Trading psychology (revenge mode?)

I'm still working on my psychology part of trading. Yesterday, I exited my 8-month long bean-meal spread. I didn't make as much money as I would hoped for, but made some. Great. Today I got up and checked the bean-meal spread as it became my habit for the past 8 months. Guess what, after I exited, it went in my favor of $1K, but more to come.

I don't know if this is normal, but I must have a bad ego. Since I exited, I want to prove that I made a good decision, but apparently it's not!

One of critical skills to learn in trading is the ability to quickly move onto a next trade. I don't think I'm quite there yet.

Profit / Loss update

I updated my 2008 Profit / Loss. I decided to put the P/L based on liquidating value, which is more accurate instead of close-based value.

I'm up as much as the last year, but not by much. I must admit that it was more stressful this year because of the bean-meal position trades. Now that I exited that position, markets will go my direction. Isn't it what markets do any way?

The good news is I've been doing very well practicing a new strategy. My goal is to quit my day-job, by early January.

Soybeans - Soybean meal Spread summary

Soybeans/Soybean meal spread
Short 1 Mar Soybeans at 1236.25
Long 1 Mar Soybean Meal at 343.9
(entered on 1/2/08 )

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Covered 1 March S at 1391.50
Sold 1 March SM at 360.2Sold May S at 1409.4
Bought May SM at 367.5(Rolled over to May on 2/20/08)

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Short 1 May S at 1345 and Long 1 May SM at 353.7
(entered on 3/25/08)

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Sold 2 May SM at 343.10
Covered 2 May S at 1353
Long 2 Jul SM at 348.40
Short 2 Jul S at 1368.25

(Rolled over to Jul on 4/18/08)

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Covered: 2 July Soybeans at avg of 1582.575
Sold back: 2 July Soymeals at 423.40
Short 2 Aug Soybeans at 1580
Long 2 Aug Soymeals at 421.2

(Rolled over to Aug on 6/27/08)

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Covered: 2 Aug Soybeans at avg of 1604.50
Sold: 2 Aug Soymeals at 428
Short 2 Nov Soybeans at 1580Long 2 Dec Soymeals at 411.4

(Rolled over on 7/1/08)

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Exited 1 spread;
Bought 1 Nov soybeans at 1180.5
Sold 1 Dec soybean meal at 313.30
(8/8/08)

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Exited 1 spread;
Sold SM at 349
Bought S at 1272.5
(8/14/2008)

Exit the last bean-meal spread

So I exited the last bean-meal spread;

Sold SM at 349
Bought S at 1272.5

I think grains are bottomed out at least temporarly. I'll look to re-enter when the spread goes back up to $35K. I was able to pull out $4000 on this trade, but still considering all the agony I had in the last 8 months, I don't know if this is worth or not.

Exit 1 bean-meal spread

So I exited one bean-meal spread (still holding one).

Bought 1 Nov soybeans at 1180.5

Sold 1 Dec soybean meal at 313.30

I made about $3K on this trade, but I really hope the 2nd leg would meet my objective, which should give me $10K or so. It's a shame that I couldn't hold on to a bit longer for what I just exited, but I went thru quite a bit of drawdowns and I do a lot better when I book some profits. 

As you see the screenshot above, the spread trading is where you buy and sell two different contract simultaneously and expect the difference becomes bigger and smaller. I am losing (the shot was taken before I booked my profit), $19K on the soymeal, but making $39.6K on the beans.

By the way, lumber is not doing anything. It may take a while.

I'm also watching natural gas to see if it drops to 7 area where I'll start selling 6 puts.

Psychology

The number one reason that 90% of traders fail is due to psychology. I've been trading for a while, but I'm still struggling with it every single day.

The biggest one I have is the soybeans-meal spread. I was going thru a significant drawdown and now it came back up. As a matter of fact, I'm making some money, more than my monthly pay-check from a computer engineer job, but the problem it's still far less than the amount I risked. We all have invested or traded in one form or another and said to ourselves, 'if this thing comes back to break-even, I'll just get out and I'll never invest/trade.' That's the exact situation I'm in.

If I get out now, the reward-risk ratio would be 1:7. (Risking $7 to make $1, which is not right!) In order to survive in trading, I need at least 1:1 ratio. But man, my target is still so far a way. I don't know if I can fight for it or not.

FOMC

So the feds held the key rate at 2% (I believe). The decision was a piece of cake because as many of you know the price of commodities easied quite a bit. For example oil was at 145 not too long ago, and today we dipped below 120. That's about 15% drop. Not to mention, gold, euro and grains, they all fell nicely. The feds had to dilemas: inflation and liquidity (jobs, money from gov to banks, etc). Since the inflation has been easied and the credit crisis is slowly recovering, there's no reason for the feds to raise.

People were heavily investing money on inflationary instruments and they've been pulling out quite a bit. Where is that money? As I said in the previous post, stocks suddenly became very attractive.

Either the worst is behind or not, markets are liking what the feds are doing. Once dollar starts breaking high out of the consolidation, we'll see more drop in commodities. This doesn't mean, of course, oil drops to $50 and stays there, but we'll not see a parabolic type up-move near soon.

I have moved all of my 403b plan back to stocks and global equities and purchased some stocks in Roth IRA a few days ago. I maybe wrong, but I think we have a good shot here.