Monday, July 13, 2009

Why market? I have been nice to you ....

My Story for the week .... its a bit long =)

Well, if there is ever a worst possible outcome to a trade - this is it. As mentioned I finally stepped it up and used my futures account for the first time in a while to make a trade with a targeted exit for more then 15 points. So here I went with 2 great entries, long off the bottom on Friday (less then one point off), short off the top on Friday as a hedge with a 3:2 ratio long to short. The reason I went short as well is the entry off the low was the best for the day but not the best for this move higher as we would have retested the lows for the week. Both positions combined at the low of the week would have been break even (hence my short hedge with the proper ratio).

We had held my important support at 876 and closed marginally higher prompting me to close out my short hedge. I was pretty confident going into the weekend long but was prepared to re-enter the hedge if we started to open lower on Sunday night.

Watching the market open sunday night we started to trend higher off the open. I was stocked for a good trade and turned off the computer around 9:00PM with a great gain on the position already. As I was without hedge I decided to put a stop on this position anyways just in case. FYI 9:00PM was the highest tick for this move. So the market must have known that I walked away.

As I got up around 4:00AM today I expected a nice move into my direction - no, that did not occur. I am kicking myself at the moment for having set a stop at 865.75 (25 cents off the low of the day). Of course I got hit at the worst possible time. As we are trading now my position would have been back in the money. Hindsight is 20/20 and I am not sure why I did not use a stop below the weekly low point - I honestly did not expect it to go this low and used a standard measure off my average price (in this case 4 points) to set the stop.

I had many different possible outcomes for this trade. As I had a great starting point every scenario had me coming out either break even or in the money. Consider this, both positions combined would have been break even at 865 without a loss. This was my worst case scenario, break even on this position. Final outcome at this point is a nice sized loss ....

The more and more I think about this position - the more frustrated I get. Great trend analysis, great entries, great trade strategy with proper hedge and sizing. Looking back at how the trade was placed and managed for entries I could not have done it any better. All the things were there for a great trade even if the trade did not move into my direction at the beginning - almost impossible to have a negative outcome.

Ok enough of this rant and sorry to waste 10 min of your time if you read all this. It really does seem at times that the market makes the most improbable moves to inflict the most pain to you.

Ok getting my coffee now and starting my day .... still steaming from this move here.


  1. Hi Chris, general question: Should the market continue to chop around this range (880-869) for some time, would it favor the bears or the bulls? In other words, the longer it remains flat here in this range, the more likely the market will go.....up/down? Thanks!

  2. we will be out of this range very soon. The range for chop was the last 2 months. This here is just a little bit of hesitation before going lower - a lot lower. There is not much at this point holding the market back from dropping.

    The one thing that has me a bit surprised is the MAX pain for OPEX. The open interest in higher prices is quite substantial. So I am very surprised to not see a rally here and having broken the important line of 876 I had talked about last week.

  3. Wow, now thats a terrible beat, really hurt to read this as I put myself in your place and think about how frustrating and homicidal-rage-inducing such an experience would be.

    I really feel your pain :-(

  4. thanks MrTrader ... I really underestimated how much this one trade affected me emotionally. I normally handle losses quite well but this one really went beneath my skin today.

    I have to be honest, today was the first time in a LONG time where I thought that maybe trading is not the right thing for me.

    The worst of this entire thing is that I had anticipated such a move last week and finally got the guts to put my money where my mouth was.

    Well, if it does not kill you it makes you stronger I guess - still not feeling any better though.

    I am sure I will come out of it again, as I have done so in the past but it really takes the wind out of your sails - especially since that has been my first large futures trade in a while .... sigh

    But everyone has days like that, the way you recover from those type of losses are what makes you a great trader. lets hope I belong into that category =)

  5. Such a trade is the emotional equivalent of a knee to the groin just when your expectations are set on one of the greatest joys of trading – a beautifully executed and profitable trade (at the exact opposite end of the pain/pleasure spectrum) – that’s what amplifies the pain exponentially and spawns the sort of thoughts you never imagined would be crossing your mind.

    The shattering of favorable, probabilistically-assured and almost-harvested expectations just before being “proven right” after losing everything you would have gained from being right is incredibly emotionally damaging – as you have correctly observed in your emotional self analysis. To endure such an episode of “insult to injury” and to only lose the wind in your sails sounds like a best case scenario as such experiences often claim much more than the wind of a trader’s sails.

    Best you can do is analyze the experience and try to avoid future repeats – if possible. In your particular case, it appears that setting the stop within the previous ‘pivot zone’ rather than slightly beyond it was this trade’s downfall. I personally have suffered several emotional knees to the groin due to this mistake (i.e waiting for excellent setup, entry at 50 or 62% retracement with stop at 80 or 90 % retracement) – only to watch the market roll over in my direction after taking out my mis-placed stop loss. Perhaps a stop at 105% is more prudent than accepting a reliance on mental stops as those can entail their own special emotional cans of worms.

    I actually saved an excellent inspirational bad-beat-in-trading related post by a great blog author on my other computer. If you would like I would be happy to dig it up and send it over to accelerate your emotional healing and moving-on process.

    The sooner you go through “the process”, the better – I'm guessing disbelief, anger, self-doubt … and finally acceptance, and I’ve got a hunch that the catalyst for your getting over this bad beat will be your next great trade – only without the one-in-a-thousand overnight screw-job.

    You’re right that everyone has days like this (at least it helps to believe so :-)) and the way you recover certainly says a lot about your ‘trading fitness’.

  6. yeap you hit the nail on the head. My stop was just a point above where it should have been. Stop should have been at least at 865.00, preferably 864.

    I was blinded by having a nice sunday night open into the plus zone never in a million years anticipating a strong move down like that.

    If you can find that post about emotional healing definitely let me know. As a result of today I ordered "trading in the zone" by Mark douglas - lol, going to give that a read and see what he has to say about bad beats like that.

    Well, I am feeling a bit better tonight - looking for the next opportunity for all of us. As we are at quite an important point now we get to have a nice range to follow for the next 4 weeks, with new chances long and short.

  7. Found it here

    Some highlights:

    What I do want to talk about tonight is focus. There is a good chance you have lost some of yours after this horrible whipsaw. Focus is everything and if you lose it you’re doomed to fail, no matter what you do.

    Not sure how many of you saw the last Superbowl, which I think everyone agrees at this point became instant football history. Frankly, it doesn’t get much better than this. This is how it went down: The Cardinals are in the lead with less than a minute to go. It’s crunch time and Roethlisberger knows it. I don’t know why I but somehow I knew he’d go for a Hail Mary - maybe something magic was in the air. And sure thing - he throws a perfect pass over three different Cardinals into the back right part of the end zone. The Steelers’ wide receiver Santonio Holmes stretches his hands high in the air and somehow manages to grab the ball. While making that spectacular grab he also somehow manages to tap both toes down in bounds, giving the Steelers a 27-23 lead with just 35 seconds left.

    This is what I mean by focus. It’s the difference between winners and losers. Simple as that. You lose your cool you are toast. You doubt yourself - you are toast. You are beaten down, on your ass, feeling like you need to throw up. That is the defining moment in your life, in which you decide if you are a winner or a loser.

    What are you? I know what I am - and that’s why I’ll show up for work again tomorrow morning - trading my my system and relying on what I have learned over the years. I’m not going to force it - I’m not going to try to ‘get it back’. I’ll trade like the evil trading machine that I am - cold, ruthless, and in the end - profitable.

    Listen rats - what happened today is a bit like a terrorist attack. You never see it coming. Beyond the human tragedy I always find it interesting to observe human behavior after an attack. The day after the event security is on high alert, everyone is scared and worried about a repeat. But it never happens of course, as the one important ingredient is missing - the element of surprise. If you are a terrorist and you made it out alive, you’re gone by then - your job is done. After a few weeks people start to relax again, and slowly over time they let their guard down. Officials start pulling back some of the security forces, they become more lax again. After a few months, it’s back to business as usual (well, almost - I’m not trying to trivialize the situation). Which is exactly when new attacks occur - probably somewhere else than the first time around. Rinse, lather, repeat.