Emotions
"I can't sleep" answered the nervous one
"Why not?" asked my friend
"I am carrying too much cotton that I can't sleep thinking about. It wears me out. What can I do"
"Sell down to the sleeping point", answered my friend.
Cotton is a form of commodities by the way. The cotton here will refer to futures contracts of cotton. Futures are very speculative stuffs and fluctuations in prices are volatile. You can go from earning 100% to losing 100% in half an hour.
For this week post, I will to extend last week's topic on trading mentality by touching on emotion control. Well, mentality and emotion are related in a sense that they are both intangibles of trading. Those who have really traded stocks in real life (usually when just started) will probably behave like that. I will give a real life example about my friend in the investment team.
Back then; we were holding HSI put warrants (basically if Hang Seng Index, HSI, goes down, we earn money if not otherwise). There was few days that Hong Kong was closed while the rest of Asia were still opened for trading (I think it was long weekend as well). So we actually bought some put warrants on those days, anticipating a break in US markets, and therefore a large break in Hong Kong because it was closed (I call it a spring effect due to panic). On those nights where Hong Kong market was closed and US markets were trading, my friend would wake in the middle of the night, dreaming about Dow going up 100 points and how our warrants react to it. When he went back to sleep, he dreamt again, but this time it was the other scenario. Luckily, our trade paid off. This was his first time into the stock market. What an experience for him.
It will occur when you just start trading so take it easy, ultimately you have to control this emotion as you gain more exposure. I was affected to a small extent actually, maybe because I was used to losing LOL.
You have to be cold blooded when it comes to trading. No emotions should set in and overwhelm you whether it is fear or pleasure. Money comes and goes and if you cannot take the rapid flow of money, then you should not be trading. Always stay calm before thinking about entering a trade. When the market proves you wrong, just pull out and reconsider your trading plan. It is no point brooding over a mistake or carrying a mistake because you are so afraid to lose the money. The next thing you know, the stock that you are holding went down further. It is very hard for you to learn just by reading. I classify this as the intangibles of trading. Similar to trading mentality, it comes with experience. This is also a reason why I don't really support or believe in paper trading. In paper trading or simulator, you cannot experience this sort of emotions ride. In an extreme point of view, it is like asking you to play a Counterstrike game with a real gun pointing at you and you have to win! You can be a CS pro under no sorts of pressure but when it boils down to life and death, you simply break.
I am not asking you to throw money anyhow but telling you to treat trading very seriously at start and learn to control your emotion. When a stock goes wrong, what do you do? Those who fear to make a loss will turn into an involuntary investor in the end as they opt to hold on to it, HOPING that it will bounce upwards. You simply can't learn.
If that NTU guy can pick himself up, he is probably closer to being Jesse Livermore than me. Negative $300k for a 20+ year old student. Salute.
Quick Update
Some nice article for you guys to read as well. Here is one about oil and another about the Super Spike theory from Goldman Sachs as well. Well, it was one good reason for me to re-buy oil at $120.50.
At the beginning of the week, things were looking pretty good. First, oil shot to $120 and stayed there and gold, my big mistake, went to $880+. I covered both at the respective price.
Many will wonder why I cover gold since I recommend gold for the long term. For one, I didn't expect the losses to be that huge when gold was at $860. Actually I adopt a 10% stop loss. So by right I shouldn't be holding gold. But from the way oil is going on monday, I think maybe my gold will go back up slightly. Luckily, I was correct. From -40% to 0%, Phew.
Oil was excellent. Bought it at $113.40 on avg, closing at $120. You do the math. Anyway, I was watching oil very carefully these few days because it broke $120 and stayed there. On tues, I bought back oil again at $120.50. I was pretty sure that it had broken the resistance level and would stay about $120, probably shoot higher when inventories report come out on wednesday. However, inventories report was horrible to my position. Supplies went up more than expected. I covered at about $121. Guess what? No one cared about the report yesterday and oil closed at record high above $123.
Well, I suggest that you buy oil again and let's see it march towards $130. A good time entry will be next week. I don't really like the way dollar is moving. It is showing some strength this week. I believe oil will hover about this level till next week. Dollar should be going to around the 75 index level. Don't really know what is the value in terms of Euro.
Stocks
Fannie Mae was bad as expected by the whole market ended up slightly for the day. LOL so did Fannie Mae, up 0.5% I think. I was so wrong with Cisco, neglecting the fact that Sun Microsystems's weakness might attribute to Cisco strong earnings. However, Cisco was slightly down. In the end, I closed Cisco at flat. Another lucky story. Sembawang Marine was way off as well. The profits didn't look outstanding to me when I compared it to Cosco and Keppel. But I was able to close it at $3.99. So it was another flat stock story. I shorted it at $4. However, at a trader's game (tradershub.net), I was caught almost everyday by Sembawang Marine as I had to short it day by day.
The only good thing about this week was yesterday. Dow was down 200 points; S&P was at 1390. I told you that we would not be going up. =). Anyway, I am shorting US airlines now, mainly AMR because of oil's rally. Well, I don't know if SIA will response the same way as US airlines. So it is probably safer to short US side than SG side.
For Singapore market, because of strength in dollar which I think will carry on for the rest of the week, so I suggest shorting Wilmar at $5 (it is the current price as I am writing). Palm oil should be taking some form of pullback. I am shorting wilmar and this stock called ManhattanRes in the trader's game right now. During weekend post, I will mention about ManHattanRes. It is quite interesting in Singapore context.
That's all folks. Ciao
"A man must believe in himself and his judgement if he expects to make a living at this game."
Jesse Livermore
"I can't sleep" answered the nervous one
"Why not?" asked my friend
"I am carrying too much cotton that I can't sleep thinking about. It wears me out. What can I do"
"Sell down to the sleeping point", answered my friend.
Cotton is a form of commodities by the way. The cotton here will refer to futures contracts of cotton. Futures are very speculative stuffs and fluctuations in prices are volatile. You can go from earning 100% to losing 100% in half an hour.
For this week post, I will to extend last week's topic on trading mentality by touching on emotion control. Well, mentality and emotion are related in a sense that they are both intangibles of trading. Those who have really traded stocks in real life (usually when just started) will probably behave like that. I will give a real life example about my friend in the investment team.
Back then; we were holding HSI put warrants (basically if Hang Seng Index, HSI, goes down, we earn money if not otherwise). There was few days that Hong Kong was closed while the rest of Asia were still opened for trading (I think it was long weekend as well). So we actually bought some put warrants on those days, anticipating a break in US markets, and therefore a large break in Hong Kong because it was closed (I call it a spring effect due to panic). On those nights where Hong Kong market was closed and US markets were trading, my friend would wake in the middle of the night, dreaming about Dow going up 100 points and how our warrants react to it. When he went back to sleep, he dreamt again, but this time it was the other scenario. Luckily, our trade paid off. This was his first time into the stock market. What an experience for him.
It will occur when you just start trading so take it easy, ultimately you have to control this emotion as you gain more exposure. I was affected to a small extent actually, maybe because I was used to losing LOL.
It is not the financial markets, nor government intervention in the markets, nor even the other competing traders that are the greatest enemy of any speculator, it is the greed and fear dwelling deep within his own human heart. To become an elite speculator, one must carefully learn over decades of real-world trading how to turn off one’s own dangerous emotions of greed and fear like a switch. The goal is to be totally emotionally neutral, never growing too scared nor stumbling into the deadly trap of greed.
A greedy speculator is doomed before he even starts because he will buy in at the wrong time and will inevitably fail to sell high when everyone else is confirming his greed and bidding up prices. A fearful speculator will fare no better, as he will be too scared to buy in at the right time when everyone else is also frightened and he will sell out too soon as his fear multiplies, missing most of the market move.
Jesse Livermore learned through long, hard experience that his own internal greed and fear were his greatest enemies as a speculator. Once he learned how to tame his own dangerous emotions when he traded, both his success and fortunes soared.
You have to be cold blooded when it comes to trading. No emotions should set in and overwhelm you whether it is fear or pleasure. Money comes and goes and if you cannot take the rapid flow of money, then you should not be trading. Always stay calm before thinking about entering a trade. When the market proves you wrong, just pull out and reconsider your trading plan. It is no point brooding over a mistake or carrying a mistake because you are so afraid to lose the money. The next thing you know, the stock that you are holding went down further. It is very hard for you to learn just by reading. I classify this as the intangibles of trading. Similar to trading mentality, it comes with experience. This is also a reason why I don't really support or believe in paper trading. In paper trading or simulator, you cannot experience this sort of emotions ride. In an extreme point of view, it is like asking you to play a Counterstrike game with a real gun pointing at you and you have to win! You can be a CS pro under no sorts of pressure but when it boils down to life and death, you simply break.
I am not asking you to throw money anyhow but telling you to treat trading very seriously at start and learn to control your emotion. When a stock goes wrong, what do you do? Those who fear to make a loss will turn into an involuntary investor in the end as they opt to hold on to it, HOPING that it will bounce upwards. You simply can't learn.
If that NTU guy can pick himself up, he is probably closer to being Jesse Livermore than me. Negative $300k for a 20+ year old student. Salute.
Quick Update
Some nice article for you guys to read as well. Here is one about oil and another about the Super Spike theory from Goldman Sachs as well. Well, it was one good reason for me to re-buy oil at $120.50.
At the beginning of the week, things were looking pretty good. First, oil shot to $120 and stayed there and gold, my big mistake, went to $880+. I covered both at the respective price.
Many will wonder why I cover gold since I recommend gold for the long term. For one, I didn't expect the losses to be that huge when gold was at $860. Actually I adopt a 10% stop loss. So by right I shouldn't be holding gold. But from the way oil is going on monday, I think maybe my gold will go back up slightly. Luckily, I was correct. From -40% to 0%, Phew.
Oil was excellent. Bought it at $113.40 on avg, closing at $120. You do the math. Anyway, I was watching oil very carefully these few days because it broke $120 and stayed there. On tues, I bought back oil again at $120.50. I was pretty sure that it had broken the resistance level and would stay about $120, probably shoot higher when inventories report come out on wednesday. However, inventories report was horrible to my position. Supplies went up more than expected. I covered at about $121. Guess what? No one cared about the report yesterday and oil closed at record high above $123.
Well, I suggest that you buy oil again and let's see it march towards $130. A good time entry will be next week. I don't really like the way dollar is moving. It is showing some strength this week. I believe oil will hover about this level till next week. Dollar should be going to around the 75 index level. Don't really know what is the value in terms of Euro.
Stocks
Fannie Mae was bad as expected by the whole market ended up slightly for the day. LOL so did Fannie Mae, up 0.5% I think. I was so wrong with Cisco, neglecting the fact that Sun Microsystems's weakness might attribute to Cisco strong earnings. However, Cisco was slightly down. In the end, I closed Cisco at flat. Another lucky story. Sembawang Marine was way off as well. The profits didn't look outstanding to me when I compared it to Cosco and Keppel. But I was able to close it at $3.99. So it was another flat stock story. I shorted it at $4. However, at a trader's game (tradershub.net), I was caught almost everyday by Sembawang Marine as I had to short it day by day.
The only good thing about this week was yesterday. Dow was down 200 points; S&P was at 1390. I told you that we would not be going up. =). Anyway, I am shorting US airlines now, mainly AMR because of oil's rally. Well, I don't know if SIA will response the same way as US airlines. So it is probably safer to short US side than SG side.
For Singapore market, because of strength in dollar which I think will carry on for the rest of the week, so I suggest shorting Wilmar at $5 (it is the current price as I am writing). Palm oil should be taking some form of pullback. I am shorting wilmar and this stock called ManhattanRes in the trader's game right now. During weekend post, I will mention about ManHattanRes. It is quite interesting in Singapore context.
That's all folks. Ciao
"A man must believe in himself and his judgement if he expects to make a living at this game."
Jesse Livermore
1 comment:
The number three is it.
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