Off The Cuff Nonsense and Living in Interesting Times

It’s been a crazy week. We got Bin Laden, the market saw a 12 point gap up and a 10 point gap down in one week. Lots of ups and downs in the market, lots of churning. Below you’ll find another contribution from the journal of @seldomawake as he reflects on some of his actions during the course of this week. Enjoy.

“Plan your trade, trade your plan.” I must’ve seen that a million times on the stream. Everyone, I figured, must be sick of hearing it by now. Except, apparently, I wasn’t.

Last night, I tweeted my read on the market. If memory serves, I said that the IWM chart “needs a chalk outline,” and that while I was getting sell signals from my charts, SPY and DJI hadn’t quite confirmed the sells. Today, of course, I got that confirmation. However, when I pull up my broker page, I can’t help but notice that I am the owner of a (significantly diminshed) swing-sized position in IWM… calls.

How on earth did I manage this? The problem, I suspect, is best expressed by John Wayne: Life is hard; life is harder when you’re stupid. You see, around 1PM, I couldn’t help but notice that my stocktwits stream started jumping like a grasshopper on PCP. The bulls were on parade. I saw as one trader after another made money and the market shot upwards, and calls that I had been watching jumped 10, then 20 percent.

“Holy cow,” I thought, “this train’s leavin’ without me. Where’s an entry?”

I dropped whatever I was doing. I must have, at the same time, dropped any plans I had carefully developed the night before, because I went from “careful, sit on your hands” to “BUY! BUY! BUY!” in sixteen minutes flat.

However, I had a problem. The charts were still screaming bloody murder. You see, I’m a swing trader. I trade five, maybe eight times a month. The smallest chart I use is an hourly chart.

Of course, hourly charts don’t allow for 16-minute bear-to-bull transitions. So… I started looking at shorter charts. And there, on my 20-minute chart… there! There was a reversal! My bullish thesis was confirmed, I could now buy with impunity!

So bang, I did. And sure enough, I had a quick 5% gain. Then, of course, the big charts asserted themselves. The short move completed, the larger bearish paw came down…and squished my calls into the close.

The truth of it is, even if we had rallied into the close and closed green, it would still have been an awful trade. Trading the 20 minute chart isn’t my plan. My plan, of course, had gone out of the window the minute I, however subconsciously, was swept up in the stream, and decided to trade on other people’s sentiment. The trade was right for them, and not for me.

I know that I was swept up in the excitement, because in my trading journal, I wrote as I entered the trade, “Discipline should trump conviction, but…” What’s perhaps most painfully hilarious is, I had written this under the “emotional state” section of my trade log. Painful, hilarious, and, uber alles, telling. We decide first, and rationalize post-hoc. This isn’t new. I just can’t believe I’m still doing it. I thought I was over this amateurish error.

I’ve spent over a year working on coming up with a system that works with my style, that I know how to handle, that carefully frames, plans, and allows me to develop my trades. I spend hours night after night, studying, looking for an edge.

Taking a trade because it’s trending on the stream, be it from greed or from fear, tosses all that work out of the window. The off-the-cuff nonsense invalidates all the work we do night after night, the work we’ve put in over the years. It takes a boring, profitable trade, and turns it into an interesting, heart-pounding, watch-each-candle-paint, kind of trade. I, for one, have had enough of living in Interesting Times.

I can’t wait for trading to be boring again.