Trader Rant

BellaMike Bellafiore's (Bella's) Blogs7 Comments

Yesterday I wrote a blog on how to use the ideas from others to add to your trading game. At SMB we share a lot of what we do so others can learn. Yesterday a Reader took exception to something that we have shared, our best AM idea.

I had something that worked for me, but I have lost my conviction because of listening to too many other people. The more I trade, the more my emotions get in the way, and all I learn is that everything I think I know is subject to change. Computers have changed the way stocks prices react to patterns so that you cannot predict what people will do, so much as you must now attempt to figure out how the computer is going to try to screw the herd, and ride it’s wake?

I have often times wondered if your rec of the morning makes a good target for powerful contrarians guaranteed a fresh supply of weak hands, and yes, I’ve wondered if that was in fact SMB capital. Not only were GMCR and SODA GREAT shorts, but they were some of the best of their rec.d days (rec.d as longs, made championship, killer shorts), and I don’t believe it is a coincidence.

Weak shorts make $NFLX so strong, and what better way to corral a bunch of weak longs than to offer a rec for the day, creating a possible easy takedown.

I do not know everything, and the scale of influence of investment firms is not an area where I have expertise. I just think if somebody was going to be able to decipher this market, it would be those that have written books, blogs and have proprietary trading firms. That is why I trusted your recs 2 days in a row, and those just happened to be the worst plays for those days, and those days just happened to be critical for my trading, which I can no longer do because of the damage to my account.

We encourage debate on this blog and certainly SMB is far from perfect, but there was a lot wrong with the comment above. Let’s see if we can learn from these mistakes.

1) Do not copy the trades of others blindly. See if you can make them your own and if so, them make them your own.

2) For all trades, you must first determine your stop for if the stock trades against you. No one trade should ever so much as even stop you out for one day, let alone do serious damage to your trading account.

3) Trading ideas are ideas. If the market trends against your idea or in this case our ideas, then take the other side of the trade.

4) Never blame anyone else for your losses. Never.

5) After each losing trade, first determine what you learned. Thank the market for it’s learning opportunity.

6) Judge your trades on the process and not your results.

7) Do not get lost in an endless opportunity to find conspiracies in the market place.

8) If you spot a pattern, no matter how it develops, then exploit it. If someone was fading our AM idea then fade it as well. That would be awesome if that were the case since all you would then have to do is do the opposite. Think Opposite George from Seinfeld.

9) If you cannot control your emotions while you trade then work on that first, and leave your money in your bank account.

10) One Good Trade, and then One Good Trade, and then One Good Trade.

There is still hope for that same trader. We can always chose to change our mindset. A few hours later he sent us this:

Sorry. Didn’t get much sleep the night before I wrote this comment, and I was really mad at myself, but had not realized this fact. I don’t actually blindly take these recs, so much as try to make them work for me, and that did not work. I take the blame for my stupid trades. Everyone who is getting on my case here is right, I don’t really have a leg to stand on. My apology to SMB.

Yes, I have bad risk habits. Yes, I’m trying to make back money and it is driving me crazy. Yes, I am trying to convert to an open minded trader from a pure bear, and at the worst time ever. Yes, I’d probably be better off taking the money I might put in my account and go on a vacation.

Well said!

Mike Bellafiore
Author, One Good Trade

7 Comments on “Trader Rant”

  1. def agree with this post, also very educational, At one point or another we as traders have found ourselves at this frustrating point.

  2. I really like this post Mike. Just because one traders idea might work well in a situation doesn’t always mean it will work for the other. My style of trading and my trading goals could be completely different than yours.

    I think every trader should do there own homework, even if given an idea, to verify if the trade meets there trading requirements. This also benefits the trader by further developing the fundamentals of trading.

    Two people could be given the exact same idea and achieve different results, but successful trading principles are always there. A quote from Ralph Waldo Emerson does a good job explaining this.
    “As to the methods there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.”

  3. It is not easy for me to explain this, as it is a bit embarrassing, I hope you can understand. I made a lot of money very quickly BEFORE I could really grasp the risks of trading in blocks that would take up the majority of my margin acct. I got my margin acct set up w/30k, and right before the flash crash I had 2000 shares of FAZ, Short 1000 shares of ZION, and shorts on BEXP, VNDA, DAN. I was actually up 12,500 (40 plus percent) at one point during the day. In the following two months, I was able to get my account up to around 64,000 from around 26,500.

    In my heart, I knew something was wrong. I Knew my ego was way inflated, I had an idea my luck was about to run out, and then the market started its bear slaughter, and I was a victim. Kept on shorting the runs, and then they kept going.

    I actually started participating in stocktwits during this period (right after the flash crash). I thought I had something to offer. Kind of funny in hindsight.

    I then proceeded to short $NFLX. Twice. Bought RINO the day it was halted (2000 shares). Shorted $NTAP back when everybody thought it was sooo great, and bought it now that it has lost favor. In essence, I positioned myself in the absolute worst places in order to get out of my hole. Dug it deeper.

    Of course, i had some good trades. I always got out too early on the winners, and took the losers for a trip to Europe and back. I would, of course have days where I would absolutely kill it, but one thing that has happened since I have witnessed the reaction of traders to QE: I became afraid to short! Damn Bearded Clam has me scared to do what used to come natural, because he says jump, and I’m continually surprised to see everyone scream, “How high?”

    I’ve never been a trendy person, and following the herd is very hard for me. I can never decide whether it is herd mentality, or if there is some little electric rabbit with ‘QE’ in solid gold on his necklace being sent around a track at varying speeds by “The men behind the curtain”. Yes, I do believe in conspiracies. The idea that powerful men get together and discuss things in secret seems fairly obvious. It is also quite clear that not everything that happens within the government is in our national best interest. This subject is best discussed from a perspective of herd mentality, herd control, and different levels of reality, and probably best not discussed here. “IF your gonna tell a lie, make it a big one so that questioning it will tear the fabric of the nation” would be the strategic mindset one would have to analyze the ‘theories’ through.

    Back to subject. I do appreciate what you guys put out for learning, and have considered taking some of your classes on line, or on a trip back home to LI, from CO, where I temporarily call home.

    I need to improve my health, which has suffered from the last few months of losses. I need to start exercising more and getting sleep, etc. Then, after further study, and hopefully refreshed, I’ll get back into trading.

  4. If someone reads the SMB morning rundown, he will see that all the recommendations in the articles (and I do mean ALL of them) have clear stops; if this reader entered long a stock at 48, the article said put a stop at 47.50, and he closed the position all the way down at 45, then he should really take at least a month of trading. Also, besides clear stops, in some morning rundowns there are expressions like “we are a buyer above 40 and if the bids are convincing”.

  5. It can be a very painful experience when you get hit with a reality check by the market, especially if you are trying to get by without defining and managing the risk of every trade you put on in the manner that you did. I don’t care if the rec came from God. It should be second nature to manage risk if you are trading for more than a hobby, which seems to be the case, judging by the level of your frustration. Additionally, you might want to actually befriend other traders with whom you can talk shop while grabbing drinks or just hanging out. It does wonders when you can vent to a friend who can truly empathize with you and provide some moral support after getting smacked by the market as opposed to trying to vent your frustrations to a distant blogger on the internet. Last but not least, you should be aware of the fact that were trading to be right and not trading to make money. Any time you feel an assault on your ego by the market, you are most likely trading for the wrong reasons. Good luck.

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