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Training for success

If you are an investor who doesn’t trade during down trending markets like me, days when the market is falling are the best opportunity for learning and practicing for future success. I reviewed my portfolio and found out I lost 62% of my investment money, including 19% after I tried to change my strategy I realized that the market like these days actually saved me from more losses. I was basically forced to stop, look behind and determine that something has to be changed. I do not want to be investing and losing money. Who wants to? I asked myself several times what I have to do to improve my investing, where to start, what to study and what overall approach I need to take. I realized that I need to focus on my patience because the lack of it cost me money. I need to redefine my goals since my current ones are vague and hard to follow and the most important part of my learning was to focus on refining my entry and exit to and from positions, since it was a complete disaster of random walk so far.

When it comes to investing I am very impatient. I know it and I am working on improving myself. I hate being aside, sitting in cash during market’s slump period and having money in the savings account. I consider it as wasting investing opportunities and there fore losing money. I always wanted trading no matter what the market was doing and striving to do so cost me a lot of money. I ended up on chasing stocks like a crazy man and forgot about all rules I ever had. My trading looked like a random walk. I was buying and selling stock and I didn’t know why I was buying each of them. Trading stocks is very emotional business and I was acting emotionally. With no strategy, discipline and patience I was randomly buying what I found in newspapers, recommendations or my “dart thrown” picks.
Even today I feel itchy during my learning. I am practicing my adjusted strategy in paper trading and again I am lamenting over my winning paper trades questioning myself why I haven’t invested these positions in real trades. I could make a lot of money so far and there would be no such opportunity again, I thought. Wrong! However it is still very frustrating to see my paper trades winning and I am questioning whether it would be better to jump into such a winning positions. This thinking leads to chasing stocks and my mind becomes blocked and I lose ability to judge and evaluate stocks correctly.
I think learning being patient is the biggest task ever.

To learn how to be patient is necessary if you know how and if you know what actually you want to reach. This brings your goals up and you should know them. Without having goals it is impossible to set strategy and learn patience. I always tried to set my goals up, but when I reviewed my last goals I found them very vague and hard to follow. I even didn’t put them down on the paper. I thought that by setting my trading plan I am done with planning. I was wrong again. Trading then changes into a random walk buying stocks of which tips pop up elsewhere. I used to buy whatever I could see or read in a newspapers, Internet or I could see on TV. Later I created a screener, but it wasn’t good enough. I was still losing money. Once a friend of mine asked me when we discussed stocks and I told him about a stock I was going to buy: why are you buying such a stock? I didn’t know the answer. I realized I was going to spend my money without even knowing what is the stock about, how it is behaving on the market and what I could expect from it. How could I set my strategy up without having goals? Recently I was thinking about what I want to get from trading stocks in the market. I found it hard to define my goals. Do I want invest into stocks for retirement, growing wealth, savings goals, income or just for fun?
Then I came up with stating my goals that they would be measurable and would have a time frame so it can be easily evaluated.

I know that I want to learn trading stocks so I can be living of it. However to get there I need some smaller goals to learn more about proper trading; find out what I am doing wrong and improve my investing so I stop losing money and start making them. I know that I already have a money management plan, which is quite well done and works for me fine. I have a screener, which selects fundamentally strong stocks for me and recently if you take a look at my watch list you can see some strong picks in there. Some stocks, such as GMCR is doing more than excellently. So what I am doing wrong that even with the money management plan and strong stocks I am collecting losses? I need more focus on evaluating stocks and refining my entry and exit points to reverse strong stocks into gems instead of to losers.

I stated my goals as follows:

  1. My first goal is to learn how to [tag]enter and exit trading positions[/tag] and how to properly [tag]evaluate stocks[/tag] for potential [tag]investment[/tag] by the end of August 2009. During this period I will use paper trading.
  2. My second goal is to [tag]eliminate losing trades[/tag] and make smaller loss. Achieve 20% [tag]gain[/tag] by the end of 2009.
  3. My third goal is to learn trading successfully so I can trade for a living by the end of 2011.

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Once you clearly state your goals it will be easier to create a strategy. At least you would know what you want from trading stocks.

I may modify the goals during accomplishing them. These goals are my first kick off writing and I may be creating small sub-goals to reach the main one, which is to be able trading stocks for a living. To get there I needed to eliminate my losing trades. When looking to my past trading it was one big disaster. I was unable to make a profit even with strong stocks – leaders. So what was wrong? What I did wrong that my past trading concluded with buying high selling low? I had some vague knowledge – better say feeling about evaluating stocks and their entry/exit points, but when trying to apply some strategy I was clueless. So I needed to find how to entry into stocks and make profits.

I opened my [tag]screener[/tag] and it returned the following [tag]stocks[/tag]:

I usually bought such stocks without further looking at them. I just checked their [tag]charts[/tag] whether they were [tag]trending[/tag] or not and then jumped in. It showed up to be wrong approach. This caused that my trades were about losing money and collecting small losses.
It is not bad overall having a strategy where you [tag]cut your losses quickly[/tag], but it is bad when collecting only losers.
So I opened my [tag]charting program[/tag] and was studying.
Let’s take a look at one of the stocks, let’s say BECN:


(this chart shows historical data, not actual)

When I looked at such a [tag]chart[/tag] I was able to identify a [tag]trend of the stock[/tag] (1). The [tag]volume[/tag] was weak a bit, but I considered it OK. I drew a [tag]resistance line[/tag] at previous high (2) and considered my [tag]buy point[/tag] when the stock crossed above that resistance line. Was this a proper [tag]entry point[/tag]? I believed that yes, it was enough proof to me. The stock was trending up and broke through its resistance. So I bought such stock and set my [tag]stop loss[/tag] (3). What happened next? Couple days later I was out of this position, because of my stop loss:

BECN chart 2

You may say, “it happens sometimes”. Yes it really does, but it should not be happening all the time. Using such entry strategy may lead to buying high, selling low. I needed something more to refine my entry to the stock positions. I started studying if [tag]oscillators[/tag] can help and I came up with [tag]ADX oscillator[/tag] (or [tag]Directional Movement oscillator[/tag]). When looking at the chart again with the [tag]oscillator[/tag], the entire story looks different:


ADX oscillator is the black line indicating whether the stock is trending or not. It doesn’t care which direction, whether it is [tag]bullish[/tag] or [tag]bearish[/tag] [tag]trend[/tag]. It just tells, whether the stock is in trend or not. It is considered that the stock is trending if the value of this oscillator is above 25. As you can see, this particular ADX indicates the value to be 13.26 only! Is this trending stock? Not at all! So in this case I would bought a lousy stock.

Well, all this above is just an example of my current learning. It is just a portion of it. I am studying more tools, which may help me to be more successful in [tag]trading stocks[/tag]. For example how to entry already [tag]trending stock[/tag], which I was always buying when the trend reached [tag]upper channel[/tag] line (which was based on my rule that the stock must make [tag]new highs[/tag]) and it as well ended up to be a losing strategy. I hope that this post would help other investors struggling to be successful to stop in their investing career for a while, define their own weaknesses and find out that maybe they struggle with the same impatience, lack of goal and plan and wrong investing approach.

The following table shows my positions I opened recently based on those refined rules:
All these trades are [tag]paper trading[/tag] only, no real money were employed.

Symbol Qty Cost Basis Total C/B Price Market Value Gain / Loss
ARST 43 $15.25 $655.75 15.77 $678.11 $22.36
GMCR 30 $55.43 $1,662.84 80.50 $2,415.00 $752.16
NTES 15 $29.85 $447.75 30.93 $463.95 $16.20
SNDA 8 $47.01 $376.08 47.22 $377.76 $1.68

Disclaimer: all mentioned stocks shall not be considered as solicitation or [tag]trade recommendation[/tag]. If you wish trading them, it is fully your responsibility and you should do your own research prior buying any of the stocks mentioned herein.

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1 response to “Training for success”

  1. Gold Projections says:

    Thanks for sharing

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