Up +18K, so you felt good about yourself and decided to "tweak the system", which led you to a big loss. Ain't that right, neke?
Taking 410K to 4million by Year End 2010
- Thread starter neke
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He never claimed that, and like I said gave him the benefit of doubt that he never believed that.
But getting back to the real issue, when you consistently get into the biggest positions on your losers as opposed to winners, you just cannot come out ahead. Neke, have you ever pushed a winning position from the start to 24k shares? I'll bet the instinct just isn't there; if you're already up on 5, 10k shares, why press your luck, right? There's a natural asymmetry everyone shares. But remember, the market will always give you as large a losing position as your buying power can handle, whereas shares on the winning side are as (relatively) scarce as gold.
If you trade against a trend because you believe the move is overdone and you average down, the tendency is to "escape" with a small profit as soon as it shows because you took so much heat on the trade. Or worse, the move keeps going and you throw in the towel very close to the point that price reverses.
It's easier and more profitable to be the second mouse who gets the cheese, and at that point it's easier to add to a winner because you have unrealized profits to work with.
Neke,
I got nothing against averaging down as long as you keep an ultimate emergency stop as you evidently do.
Problem I see, is that you keep averaging down against the trend.
Ever tried averaging down with the prevailing trend, it's much easier to make money that way.
It works for me, unfortunately I don't have your capital, I'm a very small fish, but it works for me.
Good luck man.
I got nothing against averaging down as long as you keep an ultimate emergency stop as you evidently do.
Problem I see, is that you keep averaging down against the trend.
Ever tried averaging down with the prevailing trend, it's much easier to make money that way.
It works for me, unfortunately I don't have your capital, I'm a very small fish, but it works for me.
Good luck man.
Quote from neke:
Just checked, and I am up 6K since you "begged" me (5/7/2010). That's not bad
Yes, seriously, I am re-evaluating my discretionary trading. It is obvious I cannot continue like this. It appears given enough rope, I am all too eager to hang myself. At the same time I do not think ceasing completely is the answer. I am looking at restrictions I can immediately put in place/enforce for my discretionary trading,
I agree, ceasing is not the answer. You'll get it and knock it out of the park. I have no doubt.
24000 in JWN is over $800000 . . . that's insane.
Weekly Update for week 32/50 ended 08/21/2010
More of the same, down 7K (3.2%).
Was making some little gains and headed for a positive week until Thursday. Put in a trigger to buy SPY calls on pull-back. Did not realize a sell-off was happening. Closed later for a loss of 14K (Too much size for a day before expiration).
After due analysis of my transactions for this year, I came to the conclusion that leverage is responsible for 100% of the losses this year. Most of the bad leverage came through averaging down. I took all the initial entry prices and the final exit prices, and derived the average returns based on those prices (eliminating the intermediate averaged prices), and the result showed stocks had an average loss of 0.02% (ratio 0.9998), while options had an average gain of 0.5% per trade. Combined they were a little above break-even. The summary was that the cummulative effect of leverage handicap is responsible for the staggering loss.
[I gave this example before of the effect of leverage when the edge is too slim:
This is an example of what I call the "leverage handicap". You are shorting a stock in two trades. The stock goes from 120 to 100 in the first trade,
and then back to 120 in the second trade. You would think that is a break-even trade (minus commissions). But it is not, especially if you go with leverage like I do.
At the first trade, with a balance of say 150K in account and buying power of 300K (2Xaccount), you could short 2500 shares @ 120. You cover at 100, gaining 50K. You now have 200K and a buying power of 400K. You can now short 4000 shares @ 100. You cover at 120, losing 80K. On the whole you have lost 30K (20%) through pure stock volatility. Does not really matter whether the stock goes down first and up or the reverse.
So to make it in those times, your edge need to be stellar. ]
This year it has been close to 50-50 proposition on trades (excluding averaging down), so the negative effect of leverage has become too apparent. Going forward for the remainder of the year, size on stocks is being capped at 1Xacctvalue (currently $210K worth), while for options the value of the underlying should not be more than 3Xacctountvalue ($630K worth) - example maximum permissible SPY calls would be 58 contracts (with SPY @ 108). My position monitor will see to the enforcement of this. So yes, no more size of $778K on JWN with an account size of 213K!
More of the same, down 7K (3.2%).
Was making some little gains and headed for a positive week until Thursday. Put in a trigger to buy SPY calls on pull-back. Did not realize a sell-off was happening. Closed later for a loss of 14K (Too much size for a day before expiration).
After due analysis of my transactions for this year, I came to the conclusion that leverage is responsible for 100% of the losses this year. Most of the bad leverage came through averaging down. I took all the initial entry prices and the final exit prices, and derived the average returns based on those prices (eliminating the intermediate averaged prices), and the result showed stocks had an average loss of 0.02% (ratio 0.9998), while options had an average gain of 0.5% per trade. Combined they were a little above break-even. The summary was that the cummulative effect of leverage handicap is responsible for the staggering loss.
[I gave this example before of the effect of leverage when the edge is too slim:
This is an example of what I call the "leverage handicap". You are shorting a stock in two trades. The stock goes from 120 to 100 in the first trade,
and then back to 120 in the second trade. You would think that is a break-even trade (minus commissions). But it is not, especially if you go with leverage like I do.
At the first trade, with a balance of say 150K in account and buying power of 300K (2Xaccount), you could short 2500 shares @ 120. You cover at 100, gaining 50K. You now have 200K and a buying power of 400K. You can now short 4000 shares @ 100. You cover at 120, losing 80K. On the whole you have lost 30K (20%) through pure stock volatility. Does not really matter whether the stock goes down first and up or the reverse.
So to make it in those times, your edge need to be stellar. ]
This year it has been close to 50-50 proposition on trades (excluding averaging down), so the negative effect of leverage has become too apparent. Going forward for the remainder of the year, size on stocks is being capped at 1Xacctvalue (currently $210K worth), while for options the value of the underlying should not be more than 3Xacctountvalue ($630K worth) - example maximum permissible SPY calls would be 58 contracts (with SPY @ 108). My position monitor will see to the enforcement of this. So yes, no more size of $778K on JWN with an account size of 213K!
Code:
Opening Balance: 220,518
Net loss for the week 7,114
------------------------------------------------
Net Balance: 213,404
Number of Trades 16
Number of Profitable Trades 10
Since Inception of Thread 01/10/2010 - 08/21/2010
Opening Balance: 410,000
Net loss(Less Margin Interest) 196,596 (Down 48%)
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Net Balance 213,404
Number of Trades 985
Number of Profitable Trades 518
BREAK-DOWN BY AUTOMATED/DISCRETIONARY
Number P/L Best Gainer Worst Loser
AUTO 7 1,188.60 2,659.30 -1,370.40
DISCR 9 -8,303.10 2,467.30 -14,037.70
TOP/BOTTOM DISCRETAIONARY TRADES
SPYAUG212010107.0CALL 2010-08-19-09-52-39 2010-08-19-12-58-47 17800 35145 21360 -14037.7 OPOCOL-SPYOK this is getting painful to watch.
As per your example, and I realize this is only an example. However it's one you chose as an example of how might operate.
Who in the Hell puts on 60% more size on a short when a stock has just fallen from 120 - 100 (a drop of 16.6%) and then let's it retrace 20 points (a move of 20%)?
I'll tell ya who. No professional trader that I know of but plenty of gamblers would.
Leverage is a very useful tool when used correctly. When used as recklessly as you use it, it leads to financial death. You do realize this is actual money you're flushing down the toilet right?
There's many people on this site who simply have no clue. I believe you actually have some talent. That's why watching you piss it away is so disappointing.
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