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Tag Archives: P&L

I Can’t Believe I’m Writing this Blog Again

Today I regressed.  I allowed my losing positions to get out of hand and closed the day with a P&L of ($366).  This resulted from ignoring the cardinal principle that led to success early in the week; I ignored risk management.  My largest losing position came in at more than twice the size of the largest winning position, exactly the opposite of what I have been hoping to achieve.  Looking back over the day’s results revealed an important truth.  Losses fuck with your head.

I began the day on an even keel, trimming losers and trying to build into potential winners.  The first few trades of the day resulted in a stop out; however, losses remained small and controlled.  As I began to build into round 2 of positions my P&L began to deteriorate.  Rather than admit lack of insight into the day’s direction I chose to hold positions for much longer than I should have.  Then, a mistake of astronomic proportions; I decided to ignore my pre-planned stop loss for the day.  As losses continued to mount, I completely lost sight of risk and decided I had no choice but to continue trading.  It was a miserably long day of staring, hoping, and wondering what had gone wrong.  I feel spent.  Today I learned that the most difficult time to control risk is also the most important time to do so.

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.


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…

Finish the month strong

Another month’s end as we get through the first month of 2011. A month that produced over 35 inches of snow here in NJ and produced a lot of good trading opportunities. Although the S&P continues its assault on all time highs this was a month where you could short and not get your head handed to you.

I always like to focus on finishing strong, be it at days end, weeks end or months end, there seems to be a power in pushing hard and having good memories for the upcoming time frame. The end of the month is not a time for hyper aggression unless you are well above your targets for the month, do not try to swing for the fences, that rarely works.

Take good calculated risks and make smart trades. That is the key to finishing strong and learn something from the past month that you can put into your next months trading.

Happy Trading!

These are the Rules

Over the past two days, I have made some decisions that have violated my cardinal rules of trading.  I am posting this excerpt from my trading plan to once again remind myself and our members why we have them in place.  Know your plan, trade your plan, and have the discipline to stick to your plan.

1.1.       Plan every trade: Before executing a trade, know exactly what prices you plan to enter and exit.  Know exactly how much money you are trying to make for every trade and how much money you are willing to lose.  Properly planning a trade and executing within the parameters of that plan demonstrate discipline, the most important quality for a trader to possess.  Remember, he who fails to plan plans to fail.

1.2.       Always trade according to the pivot signal: When trading to the long side, the equity must be on an S3 or R4 buy signal.  When trading to the short side, the equity must be on an R3 or S4 sell signal.  If you are trading on a signal, you should stop out as soon as the opposite signal is confirmed.

1.3.       Every trade must have a risk to reward of at least 2 to 1: Knowing your risk to reward ratio is an important part of rule number 1, planning your trade.  By achieving a risk to reward of at least 2 to 1 or greater on every trade, over time you will be able to be profitable by keeping your winning trades greater than your losing trades.  Remember, your risk to reward is greatest the nearer you are to your stop and least the nearer you are to your exit point.

1.4.       Space out your entries: By spreading your entries over a greater price range, you will be able to improve your average cost and maximize your risk to reward ratio.  Sometimes, traders are tempted to build into large positions quickly believing that they are right.  The market has a tendency for inflicting the maximum amount of pain and will almost always squeeze these traders out of a winning trade because they are forced to cut their positions to limit P&L losses.  By spreading orders, you avoid this pain when the trade is working against you and maximize your winnings when the trade eventually moves in your favor.

1.5.       Stick to your stops: If you follow rules one through three, you will always have a chosen stop out price.  Remember that this price was chosen for a reason and falls within the guise of your plan.  Changing your stop once it has been set shows lack of discipline and will almost always lead to failure.  If you believe that you are being stopped out too frequently, consider revising the way you plan your trades rather than changing your plan once it has been set.

1.6.       Be aware of the time of day: Different periods of time throughout the day session tend to have different characteristics.  The market tends to have higher volatility and volume during the earlier and later parts of the day and tends to be relatively slow during the lunchtime hours.  Being aware of movements in the stock market that typically occur at certain times during the day can help you maximize your larger trades and help you avoid trading during a sluggish market.  Also, mark your P&L each hour and analyze your data to know when you make or lose the greatest amount of money.

1.7.       Be aware of external forces: Before entering a trade, be aware of any external forces that may cause the trade to behave in an unexpected manner.  These forces include economic numbers, earnings reports, M&A activity, major news, and unexpected exogenous factors.  When planning a trade, be aware of these forces and be prepared in the event of an unexpected shock.

1.8.       You can’t pick tops or bottoms: Many traders believe that they have the ability to determine exactly where a stop it going to halt its current trend and begin a reversal.  This leads many traders to build into a large position too quickly and stop out before the trade ever has a chance to work.  Instead, scale into the trade up to your determined reversal point and give the stock room to move through your level before the trade begins to work.

1.9.       Keep a journal: Collecting data and thoughts on your trades is the only way to evolve as a trader.  At the end of every day, write a few paragraphs regarding what you did well and what aspects you need to improve upon.  Ask yourself, what type of trades have consistently made money?  What is my edge in this business?  What types of situations should I avoid entirely?  Failure to keep a journal often leads to trading decisions based on emotion and presumption.  Documenting the facts of your trading will allow you to know precisely what works and what doesn’t.

1.10.    Plan for the next day: Once the market has closed, reflect on the day’s action in the market and develop a thesis for the following day.  Think about what type of trades you will be looking for and familiarize yourself with important levels on your names and the overall market.  It is important to formulate several different plans to account for every potential market scenario.

All Good Things Must Come to an End

Alas, the streak has ended.  For the past eight consecutive trading days I have been in the green, generating a total profit of $3,150.  Today, I had an opportunity to extend the streak; however, I decided to utilize my position of strength and continued trading.  Normally, this strategy is an effective way to grow one’s P&L, but must be executed with caution.  When resting on a cushion of profits, it becomes comfortable to focus on reward while turning a blind eye to risk; a recipe for undisciplined decision making.    This theme was reflected in my trades in COP and CVX.  At around 10:00, I noticed relative weakness in the large oil and gas names and ran TWAPs to get short.  The trade played out as I had expected and I was able to generate over $350 in P&L between the names.  As the market started to move higher I used the opportunity to reshort my names, believing that bounces in weak stocks would be sold into.  The pull-ins I was expecting never materialized and found myself shorting more stock as the trades continued to move against me.  Rather than set a concrete stop price, I focused on my P&L and told myself “Don’t worry if the positions go against you, you can afford to take the pain in anticipation of the eventual move in your favor.”  This mindset turned $350 of unrealized profit into $310 of actual loss.

To make matters worse, today I experienced the “dark side” of pairs trading; an event that occurs when your short name rallies throughout the day as your long name sells off.  This causes the spread to widen with unrelenting speed and will suck you P&L down the toilet before you have time to react.  I found myself with frozen hands and my only option was to hope the trend would reverse itself.  When you lose the ability to manage your position you expose yourself to the mercy of the market…she can be a witchy woman.  Out of my $760 loss today, $640 was attributable to this pairs trade.  Fortunately, the spread stayed within my stop limit for the day and I was able to take a position overnight.  For the past week, I have only witnessed the power of trading correlated pairs; today I was exposed to how violent they can be.  As my skills evolve in this trading style, I will learn how to better control large losses and escape falling victim to the dark side.

Frozen Hands

Get Green!

One, two, three strikes - you’re out!  Yesterday represented my third consecutive day of P&L losses.  Not only is this type of streak financially damaging but can be mentally disastrous.  Consistent losses make you question your overall strategy and shake your confidence.  For example, I believe that I have been trading according to the same rules that have led to success in the past; however, they have failed me in 2011.  I must realize that this does not mean that my strategy is wrong, but may need to be fine tuned to adjust for a new market environment.  In order to rebuild my confidence and work my way back from large losses I will stick to two main principals: stay small and get green.  First, trading with smaller share size will allow me to better control my P&L and stomach small losses while attempting to build profits.  At this point, I cannot risk another large draw down and must adjust my risk accordingly.  Next, it is imperative I book just one green day in order to break the negative trend and begin to build momentum in the right direction.  As Mosk always says, there is power in the green.

"I'm going to go home and sleep with my wife!"

Cause I’m Free, To Do What I Want, Any Old Time

It’s occurred to me that a portfolio is similar to a marriage.  Sure there are green P&L days, happy, honeymoon-like days. But in this economy, there are lots of days of deep red P&L, knock-down-drag-out fighting type days.  When I took down my portfolio last week, little did I know it would be this liberating.  No pressure to add into positions I don’t like anymore, no mathematical back flips to figure out the perfect hedge for the current stock mix.  Just freedom to trade what I’m seeing at the moment, looking for clear entry and exit points.  How did I ever handle the daily fear of the dreaded all assets sell off  program?

Tomorrow I will come in with only $180,000 worth of positions.  That’s flat compared to my usual $5,000,000 book.  But if the market gives me a chance, I will build my book back up, big, in anticipation of a late month run.  Why, you ask, go back into bondage?  Is it because I’m a sadist? Because I’m comfortable with the old ball and chain?  Nahhh.  Because I love making money. Oh, and in case I gave you the wrong idea, I love my wife.  At this moment. Alone with my computer and futures montage.


Today’s Aprox P&L:  $11,000

MTD Aprox P&L:       $103,000

Why the Late Day Selloff

It’s 5:20pm and I still have no idea why we sold off this afternoon.  My p&L hit around 18K at around 2:45pm and then started its march lower to end the day down around $7K.  It really sucks when you give up gains, especially big gains, and end on your lows.  I look back and wonder to myself why I didn’t just hedge out the book at the highs of my P&L.  Well, at the time leaving the book under hedged seemed like the right thing to do.  The Spooz were sitting between a tight R3 and R4 and my P&L was making new highs.  Why would I hedge the book?  I did have about 15 eminis short but that didn’t really do anything.  So today ends with me feeling pretty stupid for not knowing what I really couldn’t know, and still don’t.