Sunday, May 9, 2010

The Weekend Trader Part 3 - Learning From Tylenol

When we look back at history, EVERY single setback has led to greater heights and advances.

Many may remember years ago when J&J turned the Tylenol recall fiasco "lemon" into lemonade, and we can point to countless similar instances where setbacks have propelled people to something great ... including this trader's life and career.

For example, most know that on October 6, 2008, I took a $94K hit -- the largest dollar hit of my career -- which woke me out of slumber and led to my best month, quarter, and year ever.  And the February 2009 "Nine Lives" post, which appears in the key post list in the lower left margin, addresses the number of times I've been "woken up" in a similar manner.

So as this unprecedented third weekend post is logged, you can probably tell that I've been continuing to soul search and pour over  Thursday's events over the last few days in a way I've never done before.  Ever.

For despite the minor scratch which could have been far worse, and despite the unprecedented market liquidity collapse on Thursday which contributed to the extent of the decline, there was one key factor that should have alerted me to shut down the liquidity portion of my business which had been so very profitable up to about 2:30pm ET on Thursday.

And every one of the dozens of Jellies (especially George!) and hundreds of Webinar viewers will know exactly what I'm talking about with three letters.


Yes, the VIX, which serves two purposes for us.

First, it's one of our PRIMARY leading indicators.  And second, at worst, it's a solid SOOT (Stay out of Trouble) & seatbelt clue.

And I'll go on record to all of the Jellies and thousands of onlookers to say I simply missed seeing the 1:20pm ET break (see chart below; click to enlarge) when I made my initial long entry.

That's correct ... I didn't see it and am still scratching my head as to why not.  And it was well before the ultimate breakdown, which provided plenty of time to close all long positions, lest consider reopening others until the later capitulation sub-1100, which could then have been bought hard without regard to managing prior positions.

It's on my screen, I've preached it for years, it's a main theme of the Jellie training, and I'm always watching it.  Well, Thursday's events told me apparently not "always". 

One of the Jellies has essentially made it his #1 indicator.

Which brings up a very intriguing question in terms of trading solo, which I'd been doing for much of the past few weeks to essentially get other student-trader "voices" out of my head for an interim period and "buckle" down in terms of focus.

Well, the buckle apparently got jammed.

Now most know I've been on both sides of the fence right on the issue of group vs. individual trading over the years, and have continued to vacillate big-time.  And I've found that over the years that traders -- including the Jellies -- have been spilt over preferring to trade amidst other influences, even if the group thinks alike.

And as I mentioned, I personally chose over the last few weeks to go back to trading solo, although I reconnected with one trader that day ... although we didn't stay together all day.

What's further ironic is when I facilitate the live Jellie training, I'm discussing the VIX live, along with every other key indicator.  Call it a talking chart.  And had I been either teaching or in the ongoing group room, there's no way in hell I would have re-engaged the liquidity business on the long side -- even in a partial position.  And some of the Jellies took full advantage of the signal -- as they should have.

In his book, The Great Eight (How to Be Happy When You Have Every Reason to be Miserable), Scott Hamilton says the following:

"Don’t face problems alone. Men’s figure skating is a solo sport, but I still needed a coach to get the most out of my abilities. Life often seems like a solo sport, too, but finding a coach -- a spouse or a friend with whom we can share our problems -- will make our attempts to solve those problems more enjoyable and more successful. Humans are social animals, as my coach, Don Laws, used to remind me. We’re not designed to face problems alone, so we shouldn’t try to do so."

Well, in addition to addressing visual and audio chart alerts at this end, I'm going to use the events of Thursday to completely rethink, and potentially restructure my views on the dynamics of group trading, whether it be a sub-Jellie group of two, the full Jellie group, or something different.

Yet for the moment, all I know is this.

A group of one didn't cut it on Thursday.

And I'll never forget the words of our former-NFL quarterback Jellie, whose coach would often tell him, "You can do far better than that".

He hated to hear those words.

As do I.

But he'd be damn right.

For while I managed well once I was in the middle of oncoming traffic, I could have stayed on the curb.


Unknown said...

Hi Don,
I really wish, at this period of time, your trading/teaching journey is evolving to "Trading Room" service specialized on mini S&P day trading, solo and/or with other Jellies.

Somtimes, I anxious to know how you trade (when/why/how enter/exit)in real time. This trading room service will be enforcement for the Jelly webinar videos. The webinars alone are not enough since I couldn't be part of Jelly group.

This is just little wishful thinking came to my mind when you were considering about solo/group trading.

Thanks again for your blog.

RoachApproach said...

"Yet for the moment, all I know is this.
A group of one didn't cut it on Thursday." A group of one comprising you. ;-)
What about building in some automatic signals/alarms for such an important indicator?


George said...

Hello Don.

Yea, what a wild ride. Vix did treat us well in the tank.
You should be glad to know, that I still have not lost sight of the ENTIRE “dash board” as you have so eloquently reminded me of in the past. I am getting there :)

Thanks for the lessons,