Did you ever notice that when you are playing with a yo-yo you never catch the little toy in your hand after a good run and walking away? Nah, it is more common for one to play that yo-yo to the end, stretching the string until it no longer rebounds and you have to roll it back up manually and start all over. The yo-yoing technique is common in many aspects of life, especially trading. What usually happens when your profit and loss is bouncing and swinging all over the place is that you end up negative, talking about how you wished you stopped at a certain positive point instead of pushing and pushing for more.

My Thursday and Friday trading days were prime examples of this. I started Thursday very negative by 9:35, playing AIG with large size like it had the decency to give some follow through to any of its moves and respect my positions. No dice. I managed to fight back a couple of times though, almost seeing the positive only to be beaten down again because of my aggressiveness and be back in the same losing spot. Finally I nailed a good play in CAH and was able to go gross positive. I then made my classic disclaimer of needing to shut, or slow it down soon because I have noticed the pattern but of course did not follow suit. I did actually get up a decent amount only to go negative again (fighting for a few hundred more) and finish the day down about $100. Of course, my volume throughout my yo-yoing was ridiculous.

Friday I started the opposite, up a few hundred bucks while issuing my classic disclaimer of keeping my volume and position size low due to the light volume being traded in most stocks I noticed during the opening of the market. Once again I did not follow suit, toying with CAH but with less knowledge and interest in it on its day-after earnings but large position size. I ended up on the losing end of that play, and down a lot as I fought tooth and nail with the stock but it bettered me the majority of the time. I fought my way back though, trading MAS midday and exhibiting extreme patience with a large position size working well for me. Just as Thursday I actually started to make some money, vowing to my co-worker next to me that I was going to pocket it at some point and be done. So, I must have terrible self control or like lying to myself or something. I really do say these things, and feel that I am actively working on getting better at them and exhibiting better self control…over…my, ummm, self control. That’s obviously another topic for another blog entry. Anyway Friday I almost ended up gross a decent amount, considering that I was down double that amount at some point during the day. But then I typed in the terrible letters of ‘P’, ‘S’, and ‘A’ and ended the last day of the week up a mere $150 on incredible volume, again.

In short, if you notice during the trading day that you are swinging a lot and a chart of your P&L would be heavily laden with varied peaks and troughs, please do the smart thing and recognize your potential for losing is most likely greater than that of your gains for that day. Trade accordingly, smartly reducing your position size to lower risk and protect profits. Understand that this may not because of you, as each day the market presents different factors that are going to adversely effect your trading. Remember what happens when you are playing with the yo-yo and you either get to aggressive or notice the string is getting a little loose. Better to catch it and put it in your pocket, rather than getting kicked in the ass as you are bending over to pick it up off the ground.