Please Bear With Me

The predator is back and we are all its prey. 

There are quite a few things that this market is teaching a neophyte like me:

1. Pick a set-up and be great at it.

Unless you're Sherlock Holmes, you can't master every play in the book. So you choose one and you study like hell to perfect it.

I am far from perfecting mine, but I have always leaned towards stocks that show forceful momentum and so I have always been a breakout trader.

What is a breakout trade?

Once a stock touches its resistance, it can do one of three things: breakout, consolidate, or untog.

Breakout

Conso

Untog

I buy on breakout because it signals a strong momentum. When resistances are broken, the stocks are free to fly as a bird. Until of course, they encounter another resistance, and the process would then repeat: breakout, consolidate or die.

Think of the stock that's about to breakout as the "unstoppable force" and its upcoming resistance as the "immoveable object."

An unstoppable force and an immoveable object both cannot exist at the same time. It’s a hoax. For better or for worse, one of them has to give way—and you better be ready whichever one chooses to.

When Hillary ran to be the first woman leader of the free world, most journalists, artists, people of color, and women were behind her. After all, she was running against one of the most misogynistic bullies the modern world has ever seen. The polls predicted her win since day one. She has her faults but she has it in the bag, the analysts said. She showed so much force and momentum, it seemed as if America would finally have a Madame President.

But alas, the glass ceiling was reinforced with white supremacy stronger than steel beams and she failed to break it. It’s THE immovable object, and Hillary was stopped short. Maybe it's not yet time, maybe the world is not yet ripe for a breakout. One day, the glass ceiling will be shattered. Until then, life goes on and we move on.

And we hunt, and we study, and then we study some more.

2. But learn to go out of your comfort zone.

I started dabbling in stocks May of last year, but I only actively traded January of this year. My trading career is as old as the fetus in my neighbor’s 9-month old belly. But as a fetal trader, this is the most blood I’ve seen. So many plays with a promise of ever-after, only to end in a break-up shortly thereafter. 

On a market condition like this, ang hirap maging breakout trader. Breakouts turn into fakeouts. You press buy today only to cut your losses the day after. It was a little disappointing.

So how about we try expanding our horizons? I tried looking into sleeper plays, or studying more about bounces. I don’t have a decent batting average on those plays. But just because I’m not good at it, doesn’t mean I can’t be. The market is giving us a chance to grow. We take it and break, or we take it and be better.

3. Curb your expectations.

During and a little after the ZFT course, my biggest port movers were the ones I did not put target prices on. It was position trading. I used trail stops on them instead allowing my profits to run as much as it could until the chart says stop. 

MAs as trail stop

But these past few months has taught me that setting target prices is wiser on a market season such as this. I’ve had pera-na-naging-bato-pa moments because I expected the market to adjust for me. The market never adjusts to anyone. And those are moments I’d rather not relive. Ang sakit eh. Setting target prices (TP) means protecting your profits on a season where plays expire in a day or two. 

But as in all things trading, TPs should be reasonable. Why did you set your target on a certain price? Does it have a technical basis? Or feel mo lang?

4. Set tighter cut loss points.

These days, I let go of positions the minute they reach the -2% mark. It’s a personal preference and it’s an awfully tight cut loss point, but I just don’t trust the market enough to let my losses turn into bigger ones. As a result, I've had whipsaws more times than I could keep track of. I cut positions a day, an hour, or a few minutes before they fly. And I'd be lying if I said I was immune to the inevitable headshake and to thinking sayang. But such is the price we pay by following the number one rule in trading: always protect your capital. 

There are days when I’d think, “I should have held on a little longer.” But then there are more days when I’m thankful I cut as early as I did, “buti na lang.” It might have been a bad entry, an incorrect bias, or whatever it is that colors your port red, make sure to let it go fast.  

I don't know if it's just me, pero 'di ba mas masarap matulog kapag walang pula sa port mo?

5. Choose your battles wisely.

Cash is also a position. This has been played like a broken record. But it’s something only a few people understand. Traders have an itch that they can only scratch by hitting the Buy button.  I’ve been a victim, I probably still am, and so are a lot of people. It’s what makes us lose money; getting into war you never prepared for.

You don’t have to buy one stock every day or even have one every week. Maging maarte ka, maging choosy ka. Look for the outliers; those that turn green in a sea of red, those that rally when all the other stocks are rolling down the hill. But if something moves and you want to press the Buy button, ask yourself first: Is this the fear of missing out? Is this according to my trade plan? If you've prepared for it, then please by all means, go get it. Otherwise, sit back and enjoy the show.

Be on the defense when the market is charging on the offense, because the market always wins. 

A Big Missed Steak

Back in the corporate world, I have a quota of 18 cases per day. I close more than that and I get an incentive. I close more than that, pwede ng pumetiks. Quotas keep us aligned on the trajectory we place ourselves in. They keep us focused, motivated. But the best part? They keep us rewarded once they’re hit.

Here in the trading world, I set my quota to +10% overall port gain per month, or in a different perspective, +2.5% per week. Sounds doable, no? If achieved, it would mean that I could double my capital in 10 months’ time. And in a year, a profit of more or less +120%. I don’t know about you, but that seems like a pretty sweet deal to me. But if I was being completely honest, I wasn’t confident enough I could deliver. I trust in the system. I’m just not sure I trust in myself as much.

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August. Officially the first month we were left to our own devices. I got my eyes on my monthly goal. But there was a constant question of: could I or couldn’t I? I have written about my August travails on a prior post and I do not wish to be redundant. To cut the story short, I managed to bounce back from the losses and end the month with a +15.1% gain. Beginner’s luck? Probably. But what the hell. I was ecstatic, mainly because I proved to myself that I could do it.

September. I was stuck in the hellish metro traffic. I was running late for my doctor’s appointment but I couldn’t care less. It was just the second day of the month and I was already up by +6.67%, just 3.4% short of my monthly quota. Thanks to this baby:

Five days later, I was up by +8%. It was just the first week. 

Oh sweet heavens. Is it still beginner’s luck? Or am I already getting the hang of it? 

HAH! The dream. What I would give to say that I am. 

The fairy tale ended quicker than HiddleSwift called it quits. You know what they say, if it’s too good to be true, it probably is. So one fateful day in September, FOOD was on the table and everybody was on a feast. 

It was a similar play to MED. And so due to my prior win and what I thought was a high probability set-up, I went heavy on FOOD. The most volume I’ve ever put in a single trade since the course. The problem with FOOD though, once you've consumed too much, you're sure to spit it out one way or another. 

For the drunkard and the glutton will come to poverty, and slumber will clothe them with rags. Proverbs 23:21

How befitting.

So yup, that's a -17.94% loss. The system says sell at the open in a situation like this. There was a way to stop the bleeding from becoming a full-blown hemorrhage. But I didn't react when I should. Instead, I fell in a state of catatonia. I was stunned, maybe I was in denial. And it proved very costly. All my September gains wiped out in a single trade. There's the market always looking for ways to humble people down. 

_______________________________________________________________________

It's the end of September. I took a little trading sabbatical after that FOOD poisoning. And unless the only stock I'm holding performs a miracle and shoots up to the ceiling by Friday, I know I wouldn't be able to meet my monthly quota for September. But I guess it's okay. We learn our lesson and we move on. We live to trade another day. 

Saturday Morning The Rain Is Falling

It was a glorious Saturday morning. I maneuvered the car onto a narrow pavement careful not to hit the motorcycles parked along the busy street. A man on his fifties was taking a bath on the sidewalk, in open air. Kids were running around devoid of care and undergarments. We were in the heart of what was tagged as the biggest slum area of Pasig. But boy, was it a glorious Saturday morning.

We partnered with Jesus Loves The Little Children Foundation, a non-governmental organization whose aim is to help the underprivileged families send their kids to school. They believe that quality education is the answer to the country’s battle against poverty. It is an advocacy I believe with all my heart. And on that glorious Saturday morning, we were privileged to meet 25 of the foundation’s scholars.

I was lucky enough to have like-minded people as friends who came out to support. We did an impromptu dance number where we looked like fools at most. We thought it was a small price to pay, the kids were laughing their hearts out watching awkward limbs fly out here and there. I thought of it as an early Christmas party for the students, where there were games, and prizes, and activities, and food, and gifts, and shrieks of laughter, and pure childish abandon.

It wasn’t much. But I guess all we wanted to give was one day full of fun and joy and the reminder that someone cares. And truth be told, they did more for us than we did for them. It was a glorious Saturday morning.

August

It was supposed to be the ghost month. Cash was to be the prevalent position. But it would seem as if the market is trying to deviate from its yearly routine by breaking the norm. Plays were popping left and right at a rate which rivals Pidgeys and Rattatas on a lure party.

There was the infamous WEB suspension followed by an almost double ceiling play. The rallies of MCP, BLOOM, MAXS and what-have-yous.

It seemed like most people in the tribe have ridden one or the other. I haven’t. So while everybody was cheering, there I was thinking what am I not getting? What am I doing wrong? I have always imagined that my next blog entry post-classes would be all sunshine and rainbows. But when it was clear that I wouldn’t be able to post something that my mentors would be proud of, I chalked it up to a lack of inspiration.

Sometime after the course, my overall port gain hit 16%. Thanks to a couple of TF (trendfollow) positions and a few tsupitas. It wasn’t much compared to what most of the people in the tribe make, but to me, it was everything. I was someone who was so used to seeing a bleeding port. More than the money gained, it was the testament that I have made progress which excited me the most. That I have learned, that I am, in some ways, applying the lessons correctly. But as fast as I made progress, it was in the same manner that I lost it.

______

What preserved my capital and the gains that I’ve made during and after the course was this little thing called position sizing. Something that’s very important but is often overlooked. It falls under money management, one of those things we know we should care about but we hardly do. Position size simply means the amount of shares you buy in a trade.

Here’s a quick run through:

To determine the appropriate position size in a trade, you must first determine the following:

1. Account size: P100,000.
2. Cut loss point (%): Let’s say you use the -5% cut rule. Knowing where to stop your losses means knowing the risks involved.
3. Account risk per trade (%): 1 to 2%. This is the amount you are willing to lose in every trade. It doesn’t matter how many zeroes you have in your account. You shouldn’t be willing to risk more than 2% of your overall portfolio value in a single trade.  In our example, we have P100,000 and we are willing to risk 2% in every trade so that gives us: P2000.

Here is a chart of CEB on 06/08/16:

We want to buy CEB at 100 pesos/share. The cut loss is set at 5%. Hence, we risk 5 pesos/share (cut loss).

Earlier, we have determined that we are willing to risk 2% of our overall portfolio in a single trade, which is equivalent to: 2000 pesos (account risk).

To compute for the position size: account risk/cut loss

2000/5 = 400 shares or P40,000 at 100 pesos/share. This will be your position size, the only allowable allocation in the trade with the given risk tolerance. Of course, the position size will vary depending on the trader’s risk appetite.

In its most basic sense, position sizing means that the higher the risk, the lower the capital allocation, and vice versa.

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Practicing position sizing in my trades has been my portfolio's saving grace. It made it possible for me to lose small and win big. But when I saw my port turning greener and greener, I became more confident in placing positions. Too confident, in fact, that I became reckless. I found myself forgoing the usual risk computations and just entered trades because YOLO. 

For the first time since I started trading, I made money on consecutive trades, I have a very effective system behind me, surely I could afford myself some leeway.

Oh boy, was I wrong. It crept up so insidiously, it was too late when I realized I was in the midst of a Superman Syndrome. Due to my prior wins, I began to enter trades without accounting for the risks involved. I took on high risk positions without capital preservation in mind. I was blinded with my recent progress that I forgot I still have so much to learn. And the market, as unforgiving as she is, did not fail to remind me of my oversight. It wasn’t long when I saw my losses piling up. I watched as my 16% gain trickled to as low as 2% in just a matter of days. Not even weeks, just days. Most of the gains I worked hard on ran away from me faster than Usain Bolt in a 100-meter dash.

What frustrated me the most was the way I would spend hours scanning charts, looking for potential plays, creating trading plans only to throw them out of the window come morning. I was just fooling myself, wasting hours on plans I wasn’t going to follow anyways. I entered trades I wasn’t supposed to. I made decisions that were not part of the blueprint. I only considered what I could gain and not what I could loss. That’s when I realized that it wasn’t just the syndrome. I didn’t want to admit it, not at first. But it would seem that the fear of missing out still has me on a chokehold.

Here are a few of my what-was-I-thinking trades:

 

I have yet to develop the habit of taking port snapshots prior to selling. There are other failed trades that are recorded in my trade journal but I’m sure you get the picture. 

And so although this is not how I thought my next blog post would be, I needed to face the music. Discipline is not a one-time thing. It’s an everyday practice. How many more wake-up calls before we finally listen?

Luckily for me, I did when I realized that one more mistake would send my port tumbling down to the sea of red effectively negating all the months of hard work. I didn't want that to happen. Because it's not just myself I'm letting down. With all the noise shut down and the drawing board dusted off, I went back to work. 

___________

Always, always make your why stronger than your excuses.

Always, always stick to your trading plans.

___________

There are still hundreds of miles to go, acres of lands to toil, but I'm glad to know hard work does pay off.

Some, if not all, positions are sold.

  

Class Dismissed

You know how when you’re reading a really good book, you’re torn between the impulse to devour every page as fast as you could and the need to prolong the moment before you reach its imminent ending. I have been having those exact feelings for the past week. The course was about to end and I somehow wish it wouldn’t, at least not yet. But on Friday, the lessons have concluded, the class was dismissed.

Confluence of Circumstances

It has been almost four months, but I remember it like it was yesterday. It was a random act of kindness for one but a game changer for another. Well… It may have also been a blunder, a plot twist, a confluence of circumstances. After all, the universe only allows things to happen for a purpose. On the post-script of this blogpost: The Purge, I said that Zee gave me the slot mostly because he thought that I was someone that he used to know.

Here’s what happened:

After I got the free slot, before the classes started, he was asking me how I was finding things so far. And then he gave me this instruction: 

What trading groups? I asked.

He then sent a link of the person's troll account. The one he thought was me. That's not me, I told him. Here is the part where I pretended like my heart is not stammering out of my rib cage because I finally realized that this guy gave me something other people would kill for because he thought I was someone else. So as casually as I could, I asked if he was taking back the slot but silently, I was preparing for the worst. 


I breathed a sigh of relief. This is turning out to be a great story. The odds of getting a scholarship to the ZF course are very slim but I lucked out on getting one. But the icing on top of the cake? Getting that scholarship because you made the leap which happened to bring you at the right place and at the right time. 



Doubled my luck? To put it more accurately, I felt like I won the lottery. It was a funny turn of events. But I couldn't help but feel sorry for the other person whose free ticket I just took away. 

You deserved the slot anyway, Zee said, you joined the Subasta and played well. Troll Nina didn't. You miss 100% of the shots you don't take, he added.

I'm sure troll Nina would have her own time, I answered. Season ko muna ngayon. 

Troll Nina if there is by any chance you stumbled upon this blog, I'm sorry things turned out the way they did. But next time take a shot, even if you think that the odds are stacked against you. It worked for me. 

As always, things happen for a reason. Zee put it perfectly. It was divine intervention.

It has been one hell of a rollercoaster ride. Zee and Kap were more than just teachers, they were mentors. They don’t just share their knowledge about the market, more than that, they make you realize your own capabilities, your own wisdom. They let you see that the answers to your questions are right in front of you. Because above everything, they want you to be able to stand on your own feet and trade on your own skills. There was a sense of trust and partnership built around the whole team that you’ll stop wondering why the tribe is as close-knit as they are. My fellow Bushido, Tony Ang, said it best: it is a family. And I’m glad to be a part of it.

The sleepless nights, the recitations that kept us on our toes, the 50-chart assignments, the on-the-spot quizzes, the practicals, the life lessons, the teamwork, the bond, the friendship. It was everything I thought it would be and more. The classes may have ended, but we've only just begun. 

Bad Roll Day

For board game aficionados, there is what we call a “Bad Roll Day”. When the game gods and goddesses seem to have forsaken you as seen by how abysmal your die rolls are, especially when these rolls spell the difference between winning and losing, or more appropriately, between life and death.

Last weekend, I played a tabletop game with friends. Last weekend, I had a bad roll day. I tried to plan my every move according to the book. I took calculated risks and reasonable actions. But when it all comes down to rolling a die, ultimately, it is still a battle of luck. A die is the great equalizer in the game of cards and tabletops. And on that weekend, the dice were never in my favor.

Blank roll on three dice (green). Falcon taking the hits of the Imperial Tie Fighters.

Come the start of the trading week, I thought I have brushed off my bad roll day, left it on the weekend along with my sighs of frustration and occasional strings of expletives. But as it turns out, the market has another thing going for me. Some people have their winning streak, what I had was clearly the contrary.

Monday

I cut on a position I bought a week ago. It was supposedly for trend following. But the trend snapped before it had the chance to go any further.  *take 1 hit*

Tuesday

Quick trade on IMP. But on very little volume. Still, gain is gain so they say. *regain 1 shield*

Wednesday

Why did I ever think I could tsupit on BKR? I was one day late. Sold on -5% loss. *take 2 hits*

Thursday

ALT was on fire. Not the good kind. And it burnt my port along with it. *take 3 hits*

Friday

I stayed on the sidelines, watched two episodes of Sherlock and went back to the drawing board.

Three losing trades out of four. It was a little frustrating. I was waiting to board the emotional rollercoaster I knew would inevitably arrive along with the series of losses. But it didn’t come. Surprisingly, I was not as affected by them as I thought I would be. If anything, the losses motivated me to study harder, plan more thoroughly and execute better. Had it happened to me before, I knew my emotions would have gone berserk.  

Two things that have saved my life when the market tides tried to drown me:

1.  Discipline: Cut mercilessly. All ways, always.
2.  Risk management: The rule of thumb is to protect your capital. As Kap said it: Find a way to have an optimal position that will match the levels of risk at hand. Look for tolerable risks.

I was ready to accept that I had a bad roll week. But in a twist of fate, an unexpected message from a friend instantly negated all of my losing trades.

Six months ago, she stared at me blankly the first time I talked to her about the stock market, mutual funds and investing in general. I thought it was a hopeless case. But I went on babbling anyway. And look where we are now. 

I guess at the end of the day, it will never be about what we have. But what we do with what we have.

Fibonacci Retracements

The only thing I know about Fibonacci is that he was this Italian guy who discovered the sequence of numbers that mysteriously appears all throughout nature. It was aptly called the Fibonacci sequence.  And its relevance is mind-blowing. This video doesn’t even cover half of it. But it gives a pretty clear picture.

It was no surprise when I learned that Fibonacci was also used in technical analysis. After all, they did say it appears everywhere. I saw it in my charting software but I didn’t know how to use it. I was a newbie who was trying to make sense of all the lines, clouds and colors. But it was when I was researching about the Fibonacci retracements that I stumbled upon Zee’s blog. Very interesting, I thought after reading the entry about Fibonacci (Trading 101: Fibo). Interesting enough that I spent the entire afternoon, and a little after dinner time, browsing through his entire website. And the rest, as they say, was history.  

Two weeks ago, we started discussing about Fibonacci retracements and how to use them. It was one of the lessons I was looking forward to. I knew little about it. I was intrigued because I knew it was some of the mentors’ most favorite weapons.

To put it simply, Fibonacci shows the possible support and resistance areas.

HOW TO PLOT FIBONACCI:

On uptrending stocks,

1. Look for the lowest point before the recent run-up (100%)
2. Look for the most recent high (0%)
3. Identify in which level consolidation happens

The higher the Fibo level the stock consolidates, the better. It means that there is great pressure from the bulls to buy the price at a higher price than to let it dive into the abyss. 

Take these charts for example:

DD

Found support at 23.6% level, consolidates in that area

MPI

Found support at 23.6% level, consolidates in that area

JGS

Found support at 38.2% level, consolidates on and above that area

I see it as someone driving his new car to the countryside. At 200 kilometers, a new distance high for the car, he sees the gas indicator light up. He looks around and realizes he’s in the middle of nowhere. There weren’t any gas stations in sight, he doesn’t know how long the stretch of field goes and then he sees this:

He remembers he passed by one gas station not 10 minutes ago. He decides to retrace his route, and have his tank filled before he goes any further. And maybe even grab a bite. With his tank and belly full, he’s ready to continue the momentum and pick up where he left. And then maybe, just maybe, reach another distance high.

But what if the last gas station he passed by was an hour ago? He has no choice but to go back because he's running out of fuel. But if he goes back that far, would he still have the energy to continue his trip? Nakakatamad na mehn. Ganon din sa stocks. Napapagod din 'yan, parang puso. 

A few things to remember:

• The ideal retracement levels would be at 0-50%. Anything below that is more bear than bull.
• Consolidation at a certain level could take weeks to months. 
• When a stock consolidates on a level with a bullish bias (0-50%), there is still no guarantee that it will soar to the skies. It could, but it also could lose momentum just as much. This is the reason why it’s always better to buy on breakout.

But of course, if there is anything certain about the market it’s this: nothing is. So if the charts don’t go according to your bias, you know the drill. Do it without mercy. 

The Fear of Flying

The classes started on the 2^nd of May 2016. Along with The Purge, a trading ban has been implemented. Save for the Three Musketeers challenge, we were not allowed to trade. It was unclear how long the ban will be in place. Week by week, we watched as some stocks gained ground and took off, other times, we watched as they lost momentum and tumbled back to the ground.

It conditions your mind to be immune to the fear of missing out, Zee said when asked why the trading ban was necessary. Opportunities will always be there, the market will always be there even if you die in your old age, he added.

Like all the things in the ZFT system, it made perfect sense. I lost the most money on trades where I chased the prices because I had this fear. I look at the day’s top gainers and I have this impulse, this need to ride at every moving stock. More often than not, I find my port suffering the consequences. Meanwhile, the House of Z has proven that the system they use is versatile. Bear, bull, sideways, it has little regard to the overall market condition. The profits rush in as long as the system is followed. The fear of missing out has no place in a market where you never run out of plays.

A week ago, on Monday, almost two months since the start of classes, the trading ban has been lifted.

And then there were a series of wows and whoas.

I did not know how to feel. I could not wait to apply the lessons. But there was also more apprehension than I would like. I guess now that we're more equipped, there was an even greater pressure to do better.

That night, I made trading plans for the stocks that I thought were ripe for the picking. There were six stocks on my list and on each them, I plotted the entry point, the cut point, the size of the position, the buy below price and the nearest resistance. The following morning, I watched as three of the stocks from my list flew and went according to my bias. I watched, I watched and I watched. I could not press the Buy button even if I knew I should, even if I made post-its and Excel files about it. My eyes were glued to the ticker, my hands were frozen on my desk, my trading plan was shoved in the deepest recesses of my anxieties. It was a classic case of analysis paralysis.

It turns out though that I wasn’t alone. Most of my classmates experienced the same thing. How are your trades doing? Kap asked one afternoon.

"Hirap ako sa entry."

"Nakikita but di maka-commit."

"Same. Nakatulala rin ako."

"Undecided to execute."

It seemed like everybody suddenly turned into a wuss.

And of course, Kap was right. There was no action because there was zero conviction. We were like birds whose cages were finally opened. But instead of spreading wings, we stayed behind bars afraid of flying, afraid of falling. The fear of missing out has been replaced by the fear of trying.

I have cut three positions since then. They didn’t go according to my bias. But it was okay. I was putting into action what I have learned. I was sticking to the rules. I was learning by doing.