A few weeks ago I started down an undisciplined path asking the horrific question ‘how long can this uptrend continue.’ The question resulted in actions that were undisciplined and filled with hope. Soon thereafter losses were adding up and missed opportunity costs were significant. Hope that the market would save me permeated everything and everywhere. The market did not save me. More than likely if held long enough, and remained stubborn enough the market may have saved me and while a financial respite and a psychological break, would have been doing nothing more than enabling this bad behavior in the future. Recognizing this, positions were eliminated, the slate was wiped clean and I started again.

Righting the ship after a devastating experience takes time and patience. More than likely it will be some time before a new set of real opportunities presents itself from which I can exploit to return to highs. Regardless of how long it takes, discipline and execution are my only path to prolonged success.

If you feel yourself enabled by the market, looking for a savior or tempted to steer off course. Keep in mind that discipline is the only method from which you can maintain an objective open mind and be physically prepared to play anything that comes your way.

How many times have you seen a clear break out and hesitated or even refused to take the trade? The market’s too extended you think or maybe you decide to wait for a pullback, which sometimes never comes. As you go through charts a name you passed on days, weeks or even months before continues to show up moving ever higher, almost as if it is laughing at you as it plods along. Maybe this was Apple, or Priceline.com. Maybe it was a more obscure name like Sourcefire (FIRE) or Crown Castle (CCI).

As I have gone through some ups and downs early in 2012, one thing that keeps coming back to me as I review trades and go through charts, is that famous sports acronym KISS or Keep it Simple Stupid. I can still hear this ringing in my ears as my basketball coach pounded into our heads the motion offense and basics such as a pick and roll or a back door pass. We never had to have complex plays or sophisticated maneuvers to win basketball games. We simply had to execute the basics, and strive for excellence in the fundamentals such as boxing out, moving our feet on defense and remaining patience until a high probability shot presented itself.

Sure, we weren’t going to win every game, and even when we executed perfectly the plan may not have gone our way, but the more we kept it simple the more games we won and the better our shot was of winning our end of the year tournament, which we did.

I can only speak for myself when I say that more often than not I make trading out to be much harder than it is. Identify a pattern, quantify my risk, enter the trade, follow my plan. Four simple steps that can achieve any financial goal set forth, yet often so difficult to follow.

At some point new opportunities presented in this market will fail abruptly and a change of character will set in. When that happens we’re bound to lose some money and take stops. With that however comes the phase of the strategy whereby you are naturally moved to cash and to a defensive position. When that happens, our view on the market can change, until then we have to keep it simple and keep on trading what we see, not what we think.

Refusing to give up Hogan, later named ‘The Hawk’ for his fierce determined look while playing, would spend hours upon hours hitting golf balls, often doing so until his hands bled. With the support of his bride, Hogan secured his first professional victory in 1940 a decade after entering professional golf for the first time. Choosing to serve his country during World War 2, Hogan was removed from the game from 1942 through 1945. During this time Hogan’s passion and determination only grew as he returned to the states to win 38 tournaments (more than half of his career total) over the next five seasons.

In 1949 while driving in the car with his wife, Hogan was involved in a near fatal accident when their car collided with a Grey Hound bus. It is said that Hogan selflessly jumped into the passenger seat to protect his wife, who walked away with only minor cuts and bruises. The act ultimately saved Hogan’s life as the engine and steering wheel was pushed through the car through the back seat.

This accident left Hogan, age 36, with a double-fracture of the pelvis, a fractured collar bone, a left ankle fracture, a chipped rib, and near-fatal blood clots: he would suffer lifelong circulation problems and other physical limitations. His doctors said he might never walk again, let alone play golf competitively. While in hospital, Hogan’s life was endangered by a blood clot problem, leading doctors to tie off the vena cava. Hogan left the hospital on April 1, 59 days after the accident.*

A few months later Hogan won the US Open.

It is easy to look at others’ success and assume they possess some innate skill set unattainable by the outside world. Upon further examination the skill set possessed by those achieving greatness is always the same and can be boiled down to determination combined with an incredible work ethic.

If you are not where you want to be as a trader, a person, a husband, a father, a brother, a son, an employer or an employee. Resolve today change this as it is not only possible but with the right steps, highly probable. Never give up and always press on towards the goal!

*Wikipedia.org

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Most ski resorts have a variety of runs from green circles to double black diamonds, determined by the slope and difficulty so that skiers know in advance what they’re getting into. The stock market is no different, as there are many different stocks and vehicles that can be traded depending upon ones comfort level and risk tolerance. Personally, being a double green circle skier, I think the ski lifts should be rated as well. I mean seriously, in theme parks, the rides are rated based on their thrill level. Why shouldn’t the lifts be rated as well. They are not all the same. They could use criteria such as, the difficulty in getting seated, the size of the chair based on the number of skiers, the height achieved relative to sea level, the difficulty in achieving dismount, and the steepness of the slope that needs to be immediately navigated, assuming that the dismount was successful.

With stock trading, preservation of capital should be a trader’s primary concern. Just like with skiing where preservation of body parts should rule supremely. On a recent ski trip, the person working the ski rental counter understood that concept completely. I had some difficulty with the exchange of skis and poles from his hand to mine. The worker then politely asked, “Would you like a helmet?”

Like in skiing, the individual goals that a trader has is relative to what they are willing to risk. Some skiers rate themselves on how quickly and smoothly they get down the slope. Other skiers like myself, just want to get down the slope with my legs and arms still intact. And if I can have less than six chair lift accidents in a day, I call it a bonus. If I achieve my goals, I consider myself just as successful as the seasoned skier who just set a personal best skiing a difficult slope.

Now every now and then, I’ll get bold and try something outside of my capability. In skiing, that means trying anything other than green. I usually end up battered, bruised, and dazed, wondering what just happened to me. Then after picking up the pieces, I vow to never listen to that daring voice in my head again. The same can be said of stocks at times, when I venture out into the thin and super high beta world. Once the pieces of my account are reassembled, I’ll go back to trading in my sweet spot.

Fortunately with stock trading we don’t have to trade everything, just like in skiing where I can avoid the black diamonds. Somebody that trades low beta stocks can be just as successful as someone that trades super high momentum names. I tend to take the middle ground, preferring higher beta stocks, but only liking the ones that trade with some volume. Nobody has to be a jack of all trades. What are your preferences?

What I found most interesting this weekend, was the large number of stocks that have suffered corrections, and have pulled back to support areas while the indexes are in the nose bleed section. I really would prefer that the indexes to correct as well, allowing the really strong stocks to present themselves. Of course, I am not the only one that wants that, so it is not likely to occur in any predictable manor. Based on the charts themselves, we are either going to see these stocks break up in continuation patterns or we are going to get a large drop in the number of stocks trading above their 40-day ma. I am prepared for either scenario.

Good luck.

I think one of the things that intrigues me about trading is just how similar it is to life in general. Once a trader becomes proficient in an edge barring strategy, he or she knows exactly what is needed to achieving an ever rising equity curve. There is little question as to how to go about this or how to achieve whatever goals one has set forth. A skilled trader also knows what thoughts, actions or circumstances set him or her on path towards destruction. Over time the trader realizes that perfection, unlike in life, is in fact achievable in trading however not in the sense that each trade is successful but in that the execution follows the individuals’ plan and discipline is upheld at all times. It is easy to analyze the end result and make an assessment about ones trading discipline however like character, I think it can be best summarize that true discipline is tested only when no one else is looking.

I always find it ironic that the higher the market goes, and the more bullish the tape acts, the harder it is to remain truly disciplined. The contrarian in most desire to call the top and avoid the next leg down, while the greedy venture out of their customary discipline to stretch the envelop for greater returns. It is only the discipline who despite the environment, trade the same today, as they did yesterday, and will tomorrow.

As I grow as a trader I continue to refine my list of dos and dont’s, likes and dislikes. One of the key principals for me is to desperately avoid the little macro-gnome that perches atop one shoulder attempting to constantly remind me of the state of the world and the true fact that at one point the sun will in fact cease to burn. At times the gnome is successful in his attempt to lure me away from discipline but as I grow, the more confident I become in knowing that his path is not filled with discipline but a false sense of security in not only predicting but profiting from the future.

As you trade remember that it is not what you do on the outside, but the decisions you make on the inside that will keep you true to the discipline from which you should be striving.

Consuming a bit too much red meat last night at world famous Nick and Sam’s, I awoke too early and was no longer able to sleep. This of course despite have no screaming 4, 2 or 6 month old to awaken me, which I’m more annoyed with than yesterday’s portfolio ding. I flipped on the television to catch an in-depth documentary on the great Vince Lombardi. Before I knew it, I was taken back into history following a true legend.

One thing that struck me quite a bit was the interviews with his former players and how various speeches or gestures left a lasting impression. One such interview recalled a time when coach stood in front of the team prior to his first practice at Green Bay and told the players their goal was to ‘chase relentlessly after perfection’ he went on to say that he was well aware they would never reach perfection however by pursuing this ‘relentless chase’ they would be certain to ‘find excellence.’

I believe most people struggle in this life because they fail to recognize the great opportunity before them. Whether it’s as simple as striving to reach perfection as a husband, a father, a son, an employee or a boss, they fail to recognize that achieving this is impossible yet pursuing it is in fact the journey and the goal and while never possible, it is excellence that is always within ones grasp.

As a trader, I want to daily chase perfection as coach discussed. Most would believe this to be found within my P&L and how wrong they would be for successful trading is not measured by one’s P&L but by one’s execution which will ultimately result in the desired outcome, which for all is increased profits.

Each day, each week, each month, each trade, each tick, let us strive for perfection and in doing so, may we reach excellence and our desired outcome of profits. That is my wish you for you today.

As I sifted through charts the process remained the same. I would find one of interest based on the daily chart, then quickly flip to the weekly for a glance at the bigger picture. Yuck, I would say as the two patterns conflicted greatly with the former rather bullish and the later quite bearish. For most of the day I held off, curbing my anxiety with chart work until it finally happened. I came across CLF and saw the 50 day recapture. I was fascinated with the strength in commodities despite the dollar ramp and thought maybe a starter was worth my time. I flipped to the weekly and saw nothing but a monster bearish wedge under a significantly eroding moving average and multi-month supply. “Blah,” I said, “…maybe it continues higher?”

Before today, CLF was not on my radar (mistake #1) and I only found the setup when I was out searching for something long (mistake #2). I decided to enter with a starter position due to my lack of conviction (mistake #3) and was immediately shown a loss. In fact I think I top ticked the trade and felt the word SUCKER tattooed on my head.

A funny thing happened the moment I entered that trade. Sure, it curbed my anxiety over being out of the market on the long side, but it was quickly replaced with a feeling of remorse as I knew it was the wrong trade to make. It’s at this point I actually avoided what could have been mistake #4 which would have been to hold and hope it worked out but rather reversed the position, accepted my miniscule loss and stepped away from the computers.

You see, it makes no difference if we’ve started a huge bull run and are now off to the races or if we’re a day away from an epic crash. Discipline is the name of the game and executing on proper setups, found with no emotion, no anxiety and AFTER market hours is how I will be successful.

Today I am coming into the gap down net short and will honor stops and profit targets alike.