Go green or ride? / Grow..

Hmmm... I could take profit for Wilmar now and be green for the month. Or I could ride my profit with Wilmar. Again I used my intuition to make a decision. I decided to ride. I know I said I will like to be green for the month consistently, but things are different each passing day. And in order to grow you need to make actual decisions. You grow with each decision you make and each consequence you face. Do not avoid your trading losses. Face them, cut them, analyse them. Experience will enhance your intuition. It is not sixth sense in that way. It is intuition born of experience.

I have done systems trading in a purely mechanical way before. Believe me, it will not make you grow. You will not grow much in terms of experience. Financially maybe but then systems trading tend to go out of whack once too often. And you find yourself giving it all back to the market. I strongly suspect that is the case with all the system peddlers out there. Hence they need their teaching income to provide emotional security for themselves.

So do make the effort to think and make decisions for yourself. Grow with every trading decision. I never intend my blog to provide timely tips and such. I blog outside office hours because I have a full-time job. I set sms price alerts in cyberquote. And I monitor the market once these alerts are triggered. I use my mobile to buy/sell discreetly. I need my full-time job more than my trading income. I will probably only consider trading full-time when my R grows to at least 3K. R=3K implies I got 3K X 100 = $300,000 lying around somewhere as trading fodder. My ammo. And not tied to a house or for children's needs etc.

Re-entered the market with Wilmar breakout

I felt a strong emotion of missing out this morning. I knew this emotion. It is the anxious fear of missing out and what causes traders to chase a stock. In the past, this emotion and my subsequent act of chasing tends towards loss not gain as I remembered it. Hence I decided not to chase. But I still wanted in. I felt at this juncture, it could still go up despite some bearish crossovers of MAs in the Dow and STI.

So I engaged my risk management 'mode', quickly assess a few stocks and picked Wilmar for a risk of 1R and using a different technique. This is the 'resistance turn support' technique. It is also a breakout of the 5.3 level resistance. I decided to use this because Wilmar actually looks good for breakout techniques. I did not want to enter the market because of the bearish looking MAs and scooping the channel bottom does not give a good reward/risk if you take the overhead MAs as resistance. But with a breakout, ah.. it is a different story. Resistance becomes support

at 5.27 thereabouts. Break I cut.

But alas the price in the morning was 5.49 and there was a gap up. So I bid and waited at 5.4. Chasing it is out because risk control is foremost for me, despite what my familiar anxious emotion. If I miss the trade, no matter, the market is always there and anyhow enter, anyhow get slaughtered. So I just wait.

12.28pm, sms came in and my Wilmar is done at 5.4.

(Sorry guys no charts, recently got busy with work. Maybe over the weekend)

Cut loss for Kepland / Intuition?

I have cut loss for Kepland at 2.03. Well, that makes 4 losses in a row. I am in a payback cycle. Well that is fine because I only risked 0.5R for this trade.

I told some friends I do half mechanical, half intuitive trading. So where does my intuition come in? When I decide to enter Kepland at 0.5R risk. And I also told you before, I was staying out and right after that, I re-entered with Kepland. That is again intuition.

What is more mechanical is my risk management and control. I never 'lost it' yet and planned a trade with R>1. In other words, I never 'lost it' and decide to risk 2R on 1 trade. Yet. So I am proud of that consistency.

True, you saw my recent loss of 1.6R for OCBC. I planned for 1R but got 'slippage' and ended with 1.6R. Why did I not just cut at 1R, when I had the chance, and I did have the chance? Because of my intuition, I made up my mind the day before that I will allow some leeway and cut the next day if things are still unfavorable.

I use my intuition in the quiet of the day before market opens and decide there and then what I will do based on snapshots of the market. So I merely execute my plans when the market is active. I do not really make any decisions when the market is open. Those decisions are pre-planned.

But of course my intuition is far from perfect, but it is still based on 2 years of active trading experience.

How emotions affect your judgement

Now, you may be thinking your emotions do not affect your judgement you use in driving from point A to B. Same way that your emotions will not affect your judgement that the current rally has reached a pause.

Very true.

So I have been talking about emotions affecting your trading, and you may not quite understand. So if you do not really understand, you will probably still risk 10% of your capital on that trade or investment.

Rather emotions will affect whether you tailgate that dastardly road hog. Or emotions may affect you to weave past 4 lanes of highway road. And no problem, you have done it before. You can do it again .. and again .. and again til... one fine day. You get my drift?

Same with how emotions will affect your trading decision to double up on your losing positions or not to cut your loss short. Exuberance will make you stake 100% of your capital on one trade. Fear will make you hesitate on that signal and miss out on a winning trade. Still the emotion of getting back at the market will cause you to do revenge trading and entering into unnecessary trades.

When does emotions become an issue? When you are trading too big for your shoes. Same way that young drivers should not drive Ferraris (generally).

Monthly Review of Trades

SIA 15/5 - 10/6 == +6.2R

OCBC 29/5 - 15/6 == -0.5R

Capitaland 8/6 - 16/6 == -1R

OCBC 19/6 - 23/6 == -1.6R

Profit/Loss == +3.1R

Win Rate == 25%

BTW, these figures include commissions.

R is my planned amount that I am willing to lose per trade.

I made 4 trades that ended this month.

I lose 3 and win 1.

And I am green for the month! Just like the past 2 months.

So suppose I have a capital of $20000 and I want to risk 1% for each trade i.e $200. Then my R == $200. Then my profit would be $1240 and my losses $620. Net gain == $620.

If my capital base is $200,000, my R will be $2,000. I would be comfortable risking $2000 per trade. My profit == $12,400, my losses == $6,200. Net gain == $6,200.

That is how it works. But remember, you do NOT risk what you do not have, you do NOT risk whatever cash that is meant to pay your monthly bills or maintain your lifestyle. You do NOT trade so that you can afford that car you been eyeing for months. To do so, will seriously impair your judgement. Your emotions will make sure of that. You will fear you cannot pay up some bills. You will be hoping for a bigger unrealistic gain just so that you can afford that car now!

And also it is very important to build up your risk appetite(R) SLOWLY. Lets sayR=$400 ... then you get a little bored after 20 over trades over half a year, slowly test your emotional acceptance with R=$600, then $800 and so on... That is how you grow... slowly. Do not rush. Get consistent and profitable over 20 trades, then look at your increased capital base, work out your R, get comfortable losing that little bit more.

It all begins with how much you bring to the table, and how much you are willing to risk: 1% or 2% of capital should be just nice.

Quote time!

Ralph Waldo Emerson has accurately said, "One of the illusions of life is that the present hour is not the critical, decisive hour. Write it on your heart that every day is the best day of the year."