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First, I want to point out something that may not be so obvious. During the peak of Kris Kristofferson’s Brilliant Lyricist period (about 5 years in the late 60s and early 70s), one of his songs begins,

If you hurt me, you won’t be the first, or the last, in a lifetime of many mistakes. But I won’t spend tomorrow regretting the past, for the chances that I didn’t take.

And the chorus says,

I’d rather be sorry for something I did, than for something that I didn’t do.”

That’s about getting laid, and that’s human nature. Successful stock trading often requires you to act in complete opposition to your nature. The rules are flipped, and it can drive you nuts. In stock trading, you’d rather be sorry for something you DIDN’T do, than for something you DID. Failure to heed this counter-intuitive fact causes us much weeping and gnashing of teeth.

A plan changes that. Here’s a for instance: the plan I’m currently testing in real-time, which I jokingly call “DSM I ®” and is mostly based on a 4-period RSI, has only triggered one trade in the last week, and that trade was stopped for a loss.

Curiously, the loss is not what hurts. It’s having to not trade. To further annoy you with another song quote, as Tom Petty said, “The Waiting is the Hardest Part.”

However, the waiting is not costing me money. It’s saving me money. I’ve seen at least 10 different places in the last few days where, 10 years ago, I would have bought and sold, and would be deep in the hole now. Why all the buying and selling? Anticipating the “Big Move”, and trying to be positioned to catch it. Then, on the next little surge or failure, getting out (at a loss) and positioning in the opposite direction, because it “seems” that’s where the Big Move will go.

Having a plan, and sticking to that plan, inserts some manual discipline over those emotions. Some boundaries. And believe me, we humans need boundaries.

So, the current method I’m testing has lost me what, about a buck-fifty on one stopped trade. However, I guarantee you it’s saved me three or four dollars of losses in, to insert some Southern Grammar here, untook trades.

Enough Already, What’s the DSM Signal Say?

I’m waiting (patiently, agonizingly) for the RSI(4) on the SPYders to drop below 15 for an “oversold” long entry. As of today, that still requires a price drop to around 147.60 or below. Dammit. I wanna be in there. I actually came up with a modification in April (hey, this ain’t no overnight whim) which added a rule to go long on any close which puts the RSI(4) below 20 and where 4 of the previous 5 days closed down. Well, we met that one yesterday, which would have generated a buy somewhere below 148.50.

However, I do not have that rule in place for “DSM I“, and so I’m ignoring it. If price takes off from here for a great 3-day gain, well, I may add it in for “DSM II“. For now, I’m still looking at

• Long somewhere below 147.60 if price drops down there or

• Long above 149.70

Market opens in 30 minutes (”too tired to write” last night). Let’s watch…