# Kind of freaked out...



## lewstherin (16 June 2006)

Hey peeps

I'm a mix of irritated and freaked out by the past month or two of market activity.  The wild swings down and up have really stuffed my trading plan around and being fairly inexperienced with bearish turns I lost a fair amount.
The losses sucked, but I guess I'm really looking for some opinions on the bigger picture here.

Three days ago, the US market was completely spooked by the threat of higher inflation + interest rates. Then the CPI stats come out - and they're worse than expected! - and the market bounces 3% for two days?
What the hell?

As a fundamentalist, I felt that the bearish turn was overdone, but at the same time felt the correction was needed to shake out the overvaluing that was going on in early May.  
But such wild, fast fluctations?  Eg. BHP's hit a low of something like 24.50 3 days ago and today is over $27?
The underlying fluctuations in spot metal prices has also sent my demand/supply research to pot.  I suspect the big funds are to blame for the price bounce, but of course that clouds what the resource situation actually is.

All this has left my previously researched support levels and projected fundamental moves in question, as I've watched support levels evaporate with little resistance.

The temptation to go for some quick day trades is strong, but I've noticed that the major moves in share prices is happening on opening...I've yet to see some signs of a major intra-day move after open...its almost like the market is having knee-jerk responses to the previous night's Dow performances and then is kind of clueless for the rest of the day.

What I'd be very interested in, is opinions on how you all deal with the volatility.  
My approach at the moment is to stay my ass out the water until I've figured out a view on where this market will be in a month, let alone a year.


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## MichaelD (16 June 2006)

lewstherin said:
			
		

> My approach at the moment is to stay my ass out the water until I've figured out a view on where this market will be in a month, let alone a year.



This is a valid view, and one which many will have already taken if the emotional toll of recent trading is too much for them.

What does your trading plan indicate you should be doing in the current market conditions? (If you hadn't considered this scenario, you should further develop your plan.)


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## lewstherin (16 June 2006)

The biggest problem I have with my trading plan is that I developed it based on November/December 2005 pricing (trying to stay a little conservative) and March/April demand/supply fundamentals.
Whilst a downturn was planned for, the speed, scale and basis of the recent volatility was not anticipated.

I held to my plan right through the last few weeks until Tuesday morning, then liquidated out just before the intra-day bounce that has carried through to today.

My exit was based on several indicators, including a sub $25 BHP price, Woodside breaking $39.50, WBC taking a hit, but the generally bearish interest rate and inflation sentiments pushed me over the edge.

I know I need to rethink my trading plan, but I can't quite figure out how to factor in the signals of the past few weeks...


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## Julia (16 June 2006)

I guess it depends on your time frame.  As a long term investor, with a diverse portfolio of largely blue chip companies, I just wait for the recovery.  Don't see too much point in incurring brokerage, adding to the tax paperwork etc., by selling and then buying back in.  As of today, I've recovered more than half the paper losses.

Julia


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## bullmarket (16 June 2006)

Hi lewstherin

I probably can't help much since I am a long term investor and so volatility atm isn't an issue for me, especially since the market has had a sensational run since Mar03.

But the volatilty we are seeing at moment has occured historically whenever there has been a strong run up in the market generally, and so what we have seen in the last few weeks is nothing unusual imo and I like many others have been warning that a correction (which is what we have seen) and not a crash was coming - as imo it was a case of when not if.

Markets go up and down in waves and hopefully the weekly XJO chart below will show you this.

I posted a few weeks back that I felt our market (XJO) will settle in the 4800-5000 range for the forseeable future and the chart below shows that the market is trying to retest the 5000 level which is also about where the black downtrend line from early May is atm......I'm now watching to see if downtrend line can be broken through or if XJO will retreat back to within the 4800-5000 trading range during next week.

cheers

bullmarket


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## Captain G (16 June 2006)

Hi, I have to agree with Lew's post, for I too have been going through exactly the same feelings and experience. I know I'm a newbie, and the one thing that I'm learning fast is that the market many times doesn't work on logic/ make sense. Well, if it does at this present time, I can't see it, ie. Like rising US inflation & interest rates and no significant movement in metal prices, so values go up etc. Maybe it's my short sightedness through lack of experience. Bullmarket is most probably right, but he must have nerves of steel !! 
But, all that aside, I have to say how much I enjoy this site, with all it's helpful info and in keeping me level headed. I've broken about even at the moment, but my losses would of been far greater, if it wasn't for all the various advice, words of wisdom and points of views that I've been reading !!
Cheers, Capt G


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## bullmarket (16 June 2006)

Hi Captain G



			
				Captain G said:
			
		

> Bullmarket is most probably right, but he must have nerves of steel !!




I  :dunno: about nerves of steel (I'm not real keen on heights ) but I definitely have a very thick skin...   

cheers

bullmarket


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## BlackTie (16 June 2006)

lewstherin said:
			
		

> The biggest problem I have with my trading plan is that I developed it based on November/December 2005 pricing (trying to stay a little conservative) and March/April demand/supply fundamentals.
> Whilst a downturn was planned for, the speed, scale and basis of the recent volatility was not anticipated.
> 
> I held to my plan right through the last few weeks until Tuesday morning, then liquidated out just before the intra-day bounce that has carried through to today.
> ...




lewstherin, your analysis makes sense to me.  It is this analysis that leads you make the decision to sell the holdings.  You feel bad because the market bounce back just after you sold.  But what if it keeps dropping?  Maybe this bounce back is short lived and will be further down for the next whole week. Who knows? 

I have made the same mistakes as you did.  I just tell myself it is the best decision that I have made for the given information that I know at that time. We just have to let go and wait for the next entry.        Will get the $$ back when the next swing comes.


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## lewstherin (16 June 2006)

Yeah next point of entry is the tricky part for me.
So far I've managed to buy on the previous bounce and sell on the depths of this week's low - bought because I believed that my plan was vindicated by the return to upward movement, sold because the losses went far lower than my plan had anticipated and frankly I was really freaked out by that.

Right now, I'm not sure whether the stocks I've previously invested in (or have focused on) are not showing reliable indicators given how volatile things have been.

I invest/trade based on whether my formulae tell me a stock is undervalued, is within a growth range or is hitting a valuation ceiling.  With commodity prices (and hence asset, resource and product valuations) ranging so much this past month, I have yet to determine reliable unit measures.

Bullmarket, I would describe my trading plan as a short-medium term, strongly commodity focussed.  I'm basically trying to long term invest in blue chip resource stocks, whilst also putting 40% into companies that my research and valuations indicate will see share price appreciations in the next 2 - 6 months.
So I guess I'm part long term investor, part short term trader?


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## Knobby22 (16 June 2006)

As a long term investor, I am aware which companies will be most affected by a downturn. You must have known that resource stocks were getting a bit crazy and speculative stocks were in danger.

When the correction occurred you have to get out early (in the first three days). If you don't then you should look at the fundamentals and you will probably conclude as in this case that the stockmarket is reasonably priced and a crash will not happen. If you can conclude this and you have not sold after three days then you should hold on.

I know this is psychologically difficult. Even I mucked up one stock, GDR Goldstar, I sold half of them on the second day and as the gold price continued to fall sold the rest 7 days later. I knew in my head it was a mistake but I panicked as the gold price fell. The first sale was good. The second was bad as the price came back up somewhat.

Other stocks like Woodside are obviously good value and as I have big capital gains to pay and didn't agree with the market, I didn't even think about selling. 

I truly believe that the best way of trading is to look at a long term average for the stocks and understand why they are priced at the particular level at the time. The other rule is don't be the last to sell or buy. If you missed the buy or sell time, then don't chase it. The fundamentals are connected by an elastic band.

Oh, and another thing, these plans are basically ****e. We have had an unusual period over the last few years where volatility has been quite low. Conditions change and strategies that worked at one stage will not work in other times. You have to learn to adapt. I personally took the easy way out and invest with a more long term horizon. It works! If you have the time and commitment the short term stuff can works better but I like the way Soros approaches it. He makes an assumption, tests it, and buys on the facts. A sort of fundamental technical analysis and if I ever give up my day job I would like to follow his methods.  

Lew and Captain G, you are new and you have just been christened, you are now on the way to becoming seasoned investors. Congratulations!


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## lewstherin (16 June 2006)

Thanks dude.  Just wish it wasn't such a costly initiation to bearish downturns/corrections 

I absolutely agree with your comments regarding chasing buy/sells and have learnt that lesson the hard way.
These past two days have been tough pschologically because the temptation to get in and chase some BHP/RIO etc has been strong.  
However *something* keeps making me stay out for now.  I guess I'm not comfortable with my own understanding of what these stocks are truly worth and where they are going.  A lot of long termers will probably say BHP can only go up, but I fear a demand downturn could seriously stunt its future growth.  
Everytime I look at a resource stock's PE, I think about whether the E (Earnings) part is realistic going forward a year or two.  Its especially bad with stocks that aren't producing at present - they may have good resources but when they finally get producing what will the prices for their products be like?

Probably the only stocks I'm comfortable with are oil and gas ones - I don't think demand will slacken as much for oil/gas as it could for gold/silver/nickel etc.
Interesting that you mentioned WPL.  I feel its a little over-valued at present?


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## MichaelD (16 June 2006)

lewstherin said:
			
		

> However *something* keeps making me stay out for now.  I guess I'm not comfortable with my own understanding of what these stocks are truly worth and where they are going.



In that case it is wise for you to stay out of the market at this time. Fear will cloud your judgement. Trading emotionally is invariably unprofitable.


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## Knobby22 (16 June 2006)

lewstherin said:
			
		

> Thanks dude.  Just wish it wasn't such a costly initiation to bearish downturns/corrections
> 
> I absolutely agree with your comments regarding chasing buy/sells and have learnt that lesson the hard way.
> These past two days have been tough pschologically because the temptation to get in and chase some BHP/RIO etc has been strong.
> ...




I agree with what you say re earnings, you are thinking right.

Also I agree with your thinking on BHP etc. There is plenty of time. The correction is not over yet, wait and see. I also am holding some money at present.

Personally, I think Woodside is a safe stock and is not overpriced. I know investors who were trying to buy them recently as they fell but they didn't fall much and they were disappointed.

When I bought my first batch  (at $2.88) when Bhp sold their third share, people were saying that I was crazy, when I recently bought another 400 at $14.00 I mentioned on another site how cheap they were and was attacked because their wells wouldn't be on line for another three years. The situation is the same now. More gas projects on the way. I think they are a safe buy over a three year period. Not a great price anymore, but safe. Oil is not going to get below $50 and anyway most of their assets are in gas on long term contracts. Try to look ahead past the two years analysts look at.


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## Knobby22 (16 June 2006)

MichaelD said:
			
		

> In that case it is wise for you to stay out of the market at this time. Fear will cloud your judgement. Trading emotionally is invariably unprofitable.




Human nature.
How do you learn without acting?


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## lewstherin (16 June 2006)

Its kind of funny how I've turned right around on the emotional bit.

When the correction started, I stayed as unemotional as possible - I stuck with my trading plan, checked the indicators I had set up, and "fairly" calmly watched the deepening red on my portfolio.
The bounce came, and I took the opportunity to pick up some "bargains".

Then the real downturn hit, and once again I stuck to my plan.  I stayed with it for pretty much 3 weeks of losses before exiting when I did.  At that stage, the emotions got in and took me out - I tore up the trading plan and bailed.

The frustrating thing about this week is that at the beginning I was pretty sure that my plan was a total writeoff, but at the end I'm wondering whether the plan actually still has some merit...

Thanks goodness its the weekend.


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## swingstar (16 June 2006)

I think you need to adjust your plan to have stops


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## wayneL (16 June 2006)

Just found this next door at reef:


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## nizar (16 June 2006)

Knobby22 said:
			
		

> Not a great price anymore, but safe. Oil is not going to get below $50 and anyway most of their assets are in gas on long term contracts. Try to look ahead past the two years analysts look at.




What do u mean not a great price anymore?

when u bought for $2-sumthing; the guys that bought at half of that probably thought it was expensive

$2 was the market price then and $50 is the market price now

as for gas prices; they havent been all that great
(as opposed to OIL PRICES)


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## Knobby22 (16 June 2006)

Just my opinion.
Still a buy but I can't see it going to $150 without an amazing oil find.
Woodside is more a gas company than an oil company.
Not sure what you are saying.


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## MichaelD (16 June 2006)

Knobby22 said:
			
		

> Human nature.
> How do you learn without acting?




1. Paper trade. Limitation: it lacks the raw emotion of trading real money.

2. Lower your bet size until it is so laughably small to you that you wonder what on earth you are wasting your time for putting on such a small trade. You still get most of the emotion without as much risk to your trading capital.


Know your exit BEFORE you enter the trade. No pre-planned exit = emotional exit at usually the exact worst time. A pre-planned STOP LOSS is essential to survival.


Think not how much you can make on the markets. Instead, concentrate on controlling the amount you can lose. If you can successfully do this, the profits will come as an inevitable consequence of trading well. Unfortunately, most market participants until recently have been able to get away with ignoring this. This downturn is *the* most valuable trading lesson all those accustomed to trading bull markets could ever hope to have. Make sure you learn what the market is trying to teach you.

An oft quoted truism which is even more true in bear markets;
Limit your losses and let your profits run.

Do this and you will prosper. Don't do this and you will fail.


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## Knobby22 (17 June 2006)

Yea, fair enuff.


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## NettAssets (17 June 2006)

I also have to write my trading plan out bigger or have it flash up on the screen before I place a trade.
Wrote a quick covering option over a long call that was going wrong and when I went back over the trade that night I had locked in a $600 loss per contract. had to buy it back the next morning and it cost me an extra $222 per contract plus brokerage both ways. Now the rotten thing has to go up to its may high before july to get back to square one.
That one is posted on the wall in red! Just hope it doesn't hit the stop loss on Monday cause then the $600 is real.


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## wayneL (17 June 2006)

NettAssets said:
			
		

> I also have to write my trading plan out bigger or have it flash up on the screen before I place a trade.
> Wrote a quick covering option over a long call that was going wrong and when I went back over the trade that night I had locked in a $600 loss per contract. had to buy it back the next morning and it cost me an extra $222 per contract plus brokerage both ways. Now the rotten thing has to go up to its may high before july to get back to square one.
> That one is posted on the wall in red! Just hope it doesn't hit the stop loss on Monday cause then the $600 is real.




Heheehehe

Everybody has a "You Idiot!" file.  

Mine is *very* thick.


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## NettAssets (17 June 2006)

wayneL said:
			
		

> Heheehehe
> 
> Everybody has a "You Idiot!" file.
> 
> Mine is *very* thick.




At the moment mine can't afford to be too thick
I think thats the description of my brain!

Still .... glad I made the decision to admit I was wrong and try and retrieve it, we'll see how it goes


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## sails (17 June 2006)

wayneL said:
			
		

> Heheehehe
> 
> Everybody has a "You Idiot!" file.
> 
> Mine is *very* thick.



So is mine      - but IMO the best way to understand the practical application of options theory!   It did help initially to keep the trade size very small while learning from trial and error


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## NettAssets (17 June 2006)

Yeah 
I really  started to learn the practical application of volatility.
It does't really sink in until you want to trade long calls in the quick upward market moves and see 50 to 70% IV's


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## Matt123 (19 June 2006)

Watch what happens to the market over the next few days. After the downturn last week there were many bargains and SPs rose substantially. If the market has dropped right back down today, this was caused by those bargain hunters selling out for some nice gains. The market should rebound again tomorrow and eventually level out over the next two days IMO, so watch out for some more bargains


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