More To Life October 29, 2009

We had a short post on the idea that there is more to life than the stock market a couple of weeks ago. Consider this a sequel.

Though we should strive hard to keep from making serious financial mistakes and putting ourselves — and our families — in tough positions, it still is important to keep LIFE in perspective.

Tim reposts some thoughts from Leisa, reflecting on the loss of her brother:

I have little to offer people who stop by to read this modest blog. But I assure you that today’s message is the most powerful and incisive that I could ever offer–one that you will NOT get from any paid subscription. Sure, investing is a provocative subject: it’s sexy, it’s intellectual and it’s instant, provocative conversation. But in the end, it is your financial health. But I want to tell you, bluntly, that if you fuck up, it is not your life. It is never your life. You start over. You dial back to being in your 20′s again–poor but idealistic. However, never, ever is it your life. (Of course the underlying message is NOT to screw up (no more than 2 f-words in a post!).

I don’t know what 2007 will bring. I don’t know a damn thing but this: You are not your bank account. You are not your annual return. You are not your annual salary. You are a spouse, a mother, a father, a friend, a son or a daughter, but you are never a dollar.

So whatever decisions that you choose to make about your life–whether it’s a stock purchase, business venture, financial investment, love interest or employment decision–you do so with conviction that should it blow up in your face, you can face the next day with the stain of embarrassment on your cheeks or a “how could I be so stupid” slap to the forehead, but you continue to be a part of the lives of the people who know and love you. And all of these things I feel well qualified to tell you.

Emphasis added.

Important stuff. Don’t forget it.

You can find Leisa’s blog here.

Idiot Trades October 28, 2009

…and trending markets.

Some good stuff from Brett Steenbarger:

In this post, I’ll define what I call “idiot trades” and then I’ll define trending markets.

An idiot trade is one that occurs in a market that has already made a healthy directional move. As the market is further moving to new highs or lows, the idiot trade chases the movement with large size transacted at the market. Thus, it’s hitting bids into market weakness or lifting offers into strength. The trade is sized up, so that the trader is basically going “all in”.

The reason it’s an idiot trade is that, most often, it’s a capitulation. The trade is made either out of panic (can’t stand the heat and ignored earlier stop levels) or out of a fear of missing “the big one”. The key to an idiot trade is that it is made more for psychological than logical reasons.

Make sense? We’ve all placed idiot trades. They make us feel like idiots when the market, having made its healthy move, then makes a normal retracement, leaving us under water with good size on or just leaving us with the bitter feeling that we sold the low tick or bought the high one.

What makes it worse is that sometimes we *know* we’re making an idiot trade even as we’re executing it. My worst exits have been idiot trades, where I’m getting out simply because I’m afraid of giving back a profit or losing a larger amount of money. The idiot trade is made to seek relief, not necessarily to maximize reward relative to risk.

So what’s a trending market?

It’s one that ultimately does not punish idiot trades.

If you watch trades come into the market at key price levels (Market Delta is good for this), you can see the idiot trades and sometimes you can see herds of idiot traders acting in concert.

How the market ultimately treats those positions tells you quite a bit about whether we’re in trending or range bound conditions.

Game Over October 15, 2009

For those that need to be reminded that there is more to life than the markets — from the comments at SOH:

What I am saying is, the market is just a bunch of blinking lights on a computer screen. Up or down, good days or bad, your account is just a bunch of numbers. It is not life. It is not who we are. It does not define who we are. As Larry Miller once said, If you are healthy, if you have somebody who loves you, if you are able to get up out of bed in the morning and make your own coffee, the game is over — and you have won.

Amen to that.

Trading 'Tilt' October 5, 2009

It was just one trade…

A few of the many lessons to be learned from this story:

The market is always right–except at significant tops and significant bottoms.

Keep and open and flexible mind. When in doubt, get out.

If you must have a guru, take him or her with many grains of salt

Do not add to losing positions.

Try every day to make yourself stronger, better and more integrated as a person.

Stay true to yourself. Lying to yourself and others, and trading on hope and prayer do not work

Most importantly, accept and recognize that you are not perfect. You are human and are going to make mistakes. Trading is the only profession where losing is actually winning. BUT— unless you accept mistakes as mistakes and learn from them, you will not progress and be upside down. Unless you are able to get your trading brain out of the cave you will not accumulate regret. It is only through the true acceptance of a mistake as a mistake that we accumulate regret. This is how we learn and grow as traders and human beings.

Hopefully you’re not the guy in the story — and never will be.