April 7, 2011 – Trade Opportunity, Not Your Mood

You want to be trading opportunity, not your mood of the moment. – Brett Steenbarger

Is it time to be aggressive?

Are you sleeping today thinking how much money you’ll make tomorrow?  Are you counting your profits before you’ve even sold it?  Are you imagining tomorrow’s going to be another strongly trending up day?  Believe me… you are not alone.  Upward strong momentum following upside strong surprises releases euphoria in every person.  In fact, it is these types of strong markets that fuels even stronger performances in the weeks ahead.  Or is it?

So before we rely solely on our human instincts to be greedy and hold all our positions, the first thing we should do is to analyze the charts with a keener eye on volumes other than prices and perhaps check up on what our history teachers have to say. Take away all our biases, and hopefully be mentally flexible to adopt with the perception of the markets, employ sound management practices while profiting with the trend.

Basically, you and I are both thinking the same thing.  We both have the same dilemma:

1.) We both don’t want to lose our hefty short term gains.

2.) We both don’t want to sell too early either (i.e. we want to maximize our gains even further).

Great traders always tell me that too many traders have lost too much money trying to “tell the market” what to do.  This means, that for all the LR and BEL holders, I’m glad that you guys stuck to your money management principles.  Patience pays.    You may not hold all the shares you’ve bought before, but at least you were able to hold the balance and enjoy the gains the markets are currently giving today.  I personally think that’s the hallmark of a great trader.  Holding the balance of a good trade and letting profits run WILD.  Just have your trailing stops.  That’s all.

To say that the market was on fire seems to be an understatement.  It seems as though the market was on steroid drugs.  Let me make a quick recap 🙂

Insert PCOMP Weekly Analyses

Weekly PCOMP – Very Bullish

Diagnosis: It’s only just beginning, but don’t discount a possible higher low or a pause in the next few days before taking out our former resistances and proceeding on to new highs (due to profit taking from a very fast and strong rebound).  I don’t know where we’ll go, we cannot dictate market strength, but I just recommend not to chase mindlessly.  I also don’t think you  have to sell all of your positions.

Recommended Advice: If you have extra funds, you might want to consider adding more on your account balances towards a pullback near 4000 in the index. The trend is fast and strong, so while you may be tempted to sell and take profits, do it in tranches.  You don’t want to be selling everything all at one go.

Here’s an objective view as much as I can to give a picture in the markets.  Please treat all of these only like invisible hands gently guiding you in the right direction of your own trading plans.

Insert Performance Analysis


Criteria: Feb 22, 2011- Present

Data Included: 41 companies

Index Constituents + NIKL,CEB,BEL,LR,NI,ORE, VLL,CYBR,LND(GERI)

(Pardon: I forgot to include SCC, SMC, MWIDE)

Quick Stats: 38/41 companies in the pool registered more than 10% gains from their Feb 22 lows versus April 6 lows.  To say that we’ve come a long way is an understatement.  38/41 represents a 92% hit ratio.  Whatever you bought last Feb 22 held until today will be in the money heaping you with more than 10% gains.

The stellar ones undoubtedly are LR registering an 86% gain! LCB with a 35% gain, LC with 31% gain.  JGS 34%, CYBR 30% gain.  Please check the charts for your own perusals.

History

RWAV published a report recently entitled “ I love April, I love May”.  Please read it in COL’s website.

Summary: It was mainly historical in nature.  The basic play is that emerging market stocks are all breaking out of their consolidation phases and are attempting to retest their recent highs.  Two reversal fundamental scenarios they pointed out are

1.)    End of QE2 (quantitative easing) in the US by June 2011

2.)    Peak of Inflation in China by 2H2011

This will give a sector rotation from the US funds to be deployed back into our beloved homeland “Philippines”.

Psychology

I handpicked my favorite Brett Steenbarger advices in trading current strong markets

Reference: Brett Steenbarger P&L Management: A Best Practice in Trading

1.)    Cover up the P/L display so that you would not become overly focused on the money in making decisions.

2.)    We don’t want to become too aggressive when we are winning, and we don’t want to become too risk averse either if we are down money.

3.)    Have your position sizing, price targets, and trailing stops in place. Let the profits and losses take care of themselves based upon the edge you’ve cultivated.

4.) You want to be trading opportunity, not your mood of the moment.

5.)    Tune out data that would bias your trading–whether it’s the TV, the “hot” or “cold” stock symbols, or a green/red P/L number— This is helpful to emotional P&L management and a best practice.

______________

Dimsum’s General Advice:

Be aware of your risk levels (i.e. the profits on the table that you’re risking through trailing stop management)

Without that, you’re really not trading but just gambling.

I’m not impressed simply by the profits you make.  I’m impressed by how you’re making it because I’m trading for the long run.  I have to be consistent.  I cannot just say that I just made +x % for this whole week, and think I’m a market genius.  Before we all forget and feel we’re invincible, let’s try to be calm.

A hallmark of a great trader is being cool, calm and collected EVEN with mucho profits.  Stay level headed everybody .  I don’t want people automatically buying so many things just because of their stock market gains.  Don’t be too overconfident.  When you feel like you’re invincible, check your greed thermometer 😀

J. Edward Russo and Paul J. H Schoemaker wrote in a Sloan Management Review  “Managing Overconfidence” that:

Good decision making requires more than knowledge of facts, concepts and relationships.  It also requires metaknowledge – an understanding of the limits of our knowledge.

There’s a difference between knowing we’re hell right in the money, and knowing that we don’t know.

Confucius once said  “To know that we know what we know and that we do not know what we do not know, that is true knowledge.”

Balance confidence with realism.

Read more here:

Disclosures:

I feel I’m so greedy holding all my shares (even had a few leverage employed) but my system tells me that this is just the beginning, hence, I’m just following my system.  I am holding everything with stops based on my costs.  (I got most of them at good entry prices)

Just trade your plans guys.  Don’t let me talk you into doing anything.  I’m not a market guru. I’m just trading the markets, like you guys are, perhaps more passionately.

Can I now consider I’m a passionate lover of the markets?  Sigh, the markets are impersonal.  He doesn’t know I even exist!

Personal Positions:

Long ALI, AP, CEB, EDC, FGEN, FLI, LC, MPI, MWIDE, SMC in varied amounts

Please read all disclaimers.

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Comments
7 Responses to “April 7, 2011 – Trade Opportunity, Not Your Mood”
  1. carlosses says:

    sold 80% of my LR stocks at the end of the day, coz im still recovering from some previous losses.
    This will give a sector rotation from the US funds to be deployed back into our beloved homeland “Philippines”. more details on this please 🙂

    • hello 🙂 LR king ka pala hehe. Congrats for catching that move. What i basically meant from the sector rotation is that since a lot of USD foreigners have their money in US markets, (if the dollar is expected to further devalue some more— i.e. strength of asian currencies –pesos)… we expect these foreign funds to place some money here in pinas..kaya kahit papano..since valuation wise meron tayong values.. hindi malabong may darating pang malalakas na momentum (sana sana) 😛

  2. Ben says:

    Great article. 🙂 Yes, it’s time to be aggressive. I went all-in in one stock and I’m waiting for it to explode in about a week or two. I won’t disclose the name of the stock, but I’ll give a clue. It’s a mining stock.

  3. Abi says:

    Hi Dimsum! Interesting articles you have here. I too am a Management Engineering graduate from Ateneo de Manila.

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