Trader Mom @ Home

June was a flat month as we can see from the S&P’s monthly chart below.  I think there were 2 main reasons

1: No further good news that could send the market higher.
2: A correction/pause was needed after a big 3-month rally.

The doji star in the chart below does not mean that the market will soon roll over.  It just means indecision. So we need to be careful not to open too many short positions for now. Everything went up in the past 3 months because the general market went up big.  Everyone, including my 90 year old grandmother, is a genius in a bull market.  But when the general market slows down, it will test your individual stock picking skills.   I think that we will have a few slow months ahead, which should not affect my day trading at all.

My portfolio  was up 1840.25 for the month, which makes 7 winning months in a row.  I am generally happy with my day trading which becomes quite stable. The absolute dollar amount does not mean too much to me for now since I only want to focus on my executions with small positions. What matters to me most are these 2 things

1: My monthly trading should always yield a green number even if it is 1 dollar. 
2: Reduce my draw-downs to minimum.  Big draw-down means big potential risk.

My trading in June met the 2 requirements above.   The only 2 swing trades I took, one BIDU short and one AMSC long took away 500+ from my monthly total.  They were not bad trades even if they lost. It is just the cost of trading.  I believe I will remain as a one lot trader mom for a while until I have full confidence to step out of my comfort zone.  I am absolutely in no hurry.

Click on the image to have a better view

I hope you did well in June.

In the stock market, you will want to invest in the sector leaders because you have a limited amount of capital and you would like to make the best use of it.  What characteristics does a sector leader possess?

1. A sector leader should have the best performance among its peers.
2. A sector leader should have liquidity so that it provides enough room for funds to buy in.
3. A sector leader is more resistant to doo-doo storms caused by the general market.
4. A sector leader should be good-looking, aka nice,clean and smooth charts (daily, weekly and monthly).
5. A sector leader almost always moves before its pack does.

A well known company’s stock does not necessarily become a sector leader becuase it might be alredy priced in.  Therefore, do not confuse companies with their stocks.  Here are a few real world examples from the solar sector and the coal sector. We will look at them one by one.

Solar Sector

As I mentioned on Twitter  last night.  If I should long the solar sector, I would pick TSL or STP instead of FSLR.  Their performance today manifested the importance of this rule.

Click on the images to have a better view
 

TSL

STP

FSLR

Coal Sector

The coal sector is kind of under pressure since China has slowed down stockpiling natural resources such as coal.  But it is not too hard to see that MEE and WLT are the sector leaders and PCX is a laggard.  I think WLT has the best potential since its uptrend is still intact.  MEE’s pull-back is a bit too deep, which requires some serious consolidation to drive out those trapped bulls. PCX has a very disgusting chart from a bull’s perspective.   Correct action should be shorting into the dead cat bounce when there is any weakness.   I will not go long until it breaks the dense congestion area(8-10) effectively.   On the flip side,  PCX has a very nice chart for the shorts.   I give them my due respect.

WLT

MEE

PCX

American Superconductor Corporation,founded in 1987,is an energy technologies company, offering an array of solutions based on two proprietary technologies: programmable power electronic converters and high temperature superconductor wires. You can read more from AMSC’s website.

Because of this report, Shanghai Electric Cable Research Institute Expands Strategic Alliance with American Superconductor, the speculation that AMSC will have some solid growth started to run wild and it broke out its base in April.  Speculation is what drives stocks up and down.   If all you see were facts, the stock market would be dead. 

So we have some stories behind this stock.  let’s take a look at the chart.    The chart says AMSC has been in an uptrend since April and the trend is preserved pretty well.  After a swift jump from 20 to 29, it started to pull back and has been trading sideways for quite a while.   A solid double bottom formation is in the making.  Last Friday(6/19/2009) was the first day that we saw an increased volume.Therefore, a good long entry could have been made on the last Friday.  The reason I did not open a swing long position is because of the weekend.  I think I might have another opportunity to do it on Monday.

 Click on the image to have a better view

We have seen a continuous pull-back for a few days.  But I do not think it will go down too much since the market seems to have digested all the bad news.  Therefore, we need to be prepared to pick our next possible winners on the long side.

There are 2 strategies to pick stocks.

1: Pick stocks that have not moved up much yet.
2: Pick the strongest stocks such as BIDU and SOHU

The first strategy might give you the best risk/reward ratio.  Once your picks move, they tend to move quite a bit since they have not moved yet and people are caught off guard.  The problem with this strategy is that your picks might not move at all.  They were weak in the past and they tend to remain weak in the future.

The second strategy can also be called momentum trading.   The strongest stocks move up almost every day because they have solid stories behind them.  One of the strongest stocks in 2007 was Drys. If you pull out its daily chart, you could see how it moved from 9 to 130 in less than a year.  So this type of stocks moves fast and furious.  However, they are risky.  Once they turn over, they tend to fall much harder than those boring fish mentioned in strategy one.   See also Drys for an example

Drys Weekly (Click on the image to have a better view)

Yon can mix these 2 strategies.  This can reduce your risk and increase your likelihood to catch some fat fish at the same time.

The market was weak today.  I thought it would be an up day.  But it pared almost all the gains at the close.

Because of some bearish news from Germany, all fertilizer stocks such as POT and MOS gapped down and tanked hard.  That is one of the problems with holding stocks overnight.  No one can predict news.  So swing traders need to control the risk by whatever means necessary such as diversifying, hedging and trading small.

I did not have much luck in the AM.  However, there were a few good trades in the afternoon.  Some of the readers must have noticed that the site was down the whole afternoon.  There was no way for me to post my trades in the entire afternoon. I had to wait for the hubby to come back to fix the server.  But it did not affect my trading.  Here are the charts of the 3 good ones(PVH,RIMM and BIDU) I took in the afternoon.  There were 3 small losers, which were pretty standard cost of trading.   As always, I was all short in the afternoon.

Click on the image to have a better view

It was perhaps not too hard to see why shorted PVH and RIMM.    BIDU was a bit riskier since it was a strong stock most of the time today.   But you can short anythning that moves.

My trading has been crawling like a snail ,slowly but surely.  I am not worried about the loss/gain at the end of each day.  If I make 1000 today and do not know how I made it, I will not be happy at all since I will give the money back very soon.   I must know why. Therefore, I try to focus on executions only,  which is quite hard to do.  If your executions are right, money will come.   Today’s trading is a perfect example.

I took 27 trades today.  Most of them died silently.   There were a few good ones such as POT and OI. But I botched them up.  I did not hold onto them.  I realized that and tried to hold onto my long in X in the afternoon.  But X did not move much.  You can see all the trades in my portfolio, in which I post my trades in real time.

Here are the 5 min charts for POT and OI.   My timing/entries could NOT be better.  Yet I let them slip through my fingers.  I shorted 350 shares of OI @ 29.22. It moved all the way down to 28.25 without any pause.   I shorted POT first @ 112.14 and then @ 111.75.  It moved all the way down to 106.87.  If I had caught half of the moves in OI and POT, I would have been up 1000.  So 27 trades in total, all I needed was these 2 guys.  Yet they slipped away.   It is sad.  But there are opportunities like those every day.   What is better than trading?  It is certainly not your day job.

 
Click on the image to have a better view

Here is why I shorted POT and OI at those levels.

I did not short either of them during the first drop. So I watched how they behaved. A strong stock normally would not tank so much 60 minutes into the session. These 2 guys were relatively weak. So the action was to short. Then I looked for a short entry. My entries were right after the first bounce-back. It is similar to buying dips in a uptrend. The reason they slipped away was because I did not have the conviction.

There are a few good things about today’s’ trading though

1: I was as slippery as an eel too by jumping in and out of my positions rapidly. I was basically dodging bullets from my enemies.
2: I went long on some stocks today. I promised myself to balance my trading a little bit since I shorted stocks way too much.
3: I was flexible enough to flip to the short side right after I closed my longs in X and HANS near the close.

To be able to flip to either side in a heart beat is ultra important for me.  I used to be able to do that.   I need to get that kind of feeling back.  In trading, there is no time to think.  You react by reflex.   You acquire reflex by placing thousands of trades per year.

A lot of stocks have doubled from their lows since Dow touched its low in March 2009.  People like bottom fishing.  Bottom fishing is very dangerous. Because it is dangerous, it normally gives you a very good reward.  So I believe that many people have made some decent profits during this rally.  This type of rally is not going to sustain for too long.  A few sector leaders are showing topping signs.  If you have made decent gains, your primary goal right now is to try the best you can to hold onto your gains.  Holding onto your profits is perhaps  harder than you think because your itchy trigger finger will keep you in the game. Here are 3 things that might help you to do that.

1: Open a new position only when your set-up is impeccable
2: Lighten your load
3: keep a tight stop loss

You really do not have to be in the market 24/7.  Give your profits and money a good rest.  It will work better for you in the future.

Although I have not made any money in June, I have managed to stay above the water for the time being.  Today, I could have traded BIDU better.  BIDU started dropping when it was up 1% in the morning.  It ended up -3.51% for the day. The whole trading range was around 5%. if we cut off the top and the bottom,  it still had 3% left for us to catch. Nevertheless, I was jumping in and out of it so much that I left some money on the table.  And I should have pounded it with some size.  But I am a pround one lot trader.  LOL!

I have been getting in and out of my positions quickly.   It is not because I have been scalping. I get out of a position immediately when I sense even a little bit of danger.   You have to love it when you pay just 2 dollars for a round trip of 100 shares BIDU or GOOG.   100 Shares of BIDU is worth 30k now.  If it moves 1.5%, that is 450 dollars. If it moves 2%, it is 600 dollars.   By quickly jumping in and out of, I want to catch a move like that with minimum risk.  The super low commission affords me to do that.

I also traded CYOU today.  That was one disgusting stock with some disgusting spread.   Due to the spread, I did not set a stop loss and started with shorting only 100 shares.  And it moved against me immediately.   Because of the wide spread, I said to myself that I would cover it when it fell back a bit and it never fell back until it hit 44+.   Good thing was that I shorted only 100 shares at 41.91 and I shorted another 200 @ 44.17, which helped me control the damage a bit.

I am used to trading very liquid and tight stocks like RIMM, APPL, POT or GS.  Some people are good at trading this type of small cap stocks that have wide spread.  How do you handle a stock like CYOU?

Did you buy FAZ around 30, 20, and 10 thinking it was cheap?  Did you not cut your losing FAZ position in a timely manner?  If your answer is “Yes”, then you are in deep doodoo.  These leveraged ETFs are not meant for the “buy and hold” strategy.  They are for day trading.  I know you did not want to hold it. You wanted to make some quick dollars but FAZ moved in your opposite direction. Now you are holding a bag due to your hesitation to cut losers.

When I started out trading, I was a bag holder for a while too. I remember I shorted HANS around 80, when it moved from 4 to 80.  I held the bag so firmly that I lost 50% on HANS.  So it is OK to be a bag holder when you just start out.  As long as your account is not totally destroyed yet, you might come back one day. But you will have to learn from your mistakes.  Let’s take a look at your mistakes.

1: buy and hold a leveraged ETF as if it were an investment grade stock
2: ride your losers for as painfully long as possible

Do we have a solution to your current deep losers?  Yeah!  Forget that you bought FAZ/SRS around 30, 20, or 10.  Take Friday’s close price as your entry price. For example, on 6/05/2009, FAZ closed @ 4.47. That is your entry price.  Set a stop loss no more than 10% and do not touch it.  Then, set a profit target like 25% or 30%.  If it drops and triggers your stop loss, you are out. If it moves up to your profit target, you are out. That is how I would handle it.

After you are done with it and have learned something worthwhile about trading, you can chalk it up as a tuition.

It would be ideal if a day trader could make an average of 300 dollars every day. It would add up to 6000+ a month (22 trading days). Here are 2 possible scenarios.

1. You make realized 300 dollars every day.
2. You have a 5-6 big winning days when you make 1000+ per day and stay flat on the other days.

The first is actually super hard since it requires you to be very accurate in you trading.  No mistake is allowed.  The second one is relatively easier. It basically tests you on 3 key trading elements

1. Your ability to repeatedly open a position
2. Your ability to stay above the water when the market does not move as you expected
3. Your ability to milk a winner for as long as humanly possible

For the first element, one might get discouraged to open a position if she has been stung by a particular stock a few times in the past.  There is a Chinese saying.  If you are bitten by a snake once, you will be scared of a rope for the next 10 years.   A rope (anything) resembles a snake.  There is a lot of truth in it.  So we need to overcome this “snake” inside us.

It is also important to have a deep discount broker such as TradeStation, Interactive Brokers, MB Trading or Lightspeed Trading.  For active trading, you can not use Etrade, Fidelity or anything alike since their commissions are so high that you would hesitate to get out of a possible losing position.

Due to my inability to go long so far, most of my short positions have been decimated.  Take a look at my portfolio. Red numbers are all over the place.   However, what is my total loss (including commissions) after all these trades from the past 4 days? A whopping total of 144! A small winner will take care of the loss easily.

The other 2 elements are boiled down to “cut your losers and hold on your winners” which is key to your having 5-6 big winning days and staying flat on the other days every month.

Which one do you think is more suitable for you?

Yesterday, I decided to start posting both my swing trades and day trades real time in my portfolio.  For starters, I used to post my day trades real time only.  Nothing speaks lounder than real time trades.  But how can you really take advantage of this? And why am I doing this?

To be able to successfully piggyback my trades, you need to meet the following prerequisites.

1. You know there is tons of risk involved in trading.
2. If you still can not cut your losers quickly and mercilessly, please do not follow my trades. You will lose your underwear.
3. You will only blame yourself for a losing trade instead of market makers, Mr. Market, your neighbors, your wife/husband/girlfriend/boyfriend, Dupree or me.

So you have met the above conditions. Here is how to take advantage of my real time trades.  I take quite a few trades per day.  The number of trades will be likely doubled and tripled in the future. Therefore, we will have quite a few actionable trades every day unless Trader Mom is too tired to trade or dies of trading one day. If that happens, please help my hubby feed my kid and the 5 gold fish :( 

Here is the core idea. If your entry is better than mine, then you are at less risk than me and vice verse.   Sometimes, it might be a bit late when you see a trade I just took.   For example, I shorted Bidu this afternoon @ 282.24. When you saw it, you should not follow that trade if it was already 281. If it was 283 and you opened a short position, you would be at less risk than me at least.  If my trade ended up a winner, then you would make more than I did.  If it ended up a loser, you would lose less.

Here is another example. You know I have a swing short POT @ 116.74 opened yesterday. Now how many of you shorted into the spike this morning?  It touched 119 and retraced to 115.22.  See the chart below.

 Click on the image to have a better view

• Making money by piggybacking Trader Mom’s trades is good.
• Making more money than Trader Mom by piggybacking  her trades is better.
• Knowing that Trader Mom loses more money than you on one same trade is priceless.

Now what is in it for me?

I would like to create a second income stream from this blog.  I would like you to spend 2 minutes stumbling, tweeting or digging my posts (see all the buttons right below this post).  So my blog might attract more readers.  One day when I have enough readers, I can replace those dirt cheap Google advertisements with good ones.   I am sure if you can make money following my trades, you will be more than happy to help me too!

What a day for the shorts!   Every trade was an uphill battle.  I just kept shorting and shorting.  Nothing really worked out.  Most of them went belly up.  Were there no good shorting opportunities?   Not really.  There were quite a few.  For example, POT and FSLR were good and easy shorts.  Let’s take a look at their 5 min charts(Courtesy of ThinkorSwim).  Click on the images to have a better view.

 POT

FSLR 

As we could see,  they trended lower today.  I believe it is a bit easier to trade trending stocks than choppy ones.  Stocks are choppy when people have too many different opinions about them,which makes stocks hard to predict. Stocks trend when one side is overwhelmingly dominant, which is easier to predict.

MOS was very choppy today.  My entries were not optimal.  As we can see from the chart below, I still could have made money if my entries were at A,B and C which were key reistence.  Everything seems so obvious when you are not trading. Hahah!  Of course,  shorting FSLR and POT would be a little bit easier than MOS.  The question is why I did not short them.  I have not found the answer yet. But I will work hard to find the “why”.

MOS

Good thing today is that I only lost around 150, which is really peanuts considering the size of the positions I took today.  Risk Control is key.