When I started to trade, I started with buying 100 stocks of companies that I know, mostly from the Tech sector. Investors.com was my source of fundamental analysis. I used TC200 and Vectorvest for Technical analysis. After reading “Trading for Living” and “Profiting in Bull and Bear Market”, I tried the strategy outlined in the book, checked twice on the charts and put Buy Stops to enter the trade. Used a bunch of indicators like RSI, Bollinger Bands, Stochastic and Moving averages to pin-point my trade entry. Never chased a trade and always bought the stocks on pull back. Once the trade is done, immediately set the Stop below the pivot low. Once the stock started moving in the intended direction, I used trailing stops to lock my profits. Despite all these, I never made any meaningful profits out of these trades. Most of the time, there will be a spike in the Market and I will get stopped out.
Frustrated, I started using custom scans for searching for stocks using a combination of RSI, Bollinger Bands , Stochastic etc etc. Again the results where not very different. Economy being so fragile, every news is causing Market to respond with wide swings, I noticed that my stops were taken out prematurely. On top of that High Volume trading companies may manipulate individual Stocks ( remember Knight Capital ) causing price to be very volatile.
Next, I tried my hands in Options trading. Initially I made some really good calls and I thought this is pretty easy. I also traded some straddles during earnings and it went fine too. At this point I was so damn sure that I can beat the Market and started buying Options for stocks that were showing some trend in the scans. Needless to say, a bunch of that trades were disaster. On top of that I hold on to the loosing ones hoping for the stock to turn. Some of them eventually did but even then I loose the capital as the option was close to expire.
I continued to read books, whichever I got on stocks and options. Even looked at some systems claiming to pick winning stocks. Tried stock picking service during the trial period some of them offer. Unfortunately nothing worked. I noticed that I was on edge most of the days I traded, frequently checked the Market, even while driving. My heart will pounce with every tick of the stock. Soon I found that this was not sustainable for longer term and I have to change my trading method and work on my emotional balance and discipline.
In one of the trading books, under trading psychology, author mentioned about reading “Power of Now” by Eckhart Tolle. I read all his books and found the method quite easy to follow. Idea is to observe your thoughts and realize you are not your mind. I guess the losses from trading propelled me in the spiritual path and working on my emotional balance.
Emotional balance and discipline is quintessential in trading. With out a healthy state of mind it is impossible to make rational decisions and stick with the trading plan without caving into greed and fear.
As a matter of fact, once you tame your greed, fear and emotions, it will help you in every aspect of your life, not just trading. Given money is the major cause of stress , strained relationships, family feud etc, taming the greed monster is the first step in your spiritual evolution and trading.
I will write about rest of the journey in the next blog.