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This is the first month since I started to implement my swing trading system which I tested, tested and tested for 6 months (literally 14 hours a day). Yep, that is how much work I put into the system.

Of course, it is still too early to say if it is a good system since I could have been on a lucky run. This winning streak might end anytime soon. I am not trying to jinx myself. I am just being realistic here. I have a small Portfolio . This kind of monthly return just surprised me a little bit. Read the rest of this entry »

Losers in your portfolio are like tumors. They grind away your new tissues and eat into your existing healthy tissues. If we look at losers in that way, it is not too hard to cut them.

Today, I just cut a tumor. Yes it already took away some of my hard-earned money which hurts You can see how much I lost in my GS short position in My Portfolio . Nevertheless,if I did not cut it, it might turn into a cancer. GS went up 7% for no apparent reasons. But the reasons are not important. We traders do not need to know why. All we need to know is what. I believe it is useless to predicate the directions of the market. However, we can react to it. Read the rest of this entry »

The energy sector went up today due to the conflict between Israel and Hamas. So my NOV went up naturally. I kind of missed his brother HES, which performed better than him today. But I am content with a 3% pop. The other one is MOS which belongs to the agriculture sector. All agriculture stocks such as POT, AGU MON, and IPI went up too. As for why they went up, Read the rest of this entry »

We already know that the importance of using a stop loss oder can not be stressed enough. You can see how quickly I cut losers in My Portfolio. However, here are a few questions for us to ponder over

• When do I set a stop loss?
• Should I use a soft (mental) stop loss or a hard stop lost?
• Where do I set a stop loss?
• What am I supposed to do if my position flips on a penny?

When do I set a stop loss?

A stop loss point should be well planed before you enter a trade and placed right after your entry. You should already know where your entry point is before you open a trade. If you are still trading as it goes, you are not ready yet. In other words, you should NOT trade randomly. Every entry, stop loss and exit should be well planed in advance.

Should I use a soft(mental) stop loss or a hard stop loss?

All small players ( less than 1 Million trading capital) should use hard stop loss provided they trade liquid stocks. Mental stop loss is for 2 kinds of traders. One is extremely sophisticated traders. This group of people are the killers of all killers. The other is beginning traders who just want some excuses for not using stop loss.

Where do I set a stop loss?

I use 2 strategies.

• 1: Use a previous support/resistance. As we can see from the picture below. It is a 5 minute chart. You enter a short trade around region 1 and your stop loss is set around region 2. Region 2 shows some resistance (a former high). Your stop loss should be a few cents higher than that high. If you enter a long trade around region 4 and your stop loss should be set around 5 since we had a huge support floor one day ago. This support is very solid if you combine 6 and 7. If you entered around 4 and held onto your position, it would be one solid run for a day trader.
  

• 2: Use your maximum allowable loss in dollar amount. For example, let’s say you can not lose more than 300 dollars per position, which is at most 1% of your portfolio. 0.5% is even better. you have 300 shares of xyz @ 30/share. You would set your stop loss around 29.00. 29 is a good number considering a lot of people are told not to set their stop loss on whole numbers. Think outside of the box.

What am I supposed to do if my position flips on a penny?

Let it be. Any trader would step in at any moment to put in a sell/buy order to trigger your stop loss. Do not blame yourself for that. It is totally out of your control. You can not remove your stop loss, period. If your system is good, it should regenerate an entry signal when the stock reverses to a new high/low. Nevertheless, do you have the willpower to reenter that position in which you just lost $300?

I sometimes prefer the second strategy than the first since I do believe sometimes Market Makers of some small cap stocks do deliberately take out stop loss orders at key supports. It is pretty hard to do that for large caps such as AAPL, RIMM and GOOG. There are many other different strategies to set stop loss orders. Other traders please feel free to share yours with us. 

This was a very flat week due to the holidays. The volume on Wednesday and Friday was very light. There were not many trading opportunities when the volume was this low. Volume will pick up gradually after a few days into 2009.

I believe it is important to pay attention to the directions of the underlying general market. I use S&P 500 as the benchmark. NASDAQ is fine. DOW is the least useful since it consists of only 30 index-heavy stocks. S&P index has been moving sideways for the last 4 weeks. Is it the bottom for the bulls? No one knows. It could go in either direction. So which side am I on? I am on the bear side since we are still clearly in a downtrend.

As you can see from my portfolio, I closed my positions in BHI and TS. TS hit my stop loss. BHI ‘s volatility dwindled. Other stocks are performing well. Hopefully, one of them will hit its target next week.

I have received a few emails regarding how to set up a trading platform. First and foremost, if you are determined to become an active trader, you simply can NOT use browser based trading platforms that can not be refreshed until you click the refresh button. Ask your broker if they have a rich client for active traders. Any decent brokerage houses have thick clients. I use TradeStation. It is simply awesome. The Other 2 solid brokers I know of are thinkorswim and Interactive Brokers I would use one of them if I did not use TradeStation.

As an aspiring active trader, you need at least a dual monitor set-up. Computers are cheap nowadays. You can get a very decent tower for 500 dollars and 2 22” LCDs for 400 dollars(2008). My computer was built by my husband.

First, you need to buy a dual head video card. They are inexpensive and all over the place. A decent one costs around 80 dollars. Mine was 50 dollars after rebate. It has been a solid performer. Here is one example on newegg.   Once you receive the card, perform the following steps.    

1. Power down your computer and open the case.
2. Replace your old video card with the new dual head card.
3. Close the case  and plug in your monitor cables

Once you are finished with setting up your computer, you need to see if your computer can see these 2 monitors. Here is how to check it.

1. Right click your mouse and go to Properties
2. Click the “Settings” tab on top
3. You will see the picture below. Click on it to have a better view
4. If one is dimmed, right click on it and choose “Attached”
5. Make the right monitor your primary. Right click on the right monitor and choose “Primary”

In fact, you can drag the monitors around. Do not forget to set your monitors to their proper resolutions

If you have a 24” monitor, it’s proper resolution should be 1920 X 1200

If you have a 22” monitor, it’s proper resolution should be 1680 X 1050

If you have a 19” monitor, it’s proper resolution should be 1280 X 1024

Here is my trading work station ( 1 24″ Dell, 1 22″ Acer).

What I had been worried about happened eventually. Here is my portfolio.

The unprecedented rate cut took away 90% of my profits I had in RIMM and FSLR. Who should I blame? No one! There are no reasons to blame the FED or anyone. I never blame anyone but myself for my losses. In fact, I do not blame myself for these 2 stocks since I followed my plan as I said I would in my last post.

You start to worry about your position from the moment you open it. Your mood index fluctuates with it. It drives you crazy. I am still trying to gain confidence in my system. So it is inevitable that I am still psychologically unstable. What would you feel if you lost 1800 profits today + 1000 profits yesterday?

However, once I can statistically prove that my system works, I will be as mechanic as my computer. I will have no emotions for either my winners or my losers, which is the ultimate trading level I want to reach. And of course, by then I will make multiples of what my husband does. So he can stay home and cook for me ^_^. He is smirking while I am typing this.. LOL

If you follow my blog or my portfolio, you know where and when I opened these 2 positions. I was excited to see these 2 stocks each pop 6% in the morning and watched them slowly tanking to the point where my trailing stops kicked in. Were they good trades? I think so. I followed my game plan to the letter. One of my rules is that if a position is up 3-7% , depending on its volatility(or beta), it is never allowed to turn red. A lot of inexperienced traders might flinch here. One common thought they have here is “If I did not take the 500 dollar profit, how can I exit it just break-even?” This thought is very lethal.

As for FSLR and RIMM, I have been working very hard on checking my emotions to hold onto these 2 stocks. If you follow my trades, you know I have had them for quite a few days. It feels like eternity for me. I have ridden the emotional waves up and down quite a few times. If they reverse before they hit my targets, I have no choice but watch it happen.

My ultimate rule is “No human interventions are allowed once a plan is set in place.” Trading in hindsight, It would be really nice if I had booked the 1000 dollars on MOS and WLT. But that is just not realistic. :(

Quite a lot went through my head today. It was one emotional day. But I toughed it out. Every trade was executed 100% according to the plan.

I watched 400 dollars of profit from fwlt vaporize right in front of me. Fwlt hit my trailing stop. I had no choice but to get out of it. My 700 profit in flsr almost did the same thing. The fate of the 700 fslr paper profit is still unknown yet. Thank God, it did not hit my trailing stop.

As of now, you know what emotional waves I rode today. My rules are very rigid. Once a plan is set, no human interventions whatsoever are allowed even if a stock flips on a penny. I pat myself on the back for being very disciplined today.

I am not too worried about rimm since it is not a very volatile stock. I thought about shorting drys since it exploded in the past 3 days. My system generated a short signal at 10.61. But I second guessed it.

I started to implement my Swing Trading System on 12/5/2008. Of course I did a lot of homework and testing on the system. It worked fine on paper. I hope it will work in real life. So far it has been good. We will see … This is still all about psychology. And It is still about 3 important rules, 2 of which are very hard to implement in real world.

1. Cut losers, which is easy for any traders who have passed trading 101
2. Wait for the best setup so that the probabliy of success is in your favor.
3. Hold onto winners. This is the hardest ever. Most of veteran traders know what I am talking about.

I decided to open all my trades for public scrutiny. This forces me to think twice before I open a trade.

I will update my open My Swing Portfolio daily. You will see what open and closed positions I have in it and when I open and close them. The most important is you can see my open positions.