Some points that may indicate a pending breakthrough:

• Establishment of solid support or rounding out of downward lows, in this case somewhat a triple bottom. No more lower lows indicating a weakening of the trend (this would be seen in a channel as prices no longer touching the lower channel line)
• More activity around the upper channel line. Prices are spending more time at or near resistance, moves away are shorter lived and rebound quicker (compared to earlier in the downward move)
• Long bars and build up of volume as approaching resistance – indicates bullish sentiment. Watch for a day or two at resistance where it backs off before breaking up.

Last week I entered limit orders for a potential trade, including stoploss and profit take (assuming the price moved in the expected direction and the entry was filled). The trade wasn’t entered and now I check the chart – ends up the price moved away and through (what would have been) my stoploss.

First I thought, “no harm leaving the orders there just in case it comes back”. But I think there is harm because really it’s driven by greed (what else could it be?). I clearly specified what price had to do to convince me of a trade and stated what orders needed to happen. Now that price is outside what I initially specified, I’m going to remove all the orders and start again. Will make this a new trading rule.

But at least that’s one big advantage of Deal 4 Free – enter all your orders the night before removing the need to ‘emotionally’ trade the next day. Put your entry order far enough in the intended direction that if hit, you have got your confirmation and are trading with strength.

If left to run, the profits could have covered future losing trades many times over (ie. more time in the market). Next time tighten stops at the price target but trail it so as to catch any potential break through – but remember it’s a potential trade off.

A trading course late last year taught me the importance of viewing ‘uncluttered’ price charts with few bells and whistles. Prior to that I used to leave the same bright blue trendlines on the charts and consequently missed a few trades because my eyes were so ‘blinkered’. So I started each night by opening blank price charts and drawing in what I saw… but how much time did that take, especially now that I’m watching around 35 stocks. But, from Edwards and Magee, pp266:

“Your experienced technician is constantly drawing trendlines of all sorts – Minor, Intermediate, and Major – on his charts. He will put them in at first very lightly penciled wherever he can find an excuse to draw one. Many will quickly prove to be of no significance, and those he may erase. Others will “stand up” – will show evidence of technical authority – and those he will make heavier, or color as suggested later”

The penny dropped once I read this and I knew I needed to draw my trendlines in a lighter color (so they weren’t such a stark influence on my eye). Luckily MetaStock allows the setting of a default color so I changed blue to light grey to give charts that are less ‘suggestive’ to the eye – now I leave the trendlines on and just draw in/drop off as appropriate.

Also obvious (above) is the use of colored bars to guage current sentiment towards the stock. Still not full bottle on this and usually observe green for uptrends, red vice versa; but interesting to note a few times red on the uptrend – indicating a weakening of the move.

After seeing a possible trade and spending the last hour setting up my trade sheet and doing some analysis, I made an important and unusual decision to do nothing. Why, because it’s late and when I skip over details I eventually end up losing money.

When I first began trading I didn’t mind losing money because I told myself “it’s a good learning opportunity anyway”. So I would take the trade and sure enough learn some new things along the way. But what kind of a mindset does that reinforce? Is this an effective approach to becoming a successful life-long trader?

The mindset I’m slowly learning to adopt is one of caution and patience. To become profitable, first I need to acquire a stack of knowledge and practical experience. When I rush trades, I usually lose money and deplete my account. This ends up giving me less money for the next trade and thus overall less time in the market to learn what I need to.

The first issue was mixing up trading ranges with channels (or at least how I distinguish them). The chart above appears to be several smaller channels within a larger trading range – implying perhaps a different trading strategy for either. The second thing (not displayed well) is that the trading range takes over a year to unfold, so now it becomes an issue of what type of trader/investor you might be – short/medium/long-term. And then a question of risk tolerance ie. are you going to trade bounces off the major support, or breakouts, or perhaps within the minor channels, or even a crossover from the bottom half of the range to the top half.

A new year and the trading journey continues on much the same as last. Two things that I’ve been contemplating since my christmas review are balancing trading with life and managing your risk.

1. Firstly, my experience with trading is a continual juggling act between the strong and persistant desire to learn and practice everything I need to with my need to have some form of ‘normal’ life – cooking dinner, regular exercise, going to bed early, seeing friends etc. Basically I’ve come to the conclusion that both are equally important and perhaps one cannot be (happily) achieved without the other.

Something I’ve done recently was to stick a post-it note to the computer that said ‘If I don’t want to trade, get a beer & take the night off”. What I have attempted to do was acknowledge that learning to trade will take as long as necessary so avoid the anxiety and insecurity should I take a day off. What I might start calling a ‘mental health day’ – and furthermore, some of the greatest leaps forward happen when your mind is in another place.

2. Another thing I’ve come to learn is that trading has nothing to do with wins and everything to do with losses – or more importantly making the losses as small as possible. I reason I say this is because as a beginner I want as much time and experience in the market to learn what is necessary. However, this is very much controlled by how much risk I take and thus how quickly I might lose my account. The secret to survival appears to be keeping the risk of each trade small and managing this down to the very $ – giving youself maximum exposure to the market and letting the returns on the successful trades take care of themselves.

From a message board post:

Regardless of the strategy selected or created, however, the need for engaging the market with as little fear, anger, and arrogance as humanly possible will be unavoidable if you are to avoid expensive mistakes. Unless and until you can be objective, rational, and emotionally disciplined in every market interaction, you are in danger of making that error which will generate a loss. You will win not because of how smart you are or how knowledgeable you are, but because of how well you can execute that knowledge. The process of selecting a strategy combined with one’s ability to execute any strategy work together along with what he knows of himself to create a profit-generating investing machine.

Life, in other words, is difficult. Life has always been difficult and always will be difficult. It is only when we expect it to be easy that we are disappointed. We want from it and we demand of it, and when we don’t get what we want or demand, we are disappointed. We expect and we anticipate and we plan, and we are disappointed. We do not acknowledge the reality. We do not accept the truth: life is difficult; get over it. Rather than whine and moan about how difficult it all is, we should focus on ways of overcoming those difficulties. Only by overcoming those difficulties can we find pleasure and joy, whether that joy resides in closing on that dream house or on completing a successful trade.

A good system should be transportable between markets and work in varying conditions. The technicals we use are above the options or derivatives we trade, thats why we are charting the share not the options series. We use options for their very good leverage, often making 50% to 100% in days. But volatility can be a real killer if moving against you, the market is fairly illiquid hence the watch list of 9 stocks, and stops are realistically meaningless.

So I ask, why aren’t we all running to Deal 4 Free in our masses. They offer leverage at 5% for aussie shares (so $1000 will give you $20k), are liquid and give the same bid/ask as the ASX so now you can choose your watchlist from the ASX200 stocks, no volatility issues crushing premiums and Delta = 1, and they offer stoplosses (properly because they are the market maker, not a broker) – plus it’s all commission free trades.

I have spoken to other option traders about using the taking system over Deal for Free instead of the direct options market and there is no good reason why it shouldn’t work, in fact several of them are doing just this. A momentum system is a momentum system, regardless of market being traded.

I wonder what other people may think, or what their experience is? I shall know soon enough as tomorrow I’m withdrawing my funds from sanford and setting up one of these accounts. I have my new watchlist created from ASX200 stocks based on most dynamic price behaviour and shall be using the taking system to trades these. Exciting times!

PS. Not appropriate for writing strategies.

<before and after pics now omitted>

and find it hard to imagine how we ended up losing $20k on such a deal. The details are several and not entirely relevant, but I wanted to post this as a wake up call to those members who might think property is an ‘easy’ game or relatively risk free – just not true. I wanted to post the graphic visual details of the renovated change just so people can see that even this sometimes cannot be enough to save you.

And the reason I’ve posted it here is the psychology is just fasinating. The strangest thing – we didn’t even lose money from over capitalisation. Unfortunately the learning I’ve had from this experience just isn’t available until you are actually in the ‘thick of it’, however I would hope that perhaps this post will help avoid others ever get into a similar situation. Briefly summarised:

Background
The property was owned outright by my mum and my place of residence while she travelled around Australia for a year. I knew she would sell on her return, so we agreed I could renovate at my cost and essentially pick up the difference between block and sale price. I enlisted a friend from high school to help and we shared cash costs.

The market in Australia has stagnated over the last 3 weeks and houses are shifting slower. It had been on the market about 8 weeks, but only 4 at a realistic price. The day it was sold was the first day we had written offers, 3 in fact, and it was basically sold ‘behind my back’ to the highest offer (that was $2k above the low of our range). This happened because my mum was tired of having home opens and decided to sell out at any cost. She wanted certainty at any cost and ended up paying dearly. It was a ‘quick fix’ mentality that ended up breaking trust.

Lesson 1
People are humans regardless of their level of development. I’d think twice next time before undertaking any sort of partnership. I was worried about the agent stabbing us yet it ended up being a family member. The good intentions of ignorant and stupid people offer no solace. There was definitely an issue of trust and an agreement of selling price.

Lesson 2
The low end of the range was deliberately advertised as ‘block value’ to generate interest and get people through the home open, same for the ‘desperate’ ads – and it worked very well. Unfortunately, that’s how the situation panned out because the intention wasn’t understood when signing the OA (and I wasn’t around when this was done).

However the agent knew how I was targeting the sale, and although he competently did his job (without pressuring the sale) – I believe he ultimately watched what what could best be described as a ‘shoddy’ deal take place. Plus I had signed the agent up a full commission with the intention to negotiate it in half before signing the deal… never happened.

From my experience at running home opens and watching his performance, I wouldn’t bother talking to another agent next time when selling.

Lesson 3
You can’t afford to do a shoddy job when renovating – the dream you sell in your advertising and presentation must live up in all areas. Know your target market very well (don’t gloss over this point!!!) and don’t limit potential buyers. Renovate appropriately to these people and the purpose of the renovation. The money is in the buying, not renovating or selling. Enough said, you might learn this the hard way when actually selling.

Lesson 4
Opportunity cost, being too nice, having a loser’s psychology. A month ago a perfect renovation came up in a neighbouring suburb with about $50k in it. Because I knew my mum wanted to buy her ultimate retirement place, I ended up negotiating the sale successfully for her instead of renovating it myself.

Now, getting costs back isn’t breakeven because what an opportunity I’ve missed and she’s picked up – in her absolutely ignorance and stupidity, she ends up making a packet while we walk with nothing. Now I wonder how far the remaining money will go and I’ve changed my mind about helping clean up the new house, I’ve pulled enough strings for her.

Help those who help themselves – don’t waste your time with those who don’t. Lessons repeated until learnt, the story of my life.

Lesson 5
Anger really is unhealthy. Renovating can be hard yakka. I can actually say I’ve experienced what it feels like for cronic fatigue sufferers over the last few months. Not just tiredness, but feeling like there is nothing left to give and no energy for simple tasks. Find a way to make it fun, try not to do it while working full time, never renovate by yourself, eat and drink properly, otherwise you’ll be dead by 40. Do something else if it’s not your thing.

Lesson 6
Never do business with family or friends, because I feel like physically strangling mine (and much worse).

What am I going to do now – rejuve some cars to try and recover from this mess. Stop thinking about how we lost money in the greatest property boom ever. Initiate a legal action (only kidding). Keep wearing my lacky band I ‘ping’ every time a swear word or negative thought comes into my head.

Understand this type of thing is going to happen more and more frequently as the boom slows down and turns, and take advantage of these sorts of opportunities.