Saturday, February 6, 2010

Now that the market is closed...

Okay so Thursday and Friday I let my emotions get the best of me, and to be honest they drove my trading decisions. I did not like seeing some of my positions trade against me. I also felt like I was missing out on this downmove and felt compelled to have positions on. But the reality is that you don't have to make a trade. I tried to force some trades when I sold those call spreads in GOOG, PCLN, and ISRG. Only to realize that I was not comfortable with the risk vs reward of those positions. I tried to convince myself that I was but risking $3400 to make $540 just did not sit well with me. I felt very anxious. So I did the prudent thing and took them off.

Both the entry and exit of these positions were out of pure panic. After I exited the call spreads I had to get up and go for a walk to clear my head. As each call spread was actually considered 2 positions, it caused me to trade 6 round trip day trades in a 5 day period which led to a margin call for pattern day trading. My first instinct was to fund my account with the additional money to bring me up to the minimum $25k so that I can trade immediately. But after I gathered my thoughts I figured it may be a good idea to just request a PDT reset that can be done once every 180 days. This means that I would not be able to trade for another 5 days until the day trades cleared but I think this would be good. I will have the next few days to reflect and analyze the market with out any pressure to put on new positions. I will also work on defining some risk metrics and finally write out my trading guidelines (For example, max risk per trade).

Things that I will try to internalize. The markets do not go strait up, but either does your account value. You will have periods of draw-downs and this is normal and a part of playing the game. When these draw-downs happen you job as a trader is to minimize losses in the best way you can. It is very easy to get scared away from the market and have self-doubt in periods of draw-downs. I had all kinds of negative thoughts as to why I would never be able to do this for a living and how I needed to change my trading style, but these are just irrational thoughts that happen when you are wrong. After I take a step back and clear my head, I don't believe any of those self-defeating thoughts but it is important to be able to identify these moments and work through them.

Have a great weekend!

1 comment:

  1. ThanX Dom.

    When we definitely broke the uptrend the 3rd week of January (I was in Dallas the whole time watching my 2010 P&L evaporate) I came back sensing the correction and the over-valuedness of the market combo'd with the dollar's upward momentum. I waited for that small bounce the first days of February to exit almost all my positions leaving only small super-longs. Now I'm sitting on my hands waiting for the market to show us where we're headed. I had a few sleepless nights the last week of January but now I'm feeling relaxed and patient.

    Call me masochistic but I really love when the market gets difficult and slaps you hard because I know that in the long-run the insight and knowledge gleaned from the beating will ultimately prove invaluable. I'm also focusing on the silver lining. I just did my 2009 taxes and did not like having to surrender some money back to Uncle Sam for last year's trading success. This is the first year ever where I've had to pay the state.