Dead Turkey

Week 2:
Nov 23-27, 2009
$6040 -> $3150 (-47.8%)

If I could type out the sound of a loud circular-mouthed sigh, I would. This week typified a pattern that I have been known to exhibit - and by stating it here, perhaps able to eliminate in the future. What I'm referring to is my uncanny ability to read the markets (or an individual stock), identify a great trade, enter that trade, and undergo such gut-wrenching effects that I eventually second-guess myself and exit a trade with a horrible loss. This differs from another trait I have been able to reduce as of late, which is allowing my losses to swell and simply hoping it goes my way. Ironically, this latter trait would actually counteract the first trait mentioned. That is, holding on to my positions with a staunch belief in my decisions would have resulted in eventual gains on several occasions. This tells me that in contrast to my earlier days of trading, my trading decisions are now fundamentally more sound and should justify not exiting a position despite hefty losses. Better yet, reducing my position size would pretty much eliminate the dire need to exit positions upon seeing large percentage losses.

So this is what happened. I noticed extreme complacence, low volume, high analyst expectations, an overbought scenario, and options optimism in GOOG and went short (bought 560 puts) on Monday morning after its gap up. My thoughts was that any news could only be interpreted as bad news at this point (additionally, recent industry data has shown a slowdown in online ad revenues). It showed signs of wanting to depreciate (once pulling back to 576), but kept on going back up on low volume. Meanwhile, the volatility index (VIX) kept creeping down, devaluing my position even more. Eventually, I found myself down about 50% and feared that Black Friday might spur some sort of pre-Santa clause rally, so I exited. However, my original analysis of the situation painfully played out (that things could only surprise to the downside, whether it be a downgrade, lawsuit, etc). On Thursday, the spotlight was on Dubai defaulting, rattling the futures and eventually leading to a GOOG decline of 15 points on Friday. This would have been the chance I was looking for to exit with a profit, but here I am shaking my head and sitting on a near 50% loss on my account. Given the state of my account, I didn't want to quickly enter a long position on Friday without thinking things through, so I missed the snap-back rally.

So yeah, lessons learned...again. This time, however, I will hopefully refer back to this post and change! Notes to self: Keep up the good decision-making, but enter with smaller position sizes unless it's just that obvious that the risk-reward in heavily on your side.