Learnings

I've been more apt to learn from traders who are trading successfully, and if I can relate to how they trade, that makes it even better. So, I'll share with you some of the things I've been learning the past 2 weeks about trading.

1. Compression patterns are beautiful. You can use these to set your stops as well as to enter trades. Compression patterns (or consolidation) are rectangles, ascending/descending wedges, pennants, flags, stairsteps.

Example: I played AAPL earnings by jumping into the trade as soon as I saw a direction at the opening. It looked like it was going up. My stop was at the low, about 134.90. As time went by, it began consolidating into a rectangle. If you use Bollinger Bands, this is known as a "Squeeze Play" where the BB's began pinching. At that time, I should've moved up my stop to $136. If it broke below this pattern, then I needed to get out of my AAPL Calls and switch to puts.

I didn't do that and waited until it went below $134.90. This defnitely cost me more money and I think I was doing something else at the same time, so when I got out, it was actually probably around $131. Not good and this was definitely a bigger cost than it should've.

2. Trade Neutrally. There is no up is good and down is bad. Learn to play both directions or even sideways movements. If your criteria is met to get into or out of a trade, execute it. But, your criteria better make good sense.

3. Moving Averages. I'm starting to use these more now, especially intraday. Another super trader shared with me that he uses the 20, 50, 200 EMA. I also use the 10 EMA. You have to play with this on various timeframes to see how this goes. I've been trading BIDU and find that it likes to use the 200 EMA to bounce off of for an uptrend and to come up against in a downtrend.

Now, don't go taking that and doing exactly that. I also look at volumes and know how to read a price chart, so you have to take these things into account and where you are (meaning where the stock is trading).

4. Volume. This is very important. If you're at a support, volumes are high on selling but the stock cannot seem to go lower, perhaps you're at a support. It might be a great time to get out of your puts or shorts and begin buying calls. Once again, some common sense has to be in place. For resistance, I've noticed that volumes decreasing, and the stock's inability to push higher. That may be a good indication of resistance being reached.

Remember, this is all relative with the timeframes you're using.

5. Timeframes. In intraday trading, I like to use the 1 min, 5 min, 10 min, and Daily. Sometimes I will use 3 min. Daily gives me a big picture of what is happening. The moving averages look different in each timeframe and you need to understand how your particular stock moves with these.

6. Market Orders. In stocks that move a lot in a short amount of time, like BIDU, GOOG, CME, if you want to quickly get in, use market orders. Don't screw around with getting in the spread, though the spread can be quite wide.

Example: I took 1 contract on BIDU at open today for market. Not sure how much that was at the moment. Got in immediately. It just really took off from 275 to 297 within the first 45 min. of trading. Not sure what price I got in without going back to my trading account, but guessing it was about 277. My target was 300 and then 310 (this is based on the pattern of BIDU trading). I didn't feel like 297 was enough for BIDU from how it trades, so I thought it could go for 300, as that's so close.

As it began pulling back at 297 and getting close to where the 10 and 20 EMA were crossing on the 1 min, I figure that was a good time to get out. Since it rose $22 in such a short amount of time, a pullback seemed reasonable and I just wanted to take my profits off the table. My position, which I think I got the Feb280C around $25/contract had about $1200 profit. That was just near 50% in less than an hr on my ROI. But, because I wanted to get in the spread, that took a few minutes and by the time I realized it was going down too fast, I just got out at market finally. Made $700, but it cost me $200-350. Yes, I would've gotten the worst price at market, but that would've been about $40-80 depending upon what the spread was at that time.

Here's a situation where wanting to save $20-40 or so dollars per contract cost me $200-350 of potential profits. Doesn't make sense, does it?

So, if there is a lot of action going, just suck it up and do market orders to get your fills quickly with fast moving, high priced stocks.

I did do this right with getting out of my 2nd trade for BIDU for the day.

7. Backtesting. Practice what you actually want to trade in the timeframe that's right for you. If you want to daytrade, daytrade real time in a real trading account with papermoney. Don't use real money. I can't begin to stress this enough.

8. Focus. This one has been a biggy. What I'm finding out is that it's a challenge to trade many stocks and to trade them well. For now, I'm just going to trade ONE stock and that's going to be BIDU. The movements are huge often and even within a $10 range, if you buy ATM (at the money), you can make good money on 1 contract. Today I got to just make enough money on 1 contract to equal 4 days as a senior level engineer. That was 2 trades. And, that's not playing the trades perfectly. If I had, my profits would've been more than double.

There's more to share, but my son is tossing things around the house and a big distraction.

Concentration

Today I made a huge mistake in trading. I allowed my son the choice to go to his gym class or not. Instead, I should've forced him to go. Though these were practice trades, him being home cost me money in my trades today.

Not sure about others, but I can put phone calls on silent, ignore IM's or emails to trade, but when you have a 4 yr old at home in constant need of attention, whining and being disruptive, this has totally thrown my game off today. And, today was such a great trading opportunity as it's expiration Friday and volatility is good.

Was in for a quick daytrade on BIDU the last 1.5 hrs of the trading day, but as I was waiting to get out of the trade, Sean became very disruptive and distracting and my attention diverted to him and in that 2 minutes, BIDU reversed the profits became costs.

Honestly, Sean's whininess and perhaps my not feeling physically 100% today combination made for a costly day in the market. Yes, earlier this week I made some huge profits on some of my spread trades, but having to give some back over stuff like this does upset me.

It really was my fault and not my 4 yr old's fault. He just always would rather be with me or I should've just closed out my trades yesterday and not started any new ones today. My error.

January Bear Call Spreads

Since things have been bearish, my bear call spreads were good. These were great returns, but not like my Bull Put Spreads. Unless the market moves hugely tomorrow, I'm going to assume that all these are closed. All my short sides are closed, so if any of the long sides turn positive, I'll close those otherwise let them expire worthless.

I did 17 Bear Call Spreads (BCSs) for January:

Net Profit = $9145.20
Margin Required = $33,311.00
Net ROI = 27%

2 out of the 17 trades went against me, costing me money. 14 out of the 17 trades were profitable.

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AAPL
Entry Date: 12/27/07
Position: Jan 710/720C
Contracts: 3
Credit: $2.45
Margin Requirement: $2265

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $702.30
Net ROI: 31%

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GOOG
Entry Date: 12/31/07
Position: Jan 720/730C
Contracts: 5
Credit: $2.45
Margin Requirement: $3775

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $1170.50
Net ROI: 31%

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AMZN
Entry Date: 12/31/07
Position: Jan 795/100C
Contracts: 5
Credit: $1.60
Margin Requirement: $1700

Close Short Side Date: 1/15/08
BTC: $0.02
Close Long Side Date:
BTC: $

Profit/Cost: $760.50
Net ROI: 44.7%

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BG
Entry Date: 12/31/07
Position: Jan 120/125C
Contracts: 3
Credit: $1.52
Margin Requirement: $1044

Close Short Side Date: 1/2/08
BTC: $4.50
Close Long Side Date: 1/4/08
BTC: $2.52

Profit/Cost: <$173.40>
Net ROI: <16.6%>

---------------------------------------------

PCU
Entry Date: 12/31/07
Position: Jan 110/115C
Contracts: 5
Credit: $1.10
Margin Requirement: $1950

Close Short Side Date: 1/3/08
BTC: $4.25
Close Long Side Date: 1/4/08
BTC: 0.70

Profit/Cost: <$1284>
Net ROI: <65.8%>

---------------------------------------------

X
Entry Date: 12/27/07
Position: Jan 125/130C
Contracts: 3
Credit: $1.22
Margin Requirement: $1134

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $333.30
Net ROI: 29.4%

---------------------------------------------

AAPL
Entry Date: 1/2/08
Position: Jan 200/210C
Contracts: 5
Credit: $3.14
Margin Requirement: $3430

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $1515.50
Net ROI: 44.2%

---------------------------------------------

RIMM
Entry Date: 1/4/08
Position: Jan 110/115C
Contracts: 2
Credit: $1.54
Margin Requirement: $692

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $286.20
Net ROI: 41.4%

---------------------------------------------

FWLT
Entry Date: 1/4/08
Position: Jan 170/175C
Contracts: 3
Credit: $1.20
Margin Requirement: $1140

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $327.30
Net ROI: 28.7%

---------------------------------------------

ISRG
Entry Date: 1/4/08
Position: Jan 320/330C
Contracts: 5
Credit: $3.00
Margin Requirement: $3500

Close Short Side Date: 1/15/08
BTC: $0.03
Close Long Side Date:
BTC: $

Profit/Cost: $1455.50
Net ROI: 41.6%

---------------------------------------------

VMW
Entry Date: 1/4/08
Position: Jan 85/90C
Contracts: 2
Credit: $1.27
Margin Requirement: $746

Close Short Side Date: 1/15/08
BTC: $1.43
Close Long Side Date:
BTC: $

Profit/Cost: <$49.70>
Net ROI: <6.7%>

---------------------------------------------

BIDU
Entry Date: 1/4/08
Position: Jan 400/410C
Contracts: 2
Credit: $1.75
Margin Requirement: $1650

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $328.20
Net ROI: 19.9%

---------------------------------------------

SHLD
Entry Date: 1/4/08
Position: Jan 105/110C
Contracts: 5
Credit: $1.37
Margin Requirement: $1815

Close Short Side Date: 1/15/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $630.50
Net ROI: 34.7%

---------------------------------------------

SPWR
Entry Date: 1/4/08
Position: Jan 140/145C
Contracts: 5
Credit: $1.02
Margin Requirement: $1990

Close Short Side Date: 1/15/08
BTC: $0.03
Close Long Side Date:
BTC: $

Profit/Cost: $465.50
Net ROI: 23.4%

---------------------------------------------

POT
Entry Date: 12/27/07
Position: Jan 150/155C
Contracts: 5
Credit: $1.42
Margin Requirement: $1790

Close Short Side Date: 1/16/08
BTC: $0.25
Close Long Side Date:
BTC: $

Profit/Cost: $540.75
Net ROI: 30.2%

---------------------------------------------

PCU
Entry Date: 1/4/08
Position: Jan 105/110C
Contracts: 5
Credit: $1.57
Margin Requirement: $1715

Close Short Side Date: 1/16/08
BTC: $0.05
Close Long Side Date:
BTC: $

Profit/Cost: $730.50
Net ROI: 42.6%

---------------------------------------------

GOOG
Entry Date: 1/4/08
Position: Jan 670/680C
Contracts: 5
Credit: $4.05
Margin Requirement: $2975

Close Short Side Date: 1/15/08
BTC: $1.15
Close Long Side Date:
BTC: $

Profit/Cost: $1405.75
Net ROI: 47.3%

---------------------------------------------

January Bull Put Spreads Results

My spreads did very well this month. I won't go through all the details, but I'll give a summary of each spread that I've closed completely so far and separate into a couple different entries for ease of use. Note that these are real time practice trades done on Think or Swim.

Here is a summary of the 10 BUPS for January (I still have 2 more that are not completed):

Net Profits = $29,741.60
Margin Required = $19,257.00
Net ROI = 154%

Honestly, these are AMAZING results for me. I was really shooting for around 15-25% and to get 154% is phenomenal. All these trades went against me and I was able to profit tremendously. 1 out of the ten actually was a cost, but having 5 be greater than 100% profit was amazing. Too bad this wasn't in my real account, but patience.

AAPL
Entry Date: 12/27/07
Position: Jan 190/185P
Contracts: 3
Credit: $1.57
Margin Requirement: $1029

Close Short Side Date: 1/2/08
BTC: $7.10
Close Long Side Date: 1/7/08
BTC: $12.62

Profit/Cost: $2091.60
Net ROI: 203.3%

---------------------------------------------

BIDU:
Entry Date: 12/27/07
Position: Jan 380/370P
Contracts: 5
Credit: $2.65
Margin Requirement: $3675

Close Short Side Date: 1/2/08
BTC: $19.90
Close Long Side Date: 1/4/08
BTC: $18.24

Profit/Cost: $436
Net ROI: 11.9%

---------------------------------------------

FSLR:
Entry Date: 12/27/07
Position: Jan 250/240P
Contracts: 5
Credit: $2.70
Margin Requirement: $3650

Close Short Side Date: 1/2/08
BTC: $10.80
Close Long Side Date: 1/7/08
BTC: $16.50

Profit/Cost: $4141
Net ROI: 113.50%

---------------------------------------------

POT:
Entry Date: 12/27/07
Position: Jan 135/130P
Contracts: 5
Credit: $1.35
Margin Requirement: $1825

Close Short Side Date: 1/16/08
BTC: $3.45
Close Long Side Date: 1/17/08
BTC: $13.05

Profit/Cost: $5416
Net ROI: 296.8%

---------------------------------------------

WYNN:
Entry Date: 12/27/07
Position: Jan 110/105P
Contracts: 3
Credit: $1.47
Margin Requirement: $1059

Close Short Side Date: 1/2/08
BTC: $5.10
Close Long Side Date: 1/4/08
BTC: $4.40

Profit/Cost: $195.60
Net ROI: 18.5%

---------------------------------------------

PCU:
Entry Date: 12/27/07
Position: Jan 100/95P
Contracts: 5
Credit: $1.00
Margin Requirement: $2000

Close Short Side Date: 1/15/08
BTC: $4.80
Close Long Side Date: 1/16/08
BTC: $6.2

Profit/Cost: $1141
Net ROI: 57.1%

---------------------------------------------

SHLD:
Entry Date: 12/27/07
Position: Jan 95/90P
Contracts: 4
Credit: $1.75
Margin Requirement: $1300

Close Short Side Date: 1/15/08
BTC: $8.70
Close Long Side Date: 1/16/08
BTC: $1.90

Profit/Cost: <$2067.20>
Net ROI: <159%>
---------------------------------------------

SPWR:
Entry Date: 12/27/07
Position: Jan 120/115P
Contracts: 5
Credit: $1.05
Margin Requirement: $1975

Close Short Side Date: 1/8/08
BTC: $8.50
Close Long Side Date: 1/16/08
BTC: $21.70

Profit/Cost: $7066
Net ROI: 357.8%
---------------------------------------------

CMI:
Entry Date: 12/31/07
Position: Jan 97.5/92.5P
Contracts: 3
Credit: $1.90
Margin Requirement: $1550

Close Short Side Date: 1/2/08
BTC: $8.60
Close Long Side Date: 1/3/08
BTC: $29.10

Profit/Cost: $11.141.00
Net ROI: 718.8%
---------------------------------------------

FWLT:
Entry Date: 1/4/07
Position: Jan 150/145P
Contracts: 3
Credit: $1.02
Margin Requirement: $1194

Close Short Side Date: 1/8/08
BTC: $10.05
Close Long Side Date: 1/15/08
BTC: $9.75

Profit/Cost: $180.60
Net ROI: 15.1%
---------------------------------------------

Goings On

I apologize to my readers for not updating my blog in the past week plus. Things have been nuts and I did take most of last weekend off to just have fun and relax. There are many things going on in my life right now that would not be good for me to publically write, and would you, as my readers really care? Of course you do, to some extent, but the purpose of this blog is for trading.

How have I been doing?

Without going into lengthy details, we are upon earnings as well as expiration week.

Yesterday I did well in trading, taking only profits. Today I did not fair so well and took only costs. Actually, today I was beaten pretty bloody and am left feeling discouraged. BUT, I do understand where I went wrong.

In a market where there is a great deal of indecision, what I'm learning for very bearish or bullish days, you really want to just take all your positions off the table. You often either get a great deal of indecision or a reversal and that can really wipe out any profits. Such was the case with me.

As my trading coach has told me, either keep very far back or keep a short leash on your positions. Today's lessons were pretty painful.

I did close out on a number of spread positions and I won't have the final tally of how these went until next week. This weekend is pretty busy with having 4 parties to attend and sleepovers at my house of my kids' friends. What did I sign myself up for? Hopefully I won't be too frazzled to trade next week.

There are also other emotional things going on for me, so I should trade even more cautiously and maybe only do 1-2 positions. I am getting some help from a professional trader and that extra set of eyes and experience is certainly helping. He's an excellent trader and I'm gaining a lot of insights from him, which I hope to share here if I can get my act together to do so.

Until then, happy trading. Remember, manage your risk of all your positions in this volatile, uncertain market. Keep a sharp eye on things, and relax.

"Master the Four Fears of Trading"

This is an excellent article and talks about many of the things I've already talked about somewhere in my blog regarding my personal experiences. I'm just posting it now, but read it awhile back. I find myself having mastered some things and periodically slipping back into old habits. Why? Old habits can die hard, or do I need to shift my paradigm? This article is definitely worth the read and worth understanding/implementing.

Master the Four Fears of Trading
November 2002
Originally Published in Stock Futures and Options Magazine
by: Price Headley

Merriam-Webster's dictionary defines fear as "an unpleasant, often strong emotion caused by anticipation or awareness of danger, going on to explain that fear...implies anxiety and usually the loss of courage." This definition of fear is useful in helping define the issues that traders face when coping with fear. The reality is that all traders feel fear at some level, but the key is how we prepare to address our concerns related to taking on risk as a trader. In this article I will review four major fears experienced by traders, and I'll take it a step further by noting how the outcomes of these fears create undesirable trading behaviors. Basically, my aim is to have you walk away with an understanding of these dangers so you can and implement strategies that will address your fears and let you get on with your trading plan.

Mark Douglas, an expert in trading psychology, noted in his book, Trading in the Zone, that most investors believe they know what is going to happen next. This causes traders to put too much weight on the outcome of the current trade, while not assessing their performance as "a probability game" that they are playing over time. This manifests itself in investors getting too high and too low and causes them to react emotionally, with excessive fear or greed after a series of losses or wins.

As the importance of an individual trade increases in the trader's mind, the fear level tends to increase as well. A trader becomes more hesitant and cautious, seeking to avoid a mistake. The risk of choking under pressure increases as the trader feels the pressure build.

All traders have fear, but winning traders manage their fear while losers are controlled by it. When faced with a potentially dangerous situation, the instinctive tendency is to revert to the "fight or flight" response. We can either prepare to do battle against the perceived threat, or we can flee from this danger. When an investor interprets a state of arousal negatively as fear or stress, performance is likely to be impaired. A trader will tend to ?freeze.? In contrast, when a trader feels the surge of adrenaline but interprets this as excitement or a state of greater alertness before placing a trade, then performance will tend to improve. Many great live performers talk of feeling butterflies just before they go on stage, and how they interpret this as a wake-up call to go out and perform at their highest level. That's clearly a more empowering response than someone who might interpret these butterflies as a reason to run back to his dressing room to get sick! Winners take positive action in spite of their fears.

1. Fear of Loss
Analysis Paralysis and Its Cousins

The fear of losing when making a trade often has several consequences. Fear of loss tends to make a trader hesitant to execute his trading plan. This can often lead to an inability to pull the trigger on new entries as well as on new exits. As a trader, you know that you need to be decisive in taking action when your approach dictates a new entry or exit, so when fear of loss holds you back from taking action, you also lose confidence in your ability to execute your trading plan. This causes a lack of trust in your method or,more importantly, in your own ability to execute future trades.

Thus, you can see how fear can set in place a vicious cycle of recurring doubt and, in turn, reinforce a traders' lack of confidence in executing new positions. For example, if you doubt you will actually be able to exit your position when your method tells you to get the heck out, then as a self-preservation mechanism you will also choose not to get into new trades. Thus begins the analysis paralysis, where you are merely looking at new trades but not getting the proper reinforcement to pull the trigger. In fact, the reinforcement is negative and actually pulls you away from making a move.

Looking deeper at why a trader cannot pull the trigger, I believe the root stems from a lack of confidence about the trading plan, which then causes the trader to believe that by not trading, he is moving away from potential pain as opposed to moving toward future gain. No one likes losses, but the reality is, of course, that even the best professionals will lose. The key is that they will lose much less, which allows them to remain in the game both financially and psychologically. The longer you can remain in the trading game with a sound method, the more likely you will start to experience a better run of trades that will take you out of any temporary trading slumps.

When you're having trouble pulling the trigger, realize that you are worrying too much about results and are not focused on your execution process. Make sure your have a written plan and then practice executing your plan.

Start with paper trades if you prefer, or consider trading smaller positions to get the fear of losing out of your system and get yourself focused on execution. When in the heat of battle and realizing you need to get in or out of a trade, consider using market orders, especially on the exit. That way you can't beat yourself up for not pulling the trigger on your trade.

Many traders may get too cute with a trade and try to work out of a position at a limit price better than the current market price, hoping they can squeeze more out of a trade. But as famed trader Jesse Livermore advised in the classic book Reminiscences of a Stock Operator by Edwin Lefevre, ?give up trying to catch the last eighth.? Keep it simple with a market order to exit allows you to bring closure when you need it, which reinforces the confidence-building feelings that come from following your trading plan. In the past when my indicators noted it was time to exit, I have experienced firsthand the pain of not getting filled at my limit, watching the option drop and then placing a new limit back where I should have exited at the market in the first place! Then I have realized I was not going to get filled there either, so I again kept lowering my limit until, in frustration, I placed a market order to exit much lower than I could have closed the position initially. Not only can you feel the pain of loss financially but, more important, you can chip away at your internal state of confidence and create frustration by not getting filled.

You should be more concerned about avoiding big losses and less concerned about taking small losses. If you can?t bear to take a small loss, you will never give yourself an opportunity to be around when a big winning idea comes along, as every trade you enter has the risk of first turning against you for a loss. You must execute by knowing what your risk is in each trade, and define parameters to make sure you can ride favorable trends correctly as well so that your winners will be larger than you losers. And never get stuck in the mindset of hoping a loser will come back to "breakeven," as that is one of the trader's most deadly mental fantasies. Billions of dollars have been lost by technology investors hoping their stocks would bounce back in recent years to allow them to escape the downtrend. That only led to even greater losses in most cases. That's how a short-term trader can become a long-term investor unintentionally, and that is a position in which you never want to put yourself.

Ask how well you trust yourself to execute your trading plan. You want to judge your effectiveness based on how well you get in and out of the market when your method gives entry and exit signals. You'll need to be decisive, not hesitant, know in your heart that your method is well tested and that your risk is low compared to your likely reward. In other words, you must be fully prepared before you go into the heat of battle during a trading day. You need to know where you will enter and where you will exit if you are a discretionary trader. Or you need to know what system you are following and be prepared to enter and exit as the system dictates. This keeps you disciplined and focused on following a process that can generate favorable results over time.

2. Fear of Missing Out
Being a Part of the Crowd Isn't Everything It's Cracked Up to Be

Every trend always has its doubters, but I often notice that many skeptics of a trend will slowly become converts due to the fear of missing out on profits or the pain of losses in betting against that trend. The fear of missing out can also be characterized as greed of a sorts, for an investor is not acting based on some desire to own the security - other than the fact that it is going up without him on board. This fear is often fueled during runaway booms like the technology bubble of the late-1990s, as investors heard their friends talking about newfound riches. The fear of missing out came into play for those who wanted to experience the same type of euphoria.

When you think about it, this is a very dangerous situation, as at this stage investors tend essentially to say, "Get me in at any price - I must participate in this hot trend!? The effect of the fear of missing out is a blindness to any potential downside risk, as it seems clear to the investor that there can only be gains ahead from such a "promising" and "obviously beneficial" trend. But there's nothing obvious about it.

We remember the stories of the Internet and how it would revolutionize the way business was done. While the Internet has indeed had a significant impact on our lives, the hype and frenzy for these stocks ramped up supply of every possible technology stock that could be brought public and created a situation where the incredibly high expectations could not possibly be met in reality. It is expectation gaps like this that often create serious risks for those who have piled into a trend late, once it has been widely broadcast in the media to all investors.

3. Fear of Letting a Profit Turn into a Loss

I get many more questions from subscribers asking if it is time to take a profit than I do subscribers asking when they should take their loss. This represents the fact that most traders do the opposite of the "let profits run, cut losses short" motto: they instead like to take quick profits while letting losers get out of control. Why would a trader do this? Too many traders tend to equate their net worth with their self-worth. They want to lock in a quick profit to guarantee that they feel like a winner.

How should you take profits? Should you utilize a fixed target profit objective, or should you only trail your stop on a winning trade until the trend breaks?

Those who can accept more risk should consider trailing a stop on their trending position, while more conservative traders may be more comfortable taking profits at their target objective. There is another alternative as well, which is to merge the two concepts by taking some profits off the table while seeking to ride the trend with a trailing stop on the remaining portion of the position.

When I trade options, I usually recommend taking half of the position off at a double or more, and then following the half position still open with a trailing stop. This allows you to have the opportunity to ride my best trading ideas further, as these are the trades where I am mostly likely to continue being right. Yet, I am also able to get the initial capital at risk back in my pocket, which frees me from worrying about letting a profit turn into a loss; I am guaranteed a breakeven even if the other half position were to go to nothing overnight. My general rule for the remaining half position is to exit if it reaches my trailing stop of half its maximum profit on an end-of-day closing basis, or scale out of the remaining half position every time it doubles again.I'm" big fan moving stop breakeven relatively quickly once starts move favor, about five or roughly 25 percent option. It also critical recognize impact spent waiting position move. If losing, but not yet after several days, there are likely better opportunities elsewhere. known as ?time stop,? will get your capital out of non-performers free it up fresher trading ideas.

4. Fear of Not Being Right - All Too Common

Too many traders care too much about being proven right in their analysis on each trade, as opposed to looking at trading as a probability game in which they will be both right and wrong on individual trades. In other words, their overall method will create positive results.

The desire to focus on being right instead of making money is a function of the individual's ego, and to be successful you must trade without ego at all costs. Ego leads to equating the trader's net worth with his self-worth, which results in the desire to take winners too quickly and sit on losers in often-misguided hopes of exiting at a breakeven.

Trading results are often a mirror for where you are in your life. If you feel any sort of conflict internally with making money or feel the need to be perfect in everything you do, you will experience cognitive dissonance as you trade. This means that your brain will be insisting that you cannot exit a trade at a loss because it ruins your self-image of perfection. Or if you grew up and feel guilty about having money, your mind and ego will find a way to give up gains and take losses in the markets. The ego's need to protect its version of the self must be let go in order to rid ourselves of the potential for self-sabotage.

If you have a perfectionist mentality when trading, you are really setting yourself up for failure, because it is a given that you will experience losses along the way in trading. Again, you have to think of trading as a probability game. You can't be a perfectionist and expect to be a great trader. If you cannot take a loss when it is small because of the need to be perfect, then the loss will often times grow to a much larger loss, causing further pain for the perfectionist. The objective should be excellence in trading, not perfection.

In addition, you should strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. The great traders make mistakes too, but they are able to keep the impact of those mistakes small, while really riding their best ideas fully.

For the trader who is dealing with excessive ego challenges (yet, who wants to admit it?), this is one of the strongest arguments for mechanical systems, as you grade yourself not on whether your trade analysis was right or wrong. Instead you judge yourself based on how effectively you executed your system's entry and exit signals. This is much easier for those traders who want to leave their egos at the door when they start to trade. Additionally, because we are raised in a highly competitive culture, the perception of a contest or competition will also bring out your ego's desire to win and beat others.

You will be better off seeing trading as a series of opportunities that will become apparent to you, and your task is to create a plan that finds opportunities with potential rewards that are several times greater than the risks you incur.

Be sure you are writing down your reasons for entering each trade, as the ego will play tricks and come up with new reasons to hang on to losing positions once the original reasons have evaporated. One of our survival mechanisms is remembering the good and omitting the bad in our minds, but this is dangerous in trading. You must acknowledge the risk and use a stop on every trade to admit when the analysis is no longer timely. This helps prevent undesirable situations where you get stuck in a position because you did not adhere to your original stop. This is a bad use of capital being tied up in an under-performing position, when there are likely to be many better opportunities elsewhere. Trading without stops is an ego-driven approach that hopes to avoid accountability for a losing trading idea. This is an unacceptable behavior to the successful trader, who knows he must limit risk with stops to stay in the game for the next trading opportunity.

In summary, your trading plan must account for the emotions you will be prone to experience, particularly those related to managing fear. As a trade, you must move from a fearful mindset to mental state of confidence. You have to believe in your ability as well as the effectiveness of your plan to take profits that are larger than the manageable losses. This builds the confidence of knowing that you are on the right track. It also makes it easier to continue to execute new trades after a string of losing positions. Psychologically, that's the critical point where many individuals will pull the plug, because they are too reactive to emotions as opposed to the longer-term mechanics of their plan. If you?re not sure if you can make this leap, know that you can if you start small.

Too many investors have an "all-or-none" mentality. They're either going to get rich quick or blow out trying. You want to take the opposite mentality?- one that signals that you are in this for the longer haul. This gives you "permission" to slowly get comfortable and to keep refining your plan as you go. As you focus on execution while managing fear, you realize that giving up is the only way you can truly lose. You will win as you conquer the four major fears, to gain confidence in your trading method and, ultimately, you will gain even more confidence in yourself.

"Turning Down The Noise"

This sage advice comes to you from my Trending123 associate, Neuropsychological Trading Coach, Dr. Janice Dorn. This is what I've been talking about some.

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Turn Down the Noise
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Much out cry, little outcome...Aesop.

The Pareto Principle, sometimes called the 80/20 Rule is something traders must heed, both in the markets and in life. Originally, the Principle was a mathematical formula created in the early 1900's by Italian economist Vilfredo Pareto, and was use to describe the way in
which wealth was distributed unequally. In essence, he calculated that 20% of the people possessed 80% of the wealth.

Despite the controversy over how Pareto's original formula was translated and transformed, the fundamental thesis is valid today. Sometime around 1935, Joseph Juran coined the phrase "the vital few and the trivial many" in an attempt to elaborate on the work of Pareto.

80% of traders are in a state of reacting to what they perceive to be urgent and critical information. The constant message on TV now is "Breaking News" as if everything is breaking, important, necessary to be assimilated, will affect your trading positions and must be acted on NOW. This 80% needs almost constant guidance, is hurled from side to side on a sea of information and is in a state of almost continual crisis management. This, in and of itself, is a drawdown on psychological capital, due to the amount of energy which is necessary to put forth in order to keep with the barrage. In the end, 80% of the people are reacting to noise.

The remaining 20 percent are responding. They open themselves up to the possibility that anything can happen and are able to be still in the midst of chaos as they wait quietly and patiently for opportunity. The markets are changing constantly - things are always going up and down. Learn the lyrics to the Kenny Rogers Song, The Gambler and try to live and trade that way.

It is in your best interest, both in trading and in life, to become less reactive and more responsive. In order to achieve this, one must cultivate a centered, reasoned state of balance.
One must learn to sit comfortable in the pain of being presented with multiple choices, rather than to grab whatever is being tossed out at the time. Sit quietly, think, allow your brain to melt into a distant observer, and your body to become still. Be the eye of the hurricane and try to avoid the tyranny of the urgent. Know when to do something and when to do nothing. Both
your trading and your life will improve once you are able to turn down the noise and focus on what is really important to your bottom line.

Exquisitely Sufficient

Oh, why am I writing this. I believe I do possess the knowledge, technical skills, risk management to be a really good trader. However, setting all that aside, something that does impede the success of many traders is the psychological aspect, which I believe is the biggest part of trading.

Though the majority of this blog is focused to the technical aspects of how I trade simply, I'd like to share some of the things I'm doing and learning about the psychological part of trading from my very own experiences.

One may often want to skip over this step, but what separates truly great traders who last and those who do not, being the assumption each of these traders all possess the knowledge, skills, risk management abilities, what will allow a trader to survive and thrive over those who do not make it?

One thing that does intrigue me, and though he is not a trader, is Robert Allen, the real estate guy that can go into a town with no money and easily turn over properties and have lots of money in a short period of time. I would surmise that if he were to acquire the skills, knowledge and risk management abilities as a trader, he'd do exceedingly well, being able to take a very small account to huge in a short period of time.

His psychological makeup is probably pretty healthy compared to many of us who seem "stuck". So, I am actively pursuing and addressing the "tough" habits and mindsets that do not lead to ultimate success in my life.

I started a couple weeks ago keeping a notebook of thoughts that pop into my head that are not healthy, or feelings about things. Even if they do not directly relate to trading or money, since our lives are very entertwined, they could directly be negatively impacting my trading.

One of my closest friends shared with me that I often have a fatalistic outlook on things and that I have this expectation that input = output. In other words, if I work hard and smart, the natural result should be success (and in trading, good profits). And, if you do not put in your due diligence, you should not expect or have good results. We can see there is a flaw in this type of thinking and although I can see it, emotionally it's rooted in me because of the actions that result.

My accountability partner identified that "it's not fair", which greatly struck me, so I wrote that phrase down, as well as "they didn't put in the work". I am normally not a jealous person and truly do love to celebrate in the successes of others, but in some minor cases, there have been perhaps "jealous" type feelings.

Those jealous type feelings do not just extend to a handful of people, but they have also extended to me. In my CMI trade, that trade was incorrectly put on because I failed to know there was a split on that stock. That is a HUGE no no, yet it was one of my most profitable trades in quite some time with a ROI in the hundreds of percents. My intention, well-thought out trades rarely ever come out this good. So, even to my own self, there is self-sabotage.

We live in a fallen world and sometimes things DO happen where we are given grace. Thank God we do not get EVERYTHING we DESERVE. Sometimes we do, but without making this a preaching session, God imparts such grace on us. I think the thing now is when we are given grace, which means undeserved favor, we are to be grateful and recognize this, learn from this.

As I listened to Lynne Twist’s audio on “Unleashing the Soul of Money”, in Section 3, she talks about “Enough”, about “Sufficiency”. Whenever I hear the word sufficiency, 2 things come to mind:

* Self-Sufficiency
* God’s grace is sufficient

The meanings of both those are the complete opposite. The first, we depend on ourselves, the latter, we depend on God.

The Message translation of 2 Corinthians 7-10 is:

7-10Because of the extravagance of those revelations, and so I wouldn’t get a big head, I was given the gift of a handicap to keep me in constant touch with my limitations. Satan’s angel did his best to get me down; what he in fact did was push me to my knees. No danger then of walking around high and mighty! At first I didn’t think of it as a gift, and begged God to remove it. Three times I did that, and then he told me,

My grace is enough; it’s all you need.

My strength comes into its own in your weakness.

Once I heard that, I was glad to let it happen. I quit focusing on the handicap and began appreciating the gift. It was a case of Christ’s strength moving in on my weakness. Now I take limitations in stride, and with good cheer, these limitations that cut me down to size—abuse, accidents, opposition, bad breaks. I just let Christ take over! And so the weaker I get, the stronger I become.

The Bible refers to Jesus Christ as the living water, “LIVING”, not dead. Ms. Twist makes a comparison between the Sea of Galilee and the Dead Sea. The Sea of Galilee has water that flows into and out of it, breathing life into that body of water. It is a perfect balance of receiving and giving, nourishing. It allocates, does not accumulate. It is a current, a carrier. It energizes, flows. There is a sense of well-being, of integrity with this, honor, gratitude.

On the other hand, the Dead Sea is stagnant. Water flows in, but does not flow out. It only takes, hoards, holds onto, thus becoming toxic, deadly. That’s like fear and greed where those 2 things trap a person, causing death. Life ceases. It’s never enough. It always wants more.

I’ve heard and focused on living abundantly, but I never realized until hearing Ms. Twist that that means to live in “Enough”. You let go of what you do not need. This frees up oceans of energy so that one can pay attention to what one already has, allowing this to expand so you can truly make a difference with that which you already have because it is enough.

So, this allows one to be in the presence of the exquisite distinction of having enough. This means that we are no longer consumers living in a consumer culture, rather we appreciate, thus that appreciates.

Money is a carrier, but we have to ask ourselves what does it carry? Does money for us carry courage, positive energy, love, a higher commitment? Or, does it carry fear, greed, death?

Anyway, there is a lot more to write, but will save for another time.

More BUPS and BCS

Today with the overall market looking more bearish, it was a good time to still enter some spreads, most of them being BCS.

Bear Call Spreads (BCS):
- RIMM (2) for Jan 110/115C, 1.54 credit (45.8% ROI)
- FWLT (3) for Jan 170/175C, 1.20 credit (31.6% ROI)
- ISRG (5) for Jan 320 330C, 3.00 credit (43% ROI)
- VMW (2) for Jan 85/90C, 1.27 credit (34% ROI)
- BIDU (2) for Jan 400/410C, 1.75 credit (21% ROI)
- SHLD (5) for Jan 105/110C, 1.37 credit (38% ROI)
- SPWR (5) for Jan 140/145C, 1.02 credit (26% ROI)
- POT (5) for Jan 150/155C, 1.42 credit (40% ROI)
- PCU (5) for Jan 105/110C, 1.57 credit (46% ROI)
- GOOG (5) for Jan 670/680C, 3.95 credit (65% ROI)

Bull Put Spreads (BUPS):
- WYNN (5) for Jan 100/95P, 1.12 credit (28.9% ROI)
- FWLT (3) for Jan 150/145P, 1.02 credit (25.6% ROI)
- BG (5) for Jan 115/110P, 0.84 credit (20.2% ROI)

I do still have BUPS and BCS that are still on and others I had to close. Here are the results of the closed ones or comments.

Still looking for a decent way to track all my Spreads in a manner that really helps me other than just my Excel spreadsheet to see what is working or not.

PARTIAL CLOSES (BUYBACK SHORT SIDE)
- AAPL BUPS entered 12/27/08 for 1.57 credit, Jan 190/185P. I bought back the short side for 7.10 on 1/2/08. As of right now, since AAPL turned very bearish, the Jan185P are $12. If I can close this trade out for this, it would give me a 185.2% return. I think this is how the BUPS are supposed to be if they turn against you and this is an ideal case.

- FSLR BUPS entered 12/27/07 for 2.70 credit, Jan 250/240P. Bought back short side $10.80 on 1/2/08. Right now the Jan240P are $10.80. This would give me a 35.4% ROI, just a little less than what I originally entered the trade for (37% ROI), so not bad.

CLOSED SPREAD TRADES
-BIDU BUPS entered 12/27/07 for 2.65 credit, Jan 380/370P. I bought back the short side for 19.90 on 1/2/08. On 1/4/08, I sold the Jan 370P for $18.24. 11.9% ROI (original ROI was 36.1%). LEARNINGS. I knew there was a strong chance that if BIDU did not continue bullish that it would turn against me and I was prepared for that. As it broke down through one of my subtrendlines, that was when I bought the short side back, which was around 392, I believe. That was still pretty far from the 380 strike, however, I know BIDU can make some huge moves in a single day and didn't want to have to buy it back for double what I did. And, today's move on BIDU landed it right on my trend support, so decided at that point to take close the trade in case it decided to bounce up on Monday, which would make sense. If it breaks through today's low, this would signify either another leg of the trend that started in August which is lower than where it is or a breaking of the trend completely. I planned my trade and traded my plan.

- WYNN BUPS entered on 12/27/07 for 1.45 credit, Jan 110/105P. Bought back the short side for $5.10 on 1/2/08. On 1/4/08, sold the Jan105P for $4.40. 18.5% ROI (original ROI was 25%). LEARNINGS. In this case, I had my stop at $112. As a chartist, if it broke down through here, then I would need to get out as I was going to shortly be ITM. My trend support was at $99.50 and the low was about $2 above that. Wasn't quite sure if it would actually go down to touch that and I just wanted to take profits. Of course if WYNN does go down to $99.50, I could've taken more profits, but I didn't know and was fine with closing the trade here. Still very happy with the 18.5% ROI.

- CMI BUPS entered on 12/27/07 for 1.90 credit, Jan 97.5/95.5P. Bought back short side for $8.60 on 1/2/08. On 1/3/08, sold the Jan92.5P for $29.10. I'm not exactly sure what happened on this trade. It was my error that I did not know a split was coming up (duh!). Know when earnings and splits are. 718.8% ROI (original ROI was 61.3%). LEARNINGS. In this case, the market paid me for screwing up. This really was an error and I am learning from this. I recognize that if I had not sold back the prior day, this really could've been a trade that cost me money.

- BG BCS entered on 12/31/07 for $1.52 credit, Jan 120/125C. Bought back short side for $4.50 on 1/2/08. On 1/4/08, sold the Jan125C for $2.52. -16.6% ROI (original ROI was 43.7%) - LEARNINGS. I had my stop set at $119 and it got triggered. I saw that it was trading into a wedge and just decided to risk it and I was wrong. The stock broke to the upside and I needed to buy back the short side. It was going strongly bullish, so just closing the short side seemed like the right thing to do. My target for the long side was 132. From middle of December to now, it's been trading in a tight trend, so as it pulled back today, I decided to jump out. This stock sometimes follow the $SPX and though the $SPX is at a very pivotable point, I just didn't want to chance it. Just wanted to close the trade. A small cost here is better than a huge one.

- PCU BCS entered on 12/31/07 for $1.10 credit, Jan 110/115C. Bought back short side for $4.25 on 1/3/08. On 1/4/08, sold the Jan115C for $0.70. -65.8% ROI (original ROI was 28.2%). LEARNINGS. This looked like it was going to be a Rising 3 Method and I really didn't want it to go ITM, but I probably could've for a period of time and still be okay as there is still time value left and I most likely wouldn't have been put the stock. Though I did see it was up against a smaller trend resistance, didn't think it would hold. It did and today things pulled back. One thing, though, PCU does often follow the market, so today's downturn could just be how the market is and it was also at a point where a turn did make sense.

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As a side note, I wish there was a service that I could have watchlists and certain information would be provided for me:
1. Earnings (confirmation or unconfirmation, before, after, during market reports)
2. Splits
3. News

Yes, I know I can type in for each stock and get that information, but that is frankly a pain in the booty to do if you have quite a few stocks. I don't want to see ALL stocks, just the ones in my Watch List as well as be able to either sort by company or date. Is that asking too much? The service probably exists and I need to pay for it. Eventually I'll be amiable for this, but I've spent an engineer's salary on my formal trading education and want to recoup all those costs back plus go from there. For now, I'll just live with it and make a note to remember to check those things.

Just like at a very quick glance, in a regular watchlist like on TOS, you can see which stocks are more bullish or bearish under the "Watch", "TOS Index Details" area with the colorization.

Directional Positions (Not Spreads)

Okay, due to my stops being activated in 5 of my BUPS and 1 of my BCS, and buying back the short sides, these are now a regular directional trade. Actually, if you think about it, BUPS and BCS are also directional trades, just they are spreads.

Here are my stops and positions on the following:

- AAPL - 185P - hard stop = 197.25, target = 177-183
- BIDU - 370P - hard stop = 398, target = 358ish
- FSLR - 240P - hard stop = 275, target = 257
- WYNN - 105P - hard stop = 112.80, target = 99
- CMI - 125P - hard stop = 126.70, target = 118.25

- BG - 125C - hard stop = 118.50, targets = 125.60, 132

I expect tomorrow for me to have to buy back my short AMZN position, so here will be my stop and target:

- AMZN - 100C - hard stop = 94.75, target = 101

Today I did have a couple directional trades on CMI and RIG. The stop and target on CMI is the same as above.

My RIG trade, I could not get in the groove of this. My put position turned against me and I was taken out. By the time I decided to switch my position at where I was stopped out of my put, that was the wrong time to get into a call. Got stopped out there, too. So, I had 2 costing trades on RIG and decided to stay out after that. Usually I do well with RIG, but not today.

Healthy, Prosperous, & Joyful 2008!!!

Good evening everyong!!!

I'm a little late in ringing in the new year with my blog. Sorry about that. My intentions were to lay down what my spreads (BUPS and BCS) were, but I never got around to doing that, so I will here without giving the charts.

Since I am a chartist, and want to be as efficient as I want and to get the most bang for my buck, I typically will choose getting into a BUPS at support as the stock just begins to move to the upside. Similar for BCS. There will be times the stock may be just a bit from my BCS or BUPS due to strike prices and I do not want to start out ITM on any of my spreads. This would be most evident in the spreads that are in $10 increments.

As I type this, my kids are outside playing, screaming, rollerskating, riding bike. I hear my 4 yr old son screaming, "BUT I LOVE YOU!!!" and my 7 yr old daughter saying, "NO....NO....NO!!" I'm not sure what the conversation is, but they go from hysterically laughing, to crying, to everything in between.

The weather earlier today was cold and I didn't want to leave the house. Now it's a little on the warmer side, enough for my kids to be in short sleeves and it be okay. I even have my front door opened to let in fresh air.

Okay, enough of the niceties. What are my spreads?

Bull Put Spreads (BPS):
- AAPL (3) on 12/27 for 190/185P for $1.57 credit (45.8%)
- BIDU (5) on 12/27 for 380/370P for $2.65 credit (36.1%)
- FSLR (5) on 12/27 for 250/240P for $2.70 credit (37%)
- POT (5) on 12/27 for 135/130P for $1.35 credit (37%)
- WYNN (3) on 12/27 for 110/105 for $1.47 credit (41.6%)
- PCU (5) on 12/27 for 100/95 for $1.00 credit (25%)
- SHLD (4) on 12/27 for 95/90 for $1.75 credit (53.8%)
- SPWR (5) on 12/27 for 120/115 for $1.05 credit (26.6%)
- CMI (5) on 12/31 for 130/125 for $1.05 credit (26.6%)

Bear Call Spreads (BCS):
- CME (3) on 12/27 for 710/720C for $2.45 credit (32.5%)
- X (3) on 12/27 for 125/130C for $1.22 credit (32.3%)
- GOOG (5) on 12/31 for 720/730C for $2.45 credit (32.5%)
- AMZN (5) on 12/31 for 95/100C for $1.60 credit (47.1%)
- BG (3) on 12/31 for 120/125C for $1.52 credit (43.7%)
- PCU (5) on 12/31 for 110/115C for $1.10 credit (28.2%)
- AAPL (5) on 1/2 for 200/210C for $3.14 credit (45.8%)

Note on the stocks for both the BUPS and BCS that are bolded in BLUE, my stops were triggered. I did not have them set in such a manner that would have them automatically execute, rather I looked at the chart to see if it made sense to be taken out or how I needed to get out of the spread, meaning close the whole spread or just buy back the short side. In all these cases, I bought back the short side to let the long side ride.

This will obviously change the ROI of those stocks and I expect to close all my spreads before expiration because if I do get most of the credit prior, why wait around and tie up that money.

We'll see how these work out. There are people that have been telling me how easy spreads are. In concept, it is. I also know that I play fairly close to support and resistance and perhaps if I did not and wanted to just settle for 10%, which is totally fine for some people and even for me, but that doesn't help me better understand how these spreads work.

Thanks to Debbie for sharing her insights on what TOS recommends, and I can sort of understand why TOS would recommend those things. They also are probably assuming that the majority of people whom should follow those are also not good chart readers. That is not to say I'm egotistical about my chart reading because I am not. There is much room for me to learn on how to be a better chartist.

I did notice on FSLR for the prior month that I did go further OTM in my spread, which did not give me quite as good of a return, but it allowed me to not have to babysit the trade as much. With so many spreads on (16), when my alerts went off for 6 of my stocks, that becomes like....EEEK!!! Gotta do something or at least watch.

As we can see, I'm thinking a lot about spreads and perhaps it's too much. The questions still remain as to how much different mistakes will cost me, whether they be accidental or due to ignorance or fear. I have yet to figure out how to properly document my spread trades. Yes, I do keep an Excel spreadsheet that gives me the costs, returns, position, but it does not have charts & annotations. I'm still also attempting to figure out how to properly annotate my charts.

Keep it simple as this will lend itself to more success.

Now my kids are blowing bubbles and picking orange and yellow cherry tomatoes off our tomato plants. They love eating the delicious tomatoes that we've watched grow since April.

For those whom are single and trading with little to no other responsibilities, count yourself in a very ideal trading situation to focus. As I attempt to focus with kids in my home who have a huge range of emotions in a matter of minutes and all sorts of commotions, homework, boo boos, hunger, and pets....it becomes a challenge to keep up with just some simple things like properly documenting all my trades, whether my momentum or spread trades, watch trading classes, backtesting, etc.

This year I am focusing on how to have good energy and really stand strong in who I am as a woman in Jesus Christ. Last year was what I believe to be an evening star which actually began in latter 2006. I pray I am in the morning star of this season and that things can only look up.

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