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|Thursday, December 29, 2005|
We could have taken the whole week off - with the exception of a few quick day trading opportunities there is absolutely nothing happening at all. Today the Dow was down 11 points, the Nasdaq also lost 11 points and the S&P dropped 4 points. With one day left to trade in 2005, it does not look like a big rally is in the cards as volume should be anemic in the afternoon tomorrow with traders leaving early to start their new years celebrations.
Tonight's commentary is rather winded so please excuse the length but I felt it was very important to end the year with this one. This is our last commentary for 2005 and before we begin 2006, I would like to share with you a little story about myself. 2005 has been a rough year for most traders. It may be so rough that some will think of giving up this business of trading. If you are thinking of giving up, please think again. Read below the reminiscence of when I first started as a trader and know that it is true. Anyone can be successful in this business if they try hard enough. Please make 2006 the year you learn to be the best trader you can be. I always say that “a chart is worth 1000 words” but tonight, instead of charts, I think a thousand words will be worth more to you than just a few charts.
Nightmare on Wall Street
No matter who you are, how intelligent you may be, or how much education you have, if you keep doing the same thing over and over again expecting different results, you are suffering from the most insidious form of insanity. This is self-delusion of the highest degree. Years ago, when I first started to trade, I was very optimistic and believed I could make money consistently. I could do it and nothing was going to stop me. I did not work hard at it at all but I still showed big profits month after month. Why? Because we were in a major bull market and all stocks were rising. I thought it was because I was a great trader but I was wrong. I was not making money because I was a great trader; I was making money because at that time, you could not lose money if you tried.
Suffering from “Tick-itis”
Little did I know what I was facing, and what I was about to come head on with the most challenging task of my lifetime. After a few months, I found myself over trading, losing on many trades, spinning my wheels and trying all different trading styles, listening to the talking heads on TV, jumping back and forth between analyst upgrades, and trading on fundamentals instead of Technical Analysis (what was TA anyway? I had no clue what TA was). Instead, I followed the analysts and did all the wrong things at all the wrong times.
I could not do anything right and found myself glued to the CNBC ticker the first year they were on the air. I had a severe case of “tick-itis”. I watched every tick and looked at my portfolio balance every 12 seconds. I could not make a successful trade for the life of me. Why couldn't I do it? What was wrong? I had to face the truth, and the truth was that when I first started trading, I just got lucky. I did not know what I was doing but somehow, my stocks were going up. I was spoiled and thought I could do no wrong. I just happened to get in the market when all stocks were going up. There was no skill to what I did when I first started, but I was blind to that fact and I said to myself “this is a piece of cake, the stock market is easy money”. Oh how wrong I was.
Oh How Wrong I Was
I bought more. That's the ticket. Average down and keep averaging down and eventually, the stock will go up and I will get even and dump the stock. Why is the stock going down? After all, I listened to the gurus on CNBC and they said it was cheap, the P/E was low. I keep buying more as it fell; it has to go up soon, who would sell at this low price? Wow!! Look at the size of my position now, I own too much of this dog, this is scary.
I continued to watch every tick, read all the message boards, and follow what those idiots were saying. Life was miserable this way. I became depressed and irritable. I shut myself off from the rest of the world just trying to figure out what to do. I had dug a really deep hole and the only way out was to sell and take the losses. The other choice was to wait and be in agony day after day, watching my account and my self-esteem (what was left of it) melt away faster then a bag of ice left on the Arizona asphalt in July. I pushed myself to the point of both physical and mental exhaustion.
Why Didn't I Learn First?
Why? Why didn't I just learn how to trade like a pro before I jumped in the market with all my cash? This is the question I asked myself over and over. Why did I think I could trade successfully without first learning how? It makes no sense now but then, you don't think about that until it's too late. Why did I continue to hold on to those losers and even worse, average down?
In order to be reborn, I had to destroy the internal self-defeating programming and start all over again. I had to step back, look at what I had done with hard earned cash that was now in somebody else hands (the smart trader on the other side of my trades). He took my money, more power to him, he was better than me. My cash was gone and it was not coming back. Or was it? Is there a way for me to get it back? Yes there was. I can get it back if I become the trader that was on the other side of my trades. He is the winner, my hat is off to him and I want to be like him, that is the only way. I decided to stop trading for a while. I took almost two years off away from the markets. My depression was treated and went away. I did not care about the ticks anymore. My tick-itis was cured.
The Fortitude to Come Back
Am I describing the way you use to trade when you first started? If not, congratulations, you are one of the few lucky ones. Most of you probably know how I felt. You probably have been there. I have been there, lived it, and suffered losses from it. It is the normal process for the beginning trader. Most of us have been through this, it is called the learning curve and it is our tuition that we pay to become a better trader years later - after many mistakes and experiences. I was essentially washed out of the market like many beginners. Most do not have the fortitude to come back. I did come back after doing what I felt I needed to do. After blaming everyone and everything I could on my losses, I realized that it was not CNBC, the market, the gurus or anyone or anything else. It was me, it was my own fault; I was my own worst enemy. Nothing was going to change until I got right with myself.
This story is much longer than I can explain in this commentary but to make a long story short, in the two years I was off, I saved every penny I could spare and read every book I could find on the stock market. I taught myself how to trade and how to be successful in this business. It was a long hard road, but it was worth every penny of tuition I paid.
In a nutshell, that is my story and I know there are many who have stories like this one. I was a bad trader once, but I know now how to prevent the mistakes I once made. Preventing mistakes is the most important part of trading. When you can control your mistakes, the profits will be almost automatic. Experience is the best teacher but if you quit, you never get the experience you need. Don't ever quit, take some time off to gather yourself, but don't ever leave for good. I always remembered an old quote my father used to say to me when I was young, “A quitter never wins and a winner never quits”. Tomorrow, you'll have another chance. You can make it, I did.
Make 2006 Your Year
The current market is one of the toughest I have ever traded. If you are having trouble, step back for now. Continue to learn and when times get better, you will be ready. If you are doing well in this market, you are well on your way to becoming the seasoned, professional trader you have always wanted to be. Now is the time, make 2006 the year to educate yourself and learn all you can about trading for a living. Throughout history, bull markets fade but they always return and roar back to higher highs than before. When the market is ready to roar again, you will be ready for it, I know you will be. Keep the faith. Happy New Year and God Bless all of you and your families.
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