Processing Losses and Gold signal 7/27/13

Developing a strategy to overcome how to mentally deal with losses in trading is a key to being a successful trader/investor. We learn more from losing than winning, which is an unfortunate reality. In trading there is no such thing as certainty. I remember a PhD wealth manager, a gold bug, coming to our local AAII (American Association of Individual Investors) meetings and proudly claiming his wins in gold as he bought at $900 and it rose to $1200. Then he came back next year and repeated his happy performance when gold was up to $1600. He could do no wrong. He was a winner. He preached gold would hit $2200 because all the gold in the world would only fill a swimming pool. Next time he came, he was quite subdued. Markets had risen but gold had dropped to $1400. He had missed opportunities and he looked sick. He was buying gold miners then. Of course with gold much lower, I can imagine him now fighting to just hold on to his job. I expect we will not see him in a while at our meetings, unless he can process his losses. How can he do that?

Losses in the stock market make us feel like a loser. Missed opportunities also are treated as “losses” by traders.. I had a huge missed opportunity “loss” this year, and it still hurts. I listened to LW’s market forecast and ignored my own charts and systems.  LW would have been perfect if I had just turned his forecast upside down. Oh I get so mad with myself when I look at my trading systems signaling Up and I plan on Down, because LW said so. It was a huge missed opportunity that I treated as a ‘loss”. By focusing on what I learned from it, I was slowly able to overcome the feeling of being a loser and gain my confidence back. I have promised myself that I will no longer listen to Gurus who forecast long term direction. There are plenty of them around. I will only listen to the tunes my charts play and follow them.

My charts cannot predict how long any direction will last. For example a down signal can be short lived and turn right back into an up signal. Had I just stayed in it and ignored my down signal, I would do better. But then if I am longer following all my signals, what would dictate my buying and selling rule? I accept these small “losses” as part of the reality that the markets are not predicable. I don’t believe anyone who tries to tell you they can predict long term market direction as they are simply deranged. What I do know is a down signal is a sign of weakness, and I prefer to exit and not challenge that weakness, as the fall could be very substantial.

Looking at gold now, I see that it has taken a HUGE fall from its highs. It is now perking up although I do not expect it to start climbing for the stars. Investors who left and got out of gold have memory and it is likely that gold will try to build back a base before it climbs. This creates an opportunity. If I buy GLD on dips with a tight controlled loss, I could still profit. See chart of GLD below.  As long as it stays above my “floor” line of support, I will wait for a dip and get in. My sell point will be the support line. Profit will be taken on rises and signals from stochastics signaling overbought conditions. My expectation is sideways with a chance to make money on dips. If that is wrong, I will accept that as part of the frailties of trying to predict the market. Process a loss by asking what did we learn from the trade. Did we follow the trading plan? If so, then accept the loss as part of trading. Long term we will be winners, assuming we are using a good trading system.

Back in my 401K 07/13/13

The SPY chart gave an exit on long, which for this system means it is a change to long. That also means I am back in my 401K. Stochastics is maxing out so it will be a partial entry and the rest on a pullback.  

With my current employer the funds that look best are WFA SPL Midcap VL, Fidelity Blue Chip Growth and Fidelity Large Cap. Actually Royce Opportunities was at the top of the list but because of redemption fees, I am staying out of Royce.

For my past employer, Vanguard explorer Admiral and Fidelity Growth are at the top of the list. Next is Artisan Midcap VL Instl.

A Tale of Two Systems – Market Direction on SPY 7/10/13

The market has broken through the down trend line on my base system for SPY (S&P500) suggesting an upbeat note. In my last posting I had noted that we had still not broken through. That has changed however and I am now shifting my bias to the upside; albeit cautiously. I picked up some SPY this morning at market open based on a market order placed last night.

I have another trading system that is quicker responsive on SPY and I will post the chart on it below the first one. It shows an entry into SPY a little earlier and the break through the down trend line. It still has not penetrated the Super trend line that are the flat blue stepped lines that mark which point I would fully shift allegiance.

Still, I felt obliged to blog mid-week as I have seen a change and have put money back into the markets. Each trading system on SPY is very good but they do have some differences… a tale of two systems.

I am also bullish on Ford (F) and TAN. (Solar ETF) and picked up some positions there this week.

System 1 on SPY

System 2 on SPY

Which one do you Like?

Bond funds are feeling the pain 7/6/13

Bond funds are used to minimize losses when the equity markets go down. Unfortunately we have been sitting on a bond bubble and bond funds appear to be collapsing as we speak. Bond owners beware. No one can really predict the extent of any down move and it is best to stand aside when these things happen. If there has been any help for the typical 401K fund owner, it is that they were also been in equities and US equities have done very well this year.

Back to bonds – earlier in one of my posts I stated I was exiting bonds. I also had exited GLD. Both have fallen precipitously. Friday bond funds all gapped down. Yes gapped down. Can’t remember the last time bond funds made that kind of move. Why did that happen? Employment numbers came in at 195,000 or thereabouts beating all the pundits’ pessimistic predictions (including mine). Yes, we really do have a recovery and have been adding jobs ever since President Bush left office. I am not taking political sides, just marking when we started adding jobs. A stronger economy in the US must mean that the Feds will get us off that QE drug we have been on and bond buying. It looks like the patient just might make it on his/her own. I sure hope so. Add to that the coming shale oil and natural gas boom, and I would say we have a reason to be positive about the economy here over the next few years….

Attached is a chart on the bond fund TLT. 

I missed a beautiful move on the inverse bond fund TBF. Unfortunately I was tied up in Canada on a work assignment and I missed it… excuses don’t make money…

My SPY chart still shows some more strength required in the move up before we are convinced that the direction is changing.

Next blog I will write about my “hyper” trading experience… using 1” charts on NQ Nasdaq e-mini futures.  

...using paper money not real stuff.  Got a lot of off-hours work to do to perfect it; but does it have some potential... >100% returns!!