Cher, "If I Could Turn Back Time"

I can't take this music much longer... tomorrow I must make money.

The RO Report, "Kill Me Now" Edition

It's amazing how fast this job changes. Two weeks ago, I was on top of the world. Since then, I've had two big down days and now I'm just bleeding money. I'm barely up on the year and scared that I'm gonna have to sell my house and move to some Red state.

The RO did okay though. A decent bounce back from yesterday's slaughter.

Fuck those guys.

Let's talk about me again...

Is this market going to save my ass again? Can we get some action? I'm coming up on my 10 year anniversary as a full time trader in March. I want it to be a good one.

The problem is that I'm still bearish. I don't believe in breakouts anymore, just breakdowns, and this little bounce is causing me fits.

The RO had more perspective though, and caught the long. Out of 29 traders today, 20 were gross positive, or 69%. 6 traders made over $1,000 gross and 3 lost over $1,000. I was #23 of 29. Moosecock.

I'll have a history post up tomorrow. Enjoy your night.

"Lucky Pierre" - Trader D, $4,174 on 222k shares traded.

2. Trader A, $4,168 on 137k shares traded.
3. Trader H*, $3,568 on 12,600 shares traded.
4. Trader B, $3,105 on 139k shares traded.
5. Trader 10*, $2,389 on 200 shares traded.

"Chambermaid" - Trader 8, -$1,856 on 44,800 shares traded.

2. Trader C, -$1,700 on 85,900 shares traded.
3. Trader F, -$1,040 on 18,000 shares traded.
4. Trader 9*, -$614 on 0 shares traded.
5. Trader &, -$549 on 9,600 shares traded.

Blogroll Amnesty Day

Today is "blogroll amnesty day" which you can read about in depth over at Jon Swift's blog.

It's the only holiday celebrated by the blogosphere and a great idea. I keep my blogroll tight because I like to visit the blogs on it at least a few times a week, but there are many more I would add if I had loads of time/space. Please take a moment to visit these great trading blogs.

(Except Richie's... I'm just throwing that up there because it was hijacked and I think it's hilarious.)

UPDATE: Unfortunately, someone got their blog back. Link removed.

TraderAM

Stock Rookie Goes Pro

Am I Bald?

Todd's Trade

Jules In Jumbles

Sage

Stock Hunter

Stock Picks

Market Monk

Bruce Kovner: Market Wizard

In the second chapter of Market Wizards, Schwager interviews Bruce Kovner, protege of Michael Marcus.

I liked this interview a lot, mostly because it really seemed that Kovner thought trading was a big game. As he explained:

The pleasure [of trading] is purely intellectual. For example, it is trying to figure out the problems the finance minister of New Zealand faces and how he may try to solve them... Here is a guy running this tiny country and he has a real set of problems. He has to figure how to cope with Australia, the U.S., and the labor unions that are driving him crazy. My job is to do the puzzle with him and figure out what he is going to decide, and what the consequences of his action will be that he or the market doesn't anticipate. That to me, in itself, is tremendous fun.

I can appreciate that. It's not that I wake up each morning thinking in these terms; obviously, Kovner is playing a different game. But what I found appealing was the idea that the markets can be figured out and that there is a human element behind them. When you stare at screens full of numbers all day, that's easily forgotten.

Actually trying to "figure out" the market as opposed to simply reacting to it, is relatively new to me. For much of my career I've been an intuitive trader; a sort of "drunken master," if you will. Developing a daily strategy has given me a new appreciation for trading. It has made it fun again. In this manner, I can relate to Kovner's feelings about it being a game.

Like Marcus, Kovner had an early taste of trading loss. However there was one big difference. Kovner didn't come in and lose a bunch of money like Marcus. Instead, he made a good amount, and gave back half. In the RO, a question that often comes up is, "Is it better to make money and lose it, or to never had made it at all?" Kovner's big giveback taught him the rather unpleasant lesson that he didn't understand the risk involved his trade. The realization that you can lose money in the market as easily as you can make it, was jarring for Kovner.

In discussing the influence that Marcus had on his trading, Kovner didn't talk about the technical aspects he had learned from Marcus, or even what markets they traded. Instead, he simply states that Marcus taught him that he "could make a million dollars." That kind of money was a reality for a good trader. This gave Kovner confidence. Working with the talented members in the RO, I learn this lesson almost every day. There is always someone out there killing it. Why can't it be you?

But, in one of my favorite ironies of trading, the sky is the limit, but only if you're humble and allow yourself to make mistakes. In Kovner's words... "You have to be willing to make mistakes regularly; there is nothing wrong with it. He [Marcus] taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money." However, through the losses and the gains, it's important not to personalize your P&L. If you do, it will cripple your ability to trade.

Kovner says the best traders are "strong, independent and contrary to the extreme." He forgot one other thing... many of them like men... at least that's true of some of the best traders in the RO.

Kovner decides to "nerd up" the discussion on breakouts by throwing out the "Heisenberg Principle." It's cool, I already googled it. It states that if something is closely watched, it's going to be altered in the process. So, as it relates to breakouts, Kovner likes to see a stock break out for no apparent reason rather than break out because of a positive news article. This has been my experience as well... the best trades often have the fewest eyeballs watching them.

It's hard to find exact rules in the Market Wizards book. It's more a book of inspiration, a book that lets you know you "could make a million dollars." However, Kovner is very specific about his stop placement rules.

Given today's volatile markets, I found the following very pertinent:

It is better to allocate the predetermined maximum dollar risk in a trade to a smaller number of contracts, while using a wider stop. The is the exact reverse of the typical trader, who will try to limit the loss per contract, but trade as many contracts as possible-an approach which usually results in many good trades being stopped out before ht market moves in the anticipated direction. The moral is: Place your stops at a point that, if reached, will reasonable indicate that the trade is wrong,not at a point determined primarily by the maximum dollar amount you are willing to loser per contract. If the meaningful stop point implies an uncomfortably large loss per contract, trade a smaller number of contracts.

Good trading. Next Tuesday I'll discuss the trader Richard Dennis. Tomorrow, a history post.