Wednesday, August 15, 2012

Wiping the slate clean...sortof

The last 24 hours have been painful, but at the same time, illuminating.  I won't disclose my single day loss in dollar terms, but it was about 10% of my portfolio...and it stings.  Yesterday I tried to be smarter than my own model.  My model gave me clear direction, and I ignored it because of a combination of pride and self loathing.  Pride that I could not enter a trade that would lose money (that's why i put the trades on in the first place), and self-loathing that i did enter a trade that lost money (that's why I didn't cut the loses when they were small for a trade i should not have had on in the first place). Add in a bit of stupidity for not being patient and doing what I myself said in my own blog should be done.  I gave myself a road map of exactly where to go, and then i decided to drive blindfolded with my hands tied behind my back...and now in the light of day, I can't believe how stupid i was.  Or, as Mr. Miyagi would say..."Miyagi say that to father when same thing happen. Father agree, was stupid. Father was right"

Trading can be an emotional roller-coaster when P&L is large (be it positive or negative), and that is a bad thing.  I use my model because, in addition to having a phenomenal grasp on the dynamics of the auction market model, it helps remove the emotion from trading.

Here is the guts of the model
Rule 1)  When tethered to value, fade movements away from the center of value, and get flat at the center of value.
Rule 1a)  Constantly re-evaluate if the center of value has shifted and trade accordingly
Rule 2)  Always be monitoring for the transition FROM tethered TO trending.
Rule 3)  When trending, only have positions in the direction of the trend.
Rule 4)  When in a trending position, stay on until the trend is over.

The specifics of implementation are not the issue here.  
  • I know how to calculate the center of value
  • I know how to calculate the volatility from the center of value to determine the trading range
  • I know how to re-evaluate if the center of value has shifted and trade accordingly
  • I know how to monitor for the transition from tethered to trending
  • I know how to trade when in a trend
Today, my issue is psychological.  My only obstacle to success with trading my model, is me.  Once i can get myself out of the way, trading should be...easy.

I've flirted with the idea of bringing in a partner of some kind.  I'm not talking about a trading partner exactly....more of a partner to keep myself in check.  Somebody to ask me questions like...Is that position in line with the model?  When does the model say to exit?  Does the model allow an entry here?   For the time being...I will have to be my own partner...and ask these questions of myself while trading.  That is sort-of the purpose of this blog.

I find that when i clearly describe what the model says to do on this blog, the model is always right...and when I "trade off my gut," I am wrong.  Its a hard thing to admit that the master of the creation is not smarter than the creation itself.  I created this model (with help from all my former trading colleagues of course), and yet, my gut is not good enough.  It's the model that can tame the market...not my gut.

So, here is a toast to a new beginning...again =)

Self...say hello to me



  1. I got hammered overnight in ZN. I've been short or out for most of the summer, but after the drop in ZN from the highs, I foolishly went long. On the short side, there's a natural hedge (interest rates "should" be bounded at zero). The same is not true of the long side and I payed the price though I did get out before things got really bad. I'm still up since I started trading ZN in mid June ... But just barely.

  2. wow... sorry to hear that. It happened to me several times too. The hardest part of trading is oneself. I still don't have any idea how to solve it.