPMs comparables were also strong on this particular day, providing an additional level of conviction in the trade.

Two A Days

Practice Makes Perfect

Once again I find myself in the midst of a losing streak. For the past six trading days I have found myself in the red and have gone from +$1,500 YTD P&L to -$1,700. Furthermore, I have found myself becoming increasingly frustrated as the red numbers on my screen grow increasingly larger. It is time to take a breath. Traders rarely take the opportunity to step back, assess their strategy, and return to the game with a clear head and solid game plan. In the world of professional football, athletes spend countless hours rehearsing plays, running drills, and reviewing films. The ratio of time spent practicing vs. playing is astronomical, without even counting the off season. In trading there is no off season and for many traders, the closing bell means no work until the next day. Tomorrow I will spend the trading session poring over charts, rereading my trader’s plan, and refining my spread trading model. I believe this hiatus will allow me to clear my head and prepare to return to the gridiron.

Risky Money: The Aftermath

The Arab World is in a Tizzy

President Mubarak smiles for the camera

The streets of Cairo erupted in violent protests as the National Democratic Party building provided a fiery backdrop. Egyptian militants exchanged tear gas for rubber bullets then for live rounds to quell the throng, sending the death toll spiraling to 50. The government, equipped to deal with small-scale religiously motivated uprisings found itself unable to handle the surging middle class. At the center of this crisis is President Hosni Mubarak, who has been accused of corruption and dictatorship by his people seeking an end to his 30 year strangle hold on the country.

For once, I must take sides with the protesters; not because I believe in their fundamental views, but because of their willingness to exercise their rights. For any country to succeed the people must be empowered with a voice. In America, we are a nation of the people, by the people, and for the people and while these words have never been uttered by the Egyptian leader, I believe this notion should be a universal truth. The scale and heterogeneity of this uprising proves that the system is fundamentally broken. Whether change is affected overnight or over years remains to be seen, but one thing is for sure; Peter Pyramid and Sally Sphinx won’t go down without a fight.