Satuki @ Home

I think I am back in the normal production mode.   What I mean by that is that I trade normal stocks now.  I had a lot of excitement trading those leveraged ETFs in the past couple of months.  But excitement is bad for trading.  Good trading is supposed to be boring.

It is very easy to make trading mistakes when you push for performance(trading these leveraged ETFs is one).  Avoiding trading mistakes, or reducing the number of losers is probably as important as every other fundamental trading rules. Assuming you trade 5 days a week and position size is about the same for each position, if you lose 2 days and win 3 days, I am not going to say you only have one winning day since there are some other variables.  But your total profits would be greatly diminished by those 2 losing days, not to mention that time and energy you spend trading, which is your opportunity cost. One of my new rules now is to try to stay green everyday even if I am up 1 cent for the day.  So far I have been green 4 days in a row since I went back trading those good old stocks.

My long time pets are rimm, aapl, gs, fslr and bidu.  I pulled out the charts of Drys I scalped like crazy in 2007.  On one typical trading day, I could go back and forth(short and long) on Drys a dozen times.  And the number of shorts and longs were very even.  I would long Drys at 11:00 and flip to the short side on 11:15.   I tried on AAPL today(shorted it first and flipped to long it later).   I believe this kind of mental flexibility is important. I sometimes sit in a bearish mode even though the market is trending higher.  This is very lethal.

The system opened another trade in SRS.   Now we are long 200 shares of SRS @24.53.  This is the third try.  Let’s see how it plays out.   For people who are not familiar with this experiment,  Here is Planning Day 1 Day 2 Day 3 Day 4

Here is the chart. Click on the image to have a better view

I have been using TradeStation for a while. Overall, it is a great trading platform. It has been rated 4.5 out of 5 by Barrons’ a few years in a row.  This is the highest score.  ThinkorSwim and Interactive Brokers also have 4.5.  A few people asked me to write a review about it. I will start with the software.

TradeStation Platform

Pros

1. I believe TradeStation has the best charting, which is very accurate and smooth.  
2. It has a very deep database to provide you with up to 20+ years of historical data, which is very important for back testing.
3. The platform is pretty stable.   There were only a few short outages last year as far as I remember.
4. There are a lot of convenient features to aid you in rapid order executions such as “exit all”.   For example, it takes me 2-3 seconds to exit all my open positions because I do not have to fill out an order form.   This is very useful for day traders so we can easily close all our positions at 3:59 PM
5. You can automate your trades if you like.
6. The software is written in C++.  So it is slightly faster than ThinkorSwim and Interactive Brokers. 
    
     

Cons: 

1. The learning curve is kind of steep when you need to automate your trades because you need to have some programming skills.  TradeStation does come with some strategies ready for use. But they are useless 
2. Because it is written in C++, I believe the only operating system they support is Windows. Sorry for Mac and Linux users.    ThinkorSwim and Interactive Brokers are written in Java. So they can run on anything.
3. TradeStation does not have a browser based Platform.   So you can not sneak in a few trades at work.   This is one of the reasons that many retail traders do not use TradeStation.  This is where Interactive Brokers and ThinkorSwim shine

Fee structures 

Pros:

1. It has  flexible fee structures.    One is 6.99 per trade regardless how many shares you have, which is what I have.    It is very good for penny stock traders. 
2. The other is 0.01 per share for the first 500 shares and then 0.006 per share for the remaining.  For example, if I have 1000 shares, I pay $5 for the first 500 shares and then pay $3(0.006 X 500).  Therefore, the total is 8.    It is not hard to see if you are a scalper that trades high priced stocks like Bidu,GS or GOOG, this fee structure is in your favor.  For example, you pay only 4 dollars for a round trip of 200 shares of Bidu.  Interactive Brokers is even slightly cheaper.    Of course, if you are a high flyer scalper that trades north of 700 shares of GOOG,GS or anything like that each time, you can always choose option 1

Cons:
 
You need to pay fees for real time data like NASDAQ level2, total views and other stuff.  It can cost 50-60 dollars a month for data subscriptions.  This is the same with Interactive Brokers.   This is another reason why most retail users do not use them.   They go to ThinkorSwim.
 
Customer Service

I am overall happy with TradeStation.  Each time I call them, it takes only 2-3 minutes to reach a customer service rep.   I met one rude person who perhaps did not have enough sleep the night before. However, It does not affect my overall experience with TradeStation.
 
 
In conclusion, TradeStation is a very solid platform for full time traders.  I highly recommend it.   We will talk about ThinkorSwim next time.

I do not know about you. I just like to short stocks.  I did very well in 2007 scalping the market   ,averaging 40-50 round trip trades per day.   Most of year 2007 saw a bull market.  However, half of my profits were from the short trades.  As far as I know, we do not have to pay interests for short positions as long as they are day trades. 

I think that a scalping system is like a BB gun. BB guns are known for its accuracy and rapid firing due to its small caliber.  Nevertheless you can shoot only flies with a BB gun for the same reason. Do not look down on the effects of a super accurate BB gun though. If your marksmanship is good, flies will pile up in front of you in no time.  Swing trading is like a canon, very powerful yet less accurate.   My marksmanship has deteriorated a lot since 2008.  I had greased and put away my BB in a very secret place until a few weeks ago.  Now,I have taken it out and re-greased it. It is still shiny as new. What it needs is a good shooter.

As ususal, I was looking for a short position today.  And I found shld (Sears Holdings Corporation), which would have made a good short position if only I could short it.  I also had a few other candidates. But Shld would have worked out the best.  I left out one task this morning.  That is to check with Tradestation what stocks are shortable.   I remember I checked with TS last night and I saw that SHLD was shortable and It was not today though.  Either my eyes lied to me or TS pulled shld off the list this morning.  The shortable list changes every day. 

Speaking of the shortable list, Tradstation has a staggering 8000 stocks that are shortable every day.  We have around 17000 stocks listed on the US market.  Some brokers are jokes when it comes to shorting.  You need to check with your broker if it even publishes a shortable list every day.  TradeStation,ThinkorSwim and Interactive Brokers all do.

Day 4 Of the automated trading experiment

The computer sent in a buy order right after the market open.  SRS churned all day long.  And it was stopped in the afternoon.  So we have 2 losers in a row now.  See the chart below.

Click on the image to have a better view

A BB Gun works best used in a choppy enviroement.

The market moved in a choppy way today.  Wells Fargo led the Finical sector in the AM and ran out of steam in the PM.  The sell-off near the market close was really hard and fast, which is one of the reasons why it is hard for people to profit from shorting.

As we can see from the picture below, the weakest sector was Financial today partly because of Morgan Stanley (MS).  That is why I took a short position in it.  The entire move from my entry was about 6%.  I captured half of it, which was not too bad. The market has many opportunities everyday from either side.  Trading is not like any kind of 5-9 jobs.  Your success can only be limited by yourself.

There is no entry yet in the automated trading experiment.  The last 60 minute bar is an engulfing bar.  However, the system is programmed to wait until the bar is closed. Once the engulfing bar is closed, it will send in a buy order right at the open of the next bar.  In other words, we will have an entry tomorrow morning no matter where SRS stands (gap-down/up).  Let’s see what will happen.

Today is the second day of the experiment. The computer closed both of them.  The FAZ trade was up 30% and the SRS trade lost 5%. 

When I woke up this morning, FAZ was up 15% in pre market.  And the computer sent a sell order right after the opening bell rang.  It kept checking the gain/loss of these 2 positions tick by tick.  In terms of the FAZ position, if the gain was = or > 25% and a sell order would be executed. Due to the gap up, it was 5% more than the targeted 25%.  That was a bonus.  Of course, that would be extra risk if it were in the different direction than my trade. For the SRS position, the gain never reached 25%, and it hit the stop loss, 5% and it was out.

The FAZ exit was perfect.  It was almost the high of the day.   Question is whether it should be considered luck or discipline.  The computer knew it captured a giant return (30% in 2 days) and it was neither afraid nor greedy.   Greed and fear are the biggest enemies of traders.  The computer has none of those issues.  So It held onto the FAZ position and closed it according to the plan.  It never flinched in any order executions.  I have no problem closing a position when it hits its target.  If you have been reading my blog for while, you know that.  But I still have issues pulling the trigger when there is entry signals  The computer also showed rock solid discipline in the execution of the SRS trade because it followed the trading plan religiously.  The experiment will carry on with SRS.   Let’s see if SRS will show us the darkest side of machine trading.  That is 5 losers in a row. 

Here are the 2 trades closed today.  Click on the pictures to have a better view

What do you think?

Today is the first day of the experiment.  The market dropped really hard today and my inverse leveraged ETFs did pretty well. There was not any meaningful retracement during the whole session.  This means the bears were in total control. So we might see further weakness in the next few days.  As I mentioned a week ago that 8000 is a very strong resistance.  And it is.  The market has been chopping around 8000 for a while.   It is way overdue for a correction.   The economy is not going to get any better just because the accounting method was relaxed.

Bank of American released their first quarter earnings that is 10 times what most analysts expected.  And it tanked hard. Some people must be perplexed.  Do not be.  Most traders/investors think their earnings are just fluff.  Price action triumphs over anything.  Capital One and C also tanked hard.

I did not take any day trades. I was basically just monitoring the automated executions of SRS and FAZ.   Sometimes Tradestaion malfunctions although the software is very stable for my regular trading. Monitoring  is a piece of cake since all I have to do is to make sure it takes/exits the trades as planed, the Internet connection is on, and the trading windows are not jammed.  I did not have to make any trading decisions,which made my life a lot easier.

Probably you are more interested in seeing the trades than hearing me babbling. OK without further ado, here you are.  I will do a thorough analysis of the trades after the experiment is finished. The significant bars are marked with white arrows. Please note this is a variant of the engulfing pattern I showed you.  Fill the gap with some green play doh, you have a big green engulfing bar. In real life, it is rare to see text book set-ups.

Click on the pictures below to have a better view. 

SRS opened @ 30.16

FAZ opened @ 10.18

I am going to have an experiment here to test out automation of trading SRS and FAZ.  I do not know if it works.  It just might. I will open 2 small positions, 5k each in SRS and FAZ.

The set-up is simple.  I am looking for an engulfing bar using the 60 min charts.   The engulfing bar must be big enough to engulf(cover) the last significant red bar. A market order will be sent right after the close of the engulfing bar.   Here is the illustration of the engulfing pattern.   

Here is the Set-Up

• Go long right after the close of the 60 min engulfing bar
• Stop Loss will be 5%. If it gaps down by 10% and it will be considered 2 losers in row. 
• And the risk/reward ratio will be 1:5.   That makes it 5%:25% 

A good outcome will be anything that I do not have 5 losers in a row. The experiment will finish either when one hits the target before sustaining 5 losers in a row or when it loses 5 times in a row. It will start from Monday.  The computer will totally take emotion control out of my hand.  Let’s see how it works. I think it is going to beat me.  The trades will be excluded from my portfolio.   Feel free to ask me questions.

Here are the 60 min charts of SRS and FAZ at the end of 4/17/2008.

Here is the ongoing experiment:  Day 1 Day 2

The market moved higher today  led by the technology sector.  Technology heavy weights such as RIMM, APPL and MSFT all moved higher significantly.  Due to their mega-market caps, a 3-5% move is huge.  One reason that the market moved up today is that people were betting that Google would give good numbers.  Google’s numbers are out.  The market’s reaction is kind of tepid as we can see from the price action after the market hours.

It was another boring day for me. I am kind of flat after 2 trades.  I went long on FAZ and shorted GS as you can see from my portfolio.  I was on the wrong side of the fence today. But I managed to stay flat, which is very important. My monthly goal is that I have 3-4 solid trades a month and the others cancel each other.  Therefore, a good number of my trades will either be closed without hitting their targets or at a small loss.

Poor FAZ has almost become a penny stock. It was over 100 in March.  Relaxing of the mark to market accounting method killed our beloved FAZ. Now the crooks at those banks can write whatever value they think their rotting assets are worth.  You and I are not going to fight them because we will not win.  Instead, we will join them to take the path of the least resistance. SRS has bee experiencing the death spiral too.  We will have to face a possible reality that they might never return to half of what they used to be. These fallen soldiers deserve a proper burial.  They might be resurrected in the future and rumble on the Wall Street again. But for now, may they rest in peace.

I will be day trading them only

I took only one trade in SRS today, which is an inverse ETF that corresponds to twice (200%) the inverse of the daily performance of the Dow Jones U.S. Real Estate Index.   In other words, I shorted the market by going long on SRS today.

Reflecting back on the trades I took yesterday, I think I was a bit slow to cut the losers , which resulted in a big loss of 1300.  Nevertheless, the trade I took today was impeccable as you can see from my portfolio.  I thought about buying only 300 shares of SRS today because I talked about my position size being too big yesterday on the mailing list.  But I changed my mind and bought 650 shares.  This was still a bit smaller than what I had yesterday since SRS is a double leveraged ETF unlike the triple leveraged FAZ.   The reason I bought 650 shares is because I should be somewhat consistent in my position size.  And I normally increase my position size slightly when I have a few losers in a row.  Some people might frown upon this strategy.  I wrote another post the other day to explain why this makes sense.

Here is the chart.  You can also see the timeline on http://www.stocktwits.com/u/trader_mom

Here are a few good things about this trade

1: I did not try to catch the bottom.
2: I did not second guess myself.
3: I used the same position size as I did yesterday.
4: I held onto it until the market close as I did yesterday.

All these are attributed to a well prepared trading plan.  So I do not second guess myself or panic over the unexpected.  SRS can stop me out a few times.  But when it moves, I will have to make sure I am on it.  That is one of my missions.  The other is that I will try my best to reduce the number of times that SRS (any stock) shakes me out before it moves

BTW, I chose SRS over FAZ today just because I prefer high priced stocks.  I hope you did well today.