Monday, May 22, 2006

Mercatorius Expletio - Stopped out

Day 31,32,33 - The week of the crash
Total Account Value: $3540
Available Equity: $3292
Positions Remaining Open: 2

I've never been one for game shows. Not only do they offer some of the driest television moments you will ever behold, they also incubate simpleton culture in their simpleton viewers' minds. And would any expert disagree that the illusion of free money and prizes is unhealthy?

I just finished watching an episode of "Deal Or No Deal" that made me feel sick to the stomach. A friendly looking yet doltish mother of six was vying for a 1/26 chance of taking home $200,000. Half way through, the cards were falling nicely and the "bank" was offering a generous $40,000 guaranteed if she decided to walk away. But no...it seems there was a reason behind her daredevil confidence.

"We own a holiday house in Point Lonsdale (affluent Victorian beachside community) that has passed down through two generations," she said in so many words. "At some stage it was mortgaged and now we need to find $400,000 to keep it." God knows what the funds were needed for, but if I was the ancestor who built the house with my own sweat and blood I would be turning in my grave. The charismatic host oohed and aahed and gave her a "shoulder to lean on" but I bet he was thinking the same thing I was - another Cashed Up Bogan (CUB) that the popular media has been talking about recently. Think David and Victoria Beckham, Russell Crowe, Shane Warne and on the not so famous side, jacuzzi-buying goldminers. This former CUB had gone bust though, and she was (quite literally) risking the house on a pure, televised gamble. Reverse Darwinism taking over - survival of the dumbest.

I'll spare you the torture but she left the studio $5 richer. A booby prize for the boob who fancies faith over reason. It was a very timely reminder that most people in the world have little practical intelligence when it comes to risk mitigation and money management. Alarmingly though, consumers like these actually keep the economy ticking over. Watching the public humiliation of the CUB left me vindicated in my decision to stop myself out of trading altogether.

Yes, I've been away for a few days, not because I've been brooding over my losses but because I've been lacking the right words for this diary entry. Wednesday of last week was average but unspectacular as my account balance fell slightly yet again. However I erred fatally in placing complete trust in my charts - the individual daily, weekly and monthly charts of different (non-resources) stocks. Unfortunately, more longer-term buy opportunities were noticed. So through the carnage that occured on Thursday not even my loose stop losses and minor position sizes could save me from a sad demise.

My running account balance collapsed through my maximum loss limit of $4000 to $3400 before making back $100 due to the survivors (HSP and ABC). Gaps appeared on just about every chart no matter what the circumstances, and most rose slightly after that. If anyone made a killing on Thursday they must have combined fiendishly good future with a disregard for the "rules". (Shorting most big resource stocks would have been risky). My biggest annoyance was that in the most recent two weeks I had earmarked many stocks as strongly bearish but shorted them unsuccessfully. Now they have responded - ILU, AXA, MBL (ouch), BIL, RIN, WPL (ouch), ASX - you've seen me talk about them all. The obvious lesson here is to keep stop losses loose but is that safe in an underlying bull market?

So that's the way it is. And even though I wince to admit that my experiment ended in monetary loss I'm not ashamed to say that I failed. Give or take, I have learned more in the last two months than I could have learnt in two years of reading. A good friend reminded me on the weekend that if I started this last year I would be rich. While hearing this buoys my spirits I will not place all the blame squarely on the market. Shit happens and you must expect the unexpected. Still, the market has been wacky lately and is no environment for a beginner.

When the kinks are ironed out and everyone re-mounts the bull I will resume (only on a lesser, less active scale). However, while the followers who follow fables of guaranteed riches will erase from their memories all events further than one week past, I will remember how it felt to crash land. I'll remember how it felt to admit to others that I wasn't good enough, and that I had no choice but to succumb without an opportunity to resurrect the situation. But most of all I'll remember how good it felt to brush away the dust and keep walking, only slightly bruised but nowhere near broken.

10 Comments:

Anonymous Marco said...

Hey Andy... Keep up the entries!

I also don't like Deal or No Deal. Most of the game is based on pure luck but when someone gets offered that amount and they refuse - I just shake my head in disbelief.

Anyway, with your trading... maybe you should just hedge your bets and just trade the indices like the All Ords or certain industries? Remember that you should benchmark your trading so you can measure your performance.

4:14 am  
Anonymous Anonymous said...

Hey Andy

bad luck on your bad run - I have enjoyed your posts though, so keep them up, if you have the time!

cheers

2:24 pm  
Anonymous Anonymous said...

Andy, to lose now is a good thing and you must expereince it. It will not be the last either. If you simply won wouldn't have that been too easy. Come back and fight again one day and I'll be here to read if you post.
Glenn

9:27 pm  
Blogger Trader Andy said...

thanks guys,

marco - hedging is a good idea but with an account my size I'm a bit unsure. And if I kept trading I'd be no better than the idiot on the gameshow..
Also I read your post on benchmarking and it's something I'll definitely use in the future. I can see now that my losses probably werent that bad compared to the average CFD trader.

anon - two friends told me i should paper trade and keep posting...but I'd feel like a fraud. I may be back sooner than you think though

glenn - nicely put. anyone can make money in a involatile bull market.

and to everyone else who read, thanks for supporting me. It was more than I expected. Watch this space sooner rather than later

4:47 am  
Anonymous Anonymous said...

given the big drop in lme prices on fri night shorting resource stocks on asx mon. wouldn't have been risky.

7:54 pm  
Anonymous Anonymous said...

i tend to agree with the other anonymous posts. temporary defeat is apart of the learning process.

3:11 pm  
Blogger elite-proxy said...

I believe a lot more have suffered losses with the way the markets are now. It seems as though if you aren't using a computer aglo and doing HFT, then you have the entire house betting against you.

Swing Trading

11:01 pm  
Anonymous CFD said...

It goes without saying that you need a positive expectancy trading system or an edge in the markets. There is a saying at poker tables along the lines of “if you look around the table and you can't see who the sucker is, its you!”

5:13 am  
Blogger Maureen Grace said...

This comment has been removed by the author.

5:13 am  
Blogger asif ifteakhar said...

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3:17 am  

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