[Jeff P is one of the winningest Spikers, a serious trader, and the programmer of AK47 record-keeping software – Alex]
How Spike has Helped My Trading
My career as a Spiker began in Q3 2006, shortly after the Amish reunion. I had the misfortune of having quick success! One of my first picks resulted in a 30% return and I decided that I really knew what I was doing. Unfortunately, it was undeserved confidence!
For a while in that quarter, I had a pretty big lead in points and equity. However, as the quarter wore on, my equity took nick after nick, along with my confidence. To make matters worse, Dave F. went on an incredible run winning week after week. I would up taking silver in points and equity, which was a big disappointment. If you notice, in this paragraph I’ve used the words “confidence” and “disappointment”. I have learned that such emotional responses are warning signs of dangerous trading. The warning was fulfilled in Q4.
In the last quarter of 2006, I tried a myriad of approaches and as the quarter wore on, I became more panicked. Losing trade followed losing trade. Ultimately, it became obvious that I had no idea what I was doing! I finished the quarter down more than 25% and more than $150 dollars below the next lowest person! What a humbling experience. After that, Kerry and Alex implemented the first rules to deal with and hopefully control such extreme losses. In my emotionally weakened state, I asked if these rules were designed to get me out of the group. The both said “No, not at all”. I knew in my heart that while that may not be the goal, the idea was to prevent such inferior performance as I had shown. I decided that I would never have such a quarter again.
Actually, 2006 wasn’t a total loss. I won gold in the Long Term Trading Competition, starting a trend which continues through this year where I’ve won some sort of year end medal.
Each year since 2006 I have seen evidence of positive growth. My equity at the end of each year has been higher than the prior with 2008 and 2009 both being positive. My lowest quarter each year has been prior than the last, with all 4 quarters being positive this year. I haven’t had an excessive weekly loss in a long time. I got hit with a gap down the second to last week in 2009 and still lost just 2.99%.
Contrary to the way this reads, I didn’t write this to pat myself on the back. While I’m more consistent and clear in my approach than ever, I still have the ability to do severe damage to my account and self confidence. Rather, I am writing this as a form of positive reinforcement to me and also in the hope that it will help some of you advance as traders. Rather than continuing in a boring stream of consciousness format, I’m going to hit the highpoints of the changes I made and continue to refine on my growth path as a trader.
- Control and Limit my RiskBefore the “Jeff Parker Warning Bench Rule of 2007” I would on occasion risk as much as 10% on a trade! Part of the reason for this is that I looked at taking a loss as an indication that I was “wrong” with all of the unpleasant psychological baggage associated that feeling. It took a long time to shift that paradigm but I am much netter in that regard. I understand that when I make a trade it is because I believe there is a better chance the stock will go one way rather than the other. However, a certain number of those trades will go against be and there is absolutely no way to predict which will win or which will lose with accuracy. Therefore, there is only one “wrong” type of trade and that is one which does not follow a defined pattern or one where I risk more than which is permissible according to my plan. In Spike, my limit is absolute at 3% per week and I prefer to keep it at 2%. If a logical stop exceeds those limits, I cannot trade it. In my personal trading my limit is 1%.
- Create a Trading Plan and Define my MethodsThis step was one I knew I needed to do but put off for months. A trading plan requires answering some hard questions and is a lot of work. When you are done, however your approach should be much more crystallized. I’ve done this several times and am starting the process again. My preference is to start fresh rather than edit an existing version in part because I want to keep my mind open. When complete, I then compare the new version with the prior to make sure I get the best of both.
Defining ones individual trading methods is critical. You need to know exactly what you are looking for to trade, otherwise how will you know when you find it! I’ve found the more detail I apply, the better. For a given method, such as a “Pullback to Value” trade, I describe what it looks like, what gets me in, what gets me out (Stop and Target) and I also include examples. I also include what characteristics it must have and that which it must not have like upcoming earnings. My idea of a complete plan is one where I could give it to an equal or superior trader and they would have no trouble trading it as I would.
- Work with OthersTrading is a lonely, difficult business. If you can develop a relationship with another, or a few traders it can make a big difference in your progress. It is absolutely critical that the other traders can trust you and you can trust them. If it is not a safe environment, the relationships can do more harm than good. It is also important that each person contributes and each person gets something out of it. Time and schedules must be balanced so that continual progress is made and so that it doesn’t become an obligation.
Other traders can give you reality checks on your trades, help clear up areas of misunderstanding and give you added incentive to reach your goals. They can be the trading equivalent of an exercise partner!
- Document Your Trades and Track Your ResultsThe final area that I want to suggest for improvement involves documenting your trades. Spike has helped me a great deal in this regard in that each week I know that people will be looking at my pick, many paying for the “privilege” and I want to make sure that my thoughts are as clear as possible. However, this isn’t purely altruism at work. This approach makes me be absolutely clear about my trade and as a result, my Spike picks have done better than my other trades. I almost always trade my Spike pick. I think I haven’t done so about 2 or 3 times over the last 3.5 years.
If you are not documenting your trades, begin right now! Document why you are making the trade, what you have at risk and later, how it worked out. Don’t worry about having the perfect format. You can tweak it as you go.
I hope you find these tips of use in growing as a trader. I wish you the best in this process!
Jeff P