Sunday, March 6, 2011

Guts Vs Reckless

Last week, I felt sad and painful for a fellow trader who suffered heavy losses. He joined us a few months back trading in the same room. A fantastic generous guy whom is not well like by some because of his naturally loud voice that disturb other traders unknowingly. He is a extremely nice chap, helpful and caring.

He traded the Simsci, Tw and Nikkei simultaneously with gusto, fearless and I always admire his guts in taking trades with size I feel uncomfortable. He goes to the maximum that his margin allows for him to day trade. When he is wrong, he averages then flip and turn, he can moves the Simsci a few ticks in a quiet market! And, I will be there to Yum him sometimes without knowing the trade belongs to him.

Is trading that simple?

This trader has been trading for more than a year and I heard he had already lost quite a fair sum of money since. Another quality that I admire is his perseverance, never say die attitude, a rare quality for a trader. But, he is also damn emotional and bloody stubborn, that's what make me feel that he will never make it as a trader if he don't change.

He simply does not practice money management even if he knows how important it is to any trader including those with plenty of experiences.

While relating how I admire this trader's guts, another senior trader laugh it off as an act of recklessness, GUTS, to him is having the courage to act and add on to a good position. I don't dispute that, the greatest traders on earth are those that dare to add on to their winning trades.

How about Warren Buffett? He was 6 months too earlier to get into the stock market during the Lehman Brother's collapse in 2008 accumulating cheaper and cheaper stocks on the way down. He was wrong for 6 months! Now, he is taking profit, it seems so simple when we look back in history.

Of course, Warren Buffett is a investor, we are traders, very short term.

28 comments:

coconut said...

the different is that WB did not use leverage in his trade and he can afort to average down to build his "position".

whereas in leverage play one can only add on to the winning trade. average losses on high leverage trades is gurantee for disaster.

never let the market force you out of a trade.

its a painful lesson i learn. i'm well aware of that cos i'm very much capable of wiping out myself.

sorry for the fellow trader, maybe he think he has endless supply of capital.

Fat88Trader said...

Yes, in this highly leverage game, anyone of us can wipe ourself out if we are reckless.

That's why I'm very careful, I rather earn less with little pressure and enjoy the trading.

coconut said...

true, but too little pressure is counter productive.

this morning there will be some "yum" trades looking at the open, on the down side. i hope this time the buyer will stay out, i'm hungry haha.

coconut said...

for those who wish to trade equity CFD, you never know exactly how much shares is there for you to borrow in a specific time. that will cause problem when you are shorting.

whereas in the cash market, you have to "secure" a block of shares before you begin shorting. you know exactly how much you can short. thats is also why i have 2 accounts just in case.

coconut said...

the title of this good topic "guts vs rectless" say it all and show how contradicting trading is.

same as fear vs conservative.

just like a good trading strategy, we have to have both fear and guts. when to apply them is the skill that a trader must master and keep that balance in check at all time.

coconut said...

last one fat, haha.

if you want to find gutsy traders all you need to do is go to the casino.

i have not been "gamble" or buy 4D for as long as i remember but 2 years ago i went to genting for a holiday.

i sat at the black jack table playing each hand 50 ringgit, no more no less. this guy sitting on my left was playing 300 to 400 at one go. he is like a front line soider waiting to be hit like a true hero, very gutsy.

he is 80 years old experience player who smoke alot and his hand is shacking all the time. i feel like smacking his head to wake him up cos everytime when he run out of capital i have to open my wallet.

he is my dad!

Balasubramanian said...

Coconut - Genting was the good one !! Never expected to be your Dad !!

coconut said...

gamble against the casino is the last thing i'm going to do.

haha, i was there cos i have to take care of him, i mean his capital.

i return to s'pore earlier and found out later that he actually make some during the trip haha. he got to "live to die another day".

Fat88Trader said...

A good joke!

I was wondering why you need to open your wallet, ha ha.

Yes, Fear Vs Conservative, I'm so conservative that my peers didn't believe I'm trading so small now.

I only make a fraction of what I made in the past, but, that show how tough the market is now

I have lost the edge in speed which is of outmost importance to my style of trading.

Our cost of trading has gone up tremendously, clearing fees have more than triple plus expensive platform fee charges.

Trading hours have been extended again and again, making it long and tiring with lesser volatility.

A big chunk of my profit goes to comm. and if I'm not careful, I end up on losing money because of the comm.

Yes, there should be a balance between Guts, Fear & Greed. I've been through all these emotions, having sleepless nights worrying about my positions, I'm contended now. I'm now a over the hill boxer!
There is no more strength in my punch.

Fat88Trader said...

I have not even step into any of the 2 Casinos to gamble since they open their doors.

Congratulations! We are smart and logical enough to understand that the odds of winning in a Casino is very much against us.

Plus, why should I pay the $100/- to get in to have some fun and end up losing my pants.

coconut said...

this is another true story. back in the beginning years when i was still a short term swing trader. i was able to make money for a while but very inconsistent.

in the trading room (not the arcade) next to the dealing room there are all sort of traders.

there was this old chap who is very patient and conservative and only trade along the trend line or trend following. he spend lots of time sleeping in the room cos we trade mostly US market. but he too are profitable but inconsistent.

i actually can see very clearly what our problems was and a few times i suggest to him that we should combine our trading to comprement each other but he rejected my offer maybe he is scare of the way i trade. we continue to be frastrated in our trading.

i figure it that for me to succeed i will have to do it myself (position trend following).

my point is that if one is no good in certain area of trading which we all have, we can get someone or something or anything to assist us, becos it is our survival at stack.

Fat88Trader said...

Yes, certainly, as long as the 2 can get along.

In the arcade here, there are 2 traders who combine together, both were not making until they got together.

Of course, it's tough in the beginning as they each complain to me seperately about the other. After the profits start rolling in, the complain stops.

forex ranger said...

Hi coconut, may i ask for your opinions/views on ES contract vs CFD contract?

Fat88Trader said...

You can short the ES contract outright without using CFDs.

coconut said...

hi fat, i have not traded ES (extended settlement)contract before and i know very little about them.

my understanding is yes, they are just like futures contract where you can long or short.

the main reason i don't use them cos i'm not sure the spread of their underlining price as to the actual share price. there are problem like liqulity and expiry etc.

"direct market access" equity CFD do not have such problem, your orders, thought with the CFD provider, actually go striaght into the SGX ordering books. you know axactly what you will be getting and no expiry.

just like ES, CFD are also leverage and traded on margin. i'm not sure how the commission are charge. personally i'll stick with CFD for easy executions (haha that just me).

thanks for reminding me.

coconut said...

i sum it this way, ES is a future market whereas DMA CFD (must be DMA) is a cash market traded on margin.

b17 said...

coconut,

i think cfd is like buying 4d from your neigbourhood bookie.....

forex ranger said...

fat & coconut, many thanks for sharing.

coconut said...

... i can change my trading through shear mental force but i can't change my personality.

as long as there are food on my table, i woun't care about what others are eating next table. until i'm facing death would i look for my medicine.

if someone interested in smacking my head, you are most welcome. haha.

coconut said...

b17, in a way you are right. these CFD providers are the bookies or market maker.

as long as my orders are go right to the exchange i have no problem with them. as long as i'm not betting against them i can accept.

the orders that go to the exchange are the orders that they are hedging against your orders. there are no "conflict of interest" in this case. they only earn on the commission plus financing cost and not the spread.

coconut said...

and just a reminder, i'm referring only to equity (stocks) direct market access CFDs. not any other CFDs product.

also do not use stop loss or any other types of orders except day limit order as this is the only type of order SGX is accepting.

i have tested for a few months through actual trading before i went into full swing.

b17 said...

coconut,

I am trying to learn more about DMA CFD.
can you explain how does the order gets to SGX?? eg: if you short Genting on CFD....i thought it is betwn you and the house??
thanks in advance.

coconut said...

i took i look at the ES today, we can forget about trading them. it is obvious that those brokers are the market maker, similar to the ETF.

b17, i try to make it short. yes all CFD contract are between you and the broker, your orders does not go to the exchange.

with DMA CFD for equity, you place orders to the broker, say long 10 lots of singtel, the broker will sell to you 10 lots, you got your order. the broker is now expose to an open position (short 10 lots), he then place an actual order to buy 10 lots from the exchange to hedge his open short position. so your order is indirectly go to the exchange. it happen in less than a second.

for short position, you have to make sure your broker got the stocks to lent you before you can place an order to short.

frankly, if you are not shorting stocks, just use your regular broker to trade in the SGX.

coconut said...

damn, what i explain just is for market orders, buy at market price.

if you place a limit order which you should be, upon receive your order the broker will open a similar order to the exchange, buy 10 lots singtel at 2.00. upon received his order from the exchange, he will then sell you the 10 lots. his position is hedge, and you got your order. it also takes less then 1 second.

got it? haha

forex ranger said...

hi coconut, am i right to say the broker wouldn't even allow you to short the respective counter CFD if they do not have any underlying on hand?
which in this case means there is always the possibility of partial fill (be it long or short)?

forex ranger said...

sorry coconut, if u don't mind more questions about ES...I have the understanding that products traded on the exchange have lower counter-party risk since it is regulated by the exchange and thus 'safer' than CFD? and for any new listing, there is always a need for market maker to provide liquidity until such time it is able to sustain on its own?

coconut said...

hi forex ranger, about ES you are probably right and exchange product are safer than CFDs, so make sure you have a good CFD broker.

how safe are equity DMA CFD is yet to be known but many of our security firm are providing these CFD as well as the normal share trading.

yes, if they do not have the underlying share they will not accept your order to short. but if they do, your order will be fill in full. the problem is you do not know how much they have, some joker might also be shorting. once they run out of it, they stop accepting your orders. thats my understanding. so what i usually do is to "book" the orders first.

but for long position, you can have as much shares as you like as long as you can handle it.

it is as close as trading in the exchange one can get, you can see "your orders" flowing in the exchange order books.

forex ranger said...

noted with thanks!