Trade The Journey

Trade The Journey

Self-Awareness

I hope everyone is doing well and remaining cautious doing these uncertain times. Inflation is still a lingering concern for the market, but the Federal Reserve has maintained its outlook of low rates for the foreseeable future. The Federal Reserve has a dual mandate, “Price stability” and “maximum sustainable employment.”

The Fed can adjust the short-term rates, but the market determines the longer-term rates like ten and beyond. The Nasdaq took a hit due to rising yields which means debt cost could increase for growth companies. It’s interesting to hear the various opinions on the current situation.

A lot of people have opinions, but no one knows for sure. Other effects can include rising mortgage rates, debt, loan costs, a stronger dollar, and a possible slow-down in the economy due to higher prices. It interesting to see current events playing out in trading and investing decisions.

In trading, most of the time, you don’t know what influenced the trading action for the day. I’d assume an experienced trader wouldn’t be concerned with the why because it isn’t essential. They know as I am learning that trading is about pattern recognition and the psychology of the pattern, the likely outcome the pattern is like to produce.

In Investing, you have a better chance of forecasting what could happen based on the economies and companies’ direction. Although fundamental analysis adds concrete data to your judgment basis, there’s no guarantee the future will resemble the prediction.

 

The most important skill you can acquire is the ability to adjust your perspective and psychology. Mark Douglas spoke of how the best traders practice meditation to increase their self-awareness. Journaling is somewhat the same; by writing down your thoughts and feelings while trading, you begin to see a pattern.

My pattern tends to be making thoughtless trades after a series of winning trades. This last trade was the perfect example. I caught the uptrend move of a small-cap stock on the way up and did well. After the second trade was profitable in the same direction, I assumed that I could pick where it would go up and when.

When I complete a trade like this, it’s always after a few profitable trades. The feeling I have is one of certainty; “I know because I can trade.” Usually, this trade is placed without any homework or analysis completed.

I see two ways to remedy this psychological trading pattern. When I feel overconfident, I can lower my trading size to one stock, and if there’s a continued move in the same direction, I can add to it. I can also remind myself of my one-day homework rule. What made this decision even worse was that I did not have a way to monitor my position.

Luckily, I don’t make these types of trades too often. Blue Apron was my first large trading profit and one of my most significant losses. I entered the trade on the weekend because I felt that the economy shutting down would benefit this online delivery meal kit service. I was profitable because other people thought so too and they bid the stock’s price up.

Feeling good, I thought I knew where the stock was headed. I entered the stock a second time because I thought it would go higher. In reality, Blue Apron was showing a lower high. By the time I snapped out of hoping I could break-even, I had suffered a significant loss.

Sitting on your hands skill will be a challenging skill for me to master. Part of the problem is my belief that I have to be trading. If I’m not trading, I could be missing out on some windfall profit. Missing out shouldn’t be an issue for any trader. For however long the market has been existence, there have always been and will always be opportunities.


Weekly Cash Flow Update:

Now that the cash flow crunch I was experiencing is over, I feel relieved.  I made a few bad purchases due to boredom and a few more because I thought I could. When I know the coming weeks will be lean, I can do without but with the extra cash I feel a small splurge is something I can live with.

Whenever I succeed in spending little to nothing during the week, I always ending making a bad purchase knowingly. For example, this week I ordered sushi more than once. As I purchased the sushi a second time, I knew it was a bad purchase before paying for it but I reasoned its only twenty dollars. That’s how it happens for me. Cash flow management just like trade management requires ongoing effort and discipline.

For this past week, I’d give myself a “D+” for cash flow management.

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