One Question Interview with Smita Sadana

August 17th, 2006

Another One Question Interview, this time from Smita Sadana, the female trader I interviewed some time ago.

Reminder: feel free to submit your own answer and I’ll post it, too!

What trading lesson(s) have you learned from the downtrend that started in May?

Smita:

I had been anticipating this downtrend since March. Even though the indices had been making highs from January to March, there was a lot of underlying weakness as evident by narrowing stock leadership and non-confirmation by semiconductors and biotechs, both of which attract speculative money. However, the volatility and viciousness of the downtrend in such a short time was certainly unexpected. Market would seem to gap up and close at the highs, then gap down and close at the lows of the day. The frustrating lack of consistent follow through in either direction caused most traditional technical setups to fail.

I learned that in whipsawing markets, it is best to have reduced exposure to individual stocks and have positions in indices instead. After all, the indices are hanging close to unchanged, while most of the leading stocks are down considerably for the year. In turbulent times like this, it is advisable to have smaller than usual stock positions (if any) and have some portfolio in cash. When the fog starts clearing up, trading can be back on track with the usual position sizes.

One Question Interview with Charles Kirk

August 9th, 2006

Another One Question Interview, this time from Charles Kirk of The Kirk Report. Charles always provides insightful market commentary and gives a peak into what he’s trading. His results speak for themselves. Look for a full interview with Charles here in the fall. Here’s Charles’ answer to the first one question interview. Reminder: feel free to submit your own answer and I’ll post it, too!

What trading lesson(s) have you learned from the downtrend that started in May?

Charles:

Stick to your guns in the face of adversity. Hindsight is always 20/20, but we had some many indicators flashing a “sell” signal back then that you had to take notice of even in the face of rising prices. If you can recall, at the time everyone was so focused on the “there’s a bull market somewhere” mentality, especially within the energy and precious metals groups, that the likelihood we’d experience a correction even in those hot sectors was much higher than normal. Whenever any sector is perceived by the majority to have little to zero downside risk, it is time to take the other side of the trade, even within a long-term bull market cycle.

One Question Interview with Mandeep

August 7th, 2006

Another One Question Interview, this time from Mandeep. Mandeep answered my call the other day for responses to the first question in the One Question Interviews. Mandeep talks about a nasty drawdown that his trading took and how he coped with it. Thanks, Mandeep!

What trading lesson(s) have you learned from the downtrend that started in May?

Mandeep:

Before this crash, I mostly traded on swing basis. I would hold a stock for two to three days and make some profit and sell it and watch the stock go even higher. Of course, I would count the money I coulda, shoulda, woulda made. So I got sick of this in the beginning of April and opened two accounts. One with smaller share size and wider stops and one with my usual swing trading. I was up about 10% in the month of April. Well that was just the beginning of the story. I remember telling myself on May 12 that I am a kick ass trader. Only to find out that by June 12 I gave back the 10 and 20 more with interest. For the last month I got so scared that I would sit in front of the monitor, put a trade, and start to shake. I could not trade because I got scared of loosing money and ironically more I tried to avoid losing more I would lose because my stops were to close and got hit about 99% of the time.

Then I realized that I was losing about $300 a day including the commissions because I was trading like a maniac trying to control the market. I did this for 7 days in row. Then I told my self that I am going to make one trade with 100 shares a day with a $3 trailing stop and go to the gym after 11:15. I remember Seykota saying that ticker is your worst enemy. Sure enough I had six positive days in row. I no longer tried to control the market. I defined my loss and stuck to it. One more thing this downturn taught me is that I am much more comfortable with being flat at the end than having an open position.

One Question Interview with Nusair Bawla

August 4th, 2006

Another One Question Interview, this time from Nusair Bawla. Nusair is an individual investor with an interesting style that we learned about in his full interview. He has recently started a blog called Tips are for Waiters.

Here’s the question for the first round of One Question Interviews:

What trading lesson(s) have you learned from the downtrend that started in May?

Nusair:

Simply put, I have learned to trust my method more now than ever. Around the beginning of April, I was up 41.2% for the year and I was sitting on 80% cash. Most of my screens were not coming up with any decent candidates so i was sitting on an unusually high amount of cash. Having around 40% cash is not unusual for me, but this was high. As I was seeing others coining money around me, I thought I would loosen my screens a bit to generate some more ideas. That was a mistake as I started to buy stocks in companies that did not fit my criteria. Fortunately, I did not buy too much and I ended April with around 50% invested, which is when the wheels came off this market. Most of the sub par stuff I bought due to my loosening of criteria immediately plummeted and I was stopped out for some small and some not so small losses. Though my losses were not too bad ( I am still up around 36% for the year), the lesson was learned. I should stick to what got me here in the first place. I exhibited a lack of discipline in not following my own stock selection methods and I paid a hefty tuition for it. In the future, I will simply trust my own criteria and my screens and will not override them.

Since this downtrend has started, I have been in mostly cash and have not done a whole lot other than make very short term trades (long and short). Since I have not been too active I do not have too many stocktickr stocks in my list either. Once my screens start to give me some decent picks, I will start to add longer term positions. In the mean time, I have started a blog and am doing some initial digging into starting a mutual fund of my own. BTW, I am by no means a computer whiz so do not expect too much from the blog just yet. I am still feeling my way around and learning everyday. Any suggestions will be very helpful.

One Question Interview with David Hannan

August 4th, 2006

Another One Question Interview, this time from David Hannan. David answered my call yesterday for responses to the first question in the One Question Interviews. I think David’s viewpoint is especially interesting because he just started trading in March (what a time to begin!). Thanks, David!

What trading lesson(s) have you learned from the downtrend that started in May?

David:

I’m new to trading – just started this March. I started by using Fundamental analysis (Cramer’s book got me started). It was easy for the first two of months – just find a stock with good fundamentals, trending up, and hop on board. Of course the thing that concerned me was that I would make money and then loose it because the stock pulled back a little, but eventually continue upwards. I tried selling some when it ‘looked’ like it would pull back and sell too early . That is what drove me to read books on Technical analysis. I finally found blogs – Barry Ritholtz’s at first and then others: TraderMike, Kirk Report, Tim Knight, your site, etc…

So I though I would try to trend (swing) trade but that is when the market topped out and started down. So I sat on the side still reading, and looking for stocks that were still trending upwards. One think that I thought about while reading blogs was that it seemed like it would be easer to day trade this market than find a trend (one of your interviews seemed to confirm that idea). So I find stocks that are still trending and with good fundamentals (PEP is one) and that brings me to my second troubling thought. How do I know if this stock is really trending upwards when I jump on board the pull back, or is the pull back a real trend reversal. So I found ODFL – yes I know that the market is slowing and that inflation is rising, so trucking is not the best to be in, but ODFL did have good earnings, and was trending up. So I bought a few (not many) shares. After I bought and was studying the chart some more, thinking that I bought on a pull back, I noticed that the damn think is forming a head and shoulders pattern. As of this morning I’m up a little above breakeven and am seriously considering bailing out.

Lessons learned:

  • Maintain discipline with your money – set stops and live by them, if I’m wrong, which I seem to be more often than not since May.
  • Don’t quickly jump back into another trade but keep reading, looking for stocks, and take your time studying the charts. Actually I shouldn’t be trading at all but I find that I learn more when I fail on a trade than by pretending to trade.

One Question Interview with…You!

August 3rd, 2006

If you’ve been reading the one question interviews I’ve been posting, you may have noticed some differences and similarities in some of the responses. Some truly have learned something from the recent market decline in May (Bruce and Ugly) while others were well positioned and it was business as usual (Dave and Gary).

From the responses I’ve received so far, there is no doubt that each trader had already done their homework and knew the answer to this question before I even asked it. It there’s one thing that good traders have in common it’s their honest evaluation of their own trading. Every trade is an opportunity to learn.

What did you learn?

Did you learn something about your trading that you’d like to share? If so, contact me and with your answer to the question and if I think it’s good enough to share, I’ll post it with a link to your site. Please be sure to include your name, email address, and site (if applicable).

So:

What trading lesson(s) have YOU learned from the downtrend that started in May?

One Question Interview with Bruce Brotnov

August 3rd, 2006

Another One Question Interview, this time from Bruce Brotnov. Bruce is an investor (not a trader) who runs Poormans Investment Strategies. I did a full interview with Bruce several weeks back.

Here’s the question for the first round of One Question Interviews:

What trading lesson(s) have you learned from the downtrend that started in May?

Bruce:

It was another reminder of how fast the market can turn and I probably needed to have a few more sell stops in place since I was in Vegas the week the market started dropping (Money Show and Poormans presentation). All profits for 2006 (22% at the time) were wiped out and having to start over. It was also a reminder of how the FED can cause recessions by hiking the rates too high like they did in 2000 as it appears they contribute to inflation by chasing inflation. The cost of borrowing goes up as does the cost of goods and historically the inflation doesn’t stop going up until after the FED finally stops raising rates. In the meanwhile the market learned the new Chairman was hawkish and quickly sold off the gains from anticipating that Greenspan’s replacement would put a halt to smothering the economy.

One Question Interview with Dave Landry

August 2nd, 2006

Another One Question Interview, this time from Dave Landry. Dave is a well known swing trader and author who posts weekly webcasts on swing trading and trading in general. I did a full interview with Dave several weeks back.

Here’s the question for the first round of One Question Interviews:

What trading lesson(s) have you learned from the downtrend that started in May?

Dave:As a trend follower, my goal is to identify and trade trends. I’m usually wrong when the market turns. However, in May 2006, I was actually bracing for a potential market top.

Why? In spite of the S&P breaking out to new highs, there were quite a few signs that had me suspicious. The S&P did not follow through from its breakout. The Nasdaq and most of the tech it represents was lagging. Areas such as broker/dealer that often lead the market were topping. Further, the uptrend in the S&P seemed to be sustained mostly by commodity related stocks—not what a bull market is made of.

Instead of me telling you in perfect hindsight all of these things, I think it would be more beneficial to watch the webcasts that were recorded around the time the market topped. In them, I discussed in detail the aforementioned signs. They can be found at my webcast archive (watch the 05/03/06 and 05/10/06). Email me and I’ll also send you archives of my column and trading service for that period.

If I had to say one lesson learned is to do your homework. Just because and index like the S&P is making new highs, it doesn’t give you the “all clear” to buy stocks. Dig a little deeper: See what stocks are driving the index and make sure that sectors which tend to lead the market are confirming.

One Question Interview with Ugly

August 1st, 2006

Another One Question Interview, this time from Ugly from UglyChart.com. Ugly is a day trader who “dummy trades” high alpha stocks and does quite well. His blog is a good one to follow because he posts honestly about his trading and he’ll throw in interesting posts like this one. I did a full interview with Ugly a few weeks back.

Here’s the question for the first round of One Question Interviews:

What trading lesson(s) have you learned from the downtrend that started in May?

Ugly:

I started day trading full-time at the end of January this year. The most valuable lesson I have learned the last few months is that I can trade profitably in a down-trending and choppy market. This is important because it gives me faith and confidence in my system, which will hopefully help me to stick to it during the dry spells.

I’ve also learned that day traders don’t have it as bad when the market breaks a large trend. For longer-term and swing traders, it was tough out there the last few months. At least from my point of view. In my opinion, it was harder to predict and take advantage of such a sharp decline from a longer timeframe. As a day trader, each day is a new day and is treated the same way. I also saw a lot of stocks that seemed to set up one way and then gap in the other direction. I don’t have to worry about gap opens with any of my positions, because I don’t have any positions at the open.

One Question Interview with Gary B. Smith

July 31st, 2006

Another One Question Interview, this time from Gary B. Smith. I’m sure you’ve seen Gary on various market television programs such as the Bulls and the Bears on Fox News. I interviewed Gary back in April and then he answered a couple follow up questions, too. He also said that the hedge fund he started earlier this year is doing quite well.

Here’s the question for the first round of One Question Interviews:

What trading lesson(s) have you learned from the downtrend that started in May?

Gary:

If you’ve been trading for awhile, hopefully you’ve experienced 99% of any kind of market action and therefore the correct answer should be: “I’ve learned nothing new.” That’s not hubris — and it doesn’t even mean you made money during that time period — but rather the confidence that you’ve tested your methodology in all kinds of market conditions and therefore are rarely subject to any surprises.

That said, every kind of market action certainly reinforces the fundamentals: be patient during flat periods, ride the trends during up periods, and in this recent down turn, don’t be afraid to play the short side!

Again, my mantra remains the same: find a methodology that is profitable through up, down, and flat markets, and then stick to that methodology regardless of what else may be happening.

« Previous Entries