Trader Mom @ Home

August was another positive month.   I was up around 1500. This number alone is nothing inspiring. But 9 consecutive positive months might be able to show that trading might not be random.  Of course, more time is needed to prove the consistency.

All three markets have recovered a lot from their lows in March 2009. some stocks have doubled and even tripled from their lows.  People who started trading in March or later must have made some good money and their confidence in trading is on the verge of exploding.   How can it not be? A lot of them have made 50% or move returns so far.  I would if I were a beginner.  Beginners have the courage that old hands do not have because Mr. Market humbled them badly numerous times in the past.  Blind courage is very lethal and kills so many aspiring traders every year. A lot of them think trading is easy after a few initial successes.  So they start to bet more and more, thinking they are invincible.  Most of them will hold onto their losers dearly when the market goes down. And a few big losers will send most of them packing very quickly. I know a grandma type of person who betted heavily in the Chinese stock market a couple of years ago. She knew nothing about trading. Of course she thought she knew it because she made some good returns in 2007.  The thing she did not know is that every one is a genius in a bull market and a lot of other grandmas made good money too.   The Chinese stock market crashed from 6000 to 1800 later and I heard her swear that she would never touch stocks any more.  I do not know how much she lost. But it is enough for her to totally quit trading/investing.

There was a week in August I did not trade because I took a break. One good thing about my trading is that I do not push myself.  I just let my trading flow naturally, partly because there is no pressure for me to make money.  Of course, I still do think about improving my trading.  My first goal is to make 3k-4k per month consistently.  Right now, it has been just around 1.5k to 2k, which is some good gas and grocery money. Anyway, this step is actually not easy since my psychology will change once I start to trade more aggressively.

The market has defied the gravity thus far.  A lot of people think it is an over bought market.  It might be.  So what?  I love bubbles.  Bubbles are beautiful if you can ride in them and get out before they burst.  In a market that is mostly driven by peoples’ emotions, there is no such a thing as “the market can not go higher or the market can not go lower”.  For me, the worst market is a flat one that produces many whipsaws. I will never cheer because the market goes up or be sad just because the DOW drops 300 points.

Anyway, here are a few stocks I will be watching closely in the next few days.  FLSR is breaking down nicely.  Note that it is sliding in such a strong market, which means there might be something fishy about the stock.  One of the reasons it dipped 6% last Friday is a note from Jefferies.  FLSR is one of very few bottom performers since March 2009.  A lot of stocks have doubled frome their lows earlier this year.  Not only is FLSR a bottom performer in the entire stock market, it also is the weakest in the solar sector.  You can compare it with TSL, STP, and YGE.

Click on the images to have a better view

FSLR

 
STEC is a strong stock, which has been moving sideways lately. Please note the rectangular range.  Oscillators are the best in range bound moves.

PCX is an interesting stock too.  It is not as strong as its brothers like WLT or MEE.  But it is a very tradable stock in either direction.  It has been bouncing up and down in a big trading range too. Does it look like a short?

In my trading, I like to use NASDAQ or S&P 500 as a gauge for the market sentiments and then adjust the proportion of my long positions and short positions.  So it was logical to have 80-90% shorts in todays market because that was the path of the least resistance.   But was it easy to short because the market dropped hard today?  I do not think so.

Let’s take a look at SPY, a proxy for S&P 500.  It gaped down and stayed flat there for the entire day.  This behavior made the stocks that I was watching very whippy.  As I mentioned, whipsaws are my biggest enemy.  So I took only one short position (BTU) today, which  was not very successful.

Click on the images to have a better view

SPY

And some other stocks I watched

MEE

ASH

My trading today was balanced since the market was pretty flat.  I took 2 shorts and 2 longs.  2 shorts were sina and app. 2 longs were x and alv. The first 2 trades showed me a red number. But they were relative small.  APP was flat.  X took care of all the losers and left some more. Actually,X did not reach my target(47.5).  But a day trade is a day trade.

If you have been following my trading, you know that I managed to stay above the water during the past 3 days.  It repeated almost every day that I had a string of small losers and one big winner took care of them all in the end.   This is definitely not scalping.  Good scalping has a string of very small winners, very few small losers and never a big loser.

One picture is worth a thousand words. Here is the 5 min chart of X that shows my trade.

Click on the image to have a better view

My main trading platform is TradeStation.  But I also have ThinkorSwim and Interactive Brokers as back ups for their combined long list of short-able stocks.  Here is the review on Tradestion and here is the one on Thinkorswim.  Today, it is about Interactive Brokers. Interactive Brokers has been rated 4.5 out of 5 by Barrons’ a few years in a row, which the highest score. TradeStation , Interactive Brokers and ThinkorSwim always tie for the first place most of the time.

Pros:

1. IB is a very powerful trading platform for major trading instruments such as Futures, Forex and Stocks.  When coupled with Ninja Trader, I believe it will be a killer platform for system trading.
2. Due to its super low commissions, it is a very viable platform for high frequency trading.
3. IB is an all-you-can-eat buffet type of broker that you can use to trade anything in any major markets around the world.
4. IB has pretty low margin rates.
5. The trading platform is reliable most of the time.
6. IB has a huge list of shortable stocks.
    

Cons:

1. IB’s charting is sub standard compared with TradeStation and Thinkorswim.  But you can use ESignal to make up for this shortcoming. 
2. Sub standard customer service.  It might be due to their super low commissions.  I give Thinkorswim 3 thumbs up (one borrowed from my hubby) for her outstanding customer service.
3. You will need to pay data fees. It is cheaper than TradeStation though.
4. The software might take you sometime to get used to.
    

In conclusion,   I like Interactive Brokers a lot.   Trading E-Mini and Forex one day has always been on my mind. So I might move to IB completely one day.

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If you google “market timing”, a lot of people will tell you it is useless to time the market.  I can not agree with that kind of statement.  In my opinion, timing is the most important element in trading.  Of course, timing is just another phrase for your technical skills. That is why I think you can short anything that moves if your timing is right.  It is the same for going long. Let me use STEC as an example.

In our almighty hindsight, we know that STEC has been a strong stock recently. Very few stocks can run like that, which is shooting up with no corrections.  There are close to 20k stocks out there and your chance to hit one like that is what?  You could close your eyes and chase it. You might make some money by sheer luck.  Or you could get slaughtered by the recent drop.  Or you could wait for a correction and then buy it.  I prefer the latter strategy.   Of course that is not my favorite.   My favorite is to short it intra day.  The stronger a stock is, the more I like to short it intra day. The first “strategy” is stupidity because it is gambling.  Any betting without a clearly defined edge is gambling.   The second is speculation or betting with an edge, which is “follow the trend”.  The third is also speculation because I am 100% sure that STEC (any stock that has moved up so much) will come down at one point.  So for me, timing the drop in STEC is all it mattes.   Let’s take a look at  its beautiful drop today.    

Click on the image to have a better view

Today’s drop was caused by its secondary offering of 9 million shares.  The public obviously did not like it.  Having said all this, I did not short it.  You must ask why.  After all, I was hell bent to short the living fish out of it a few days ago.  I do not know why it is “fish”.  Perhaps it is healthier than meat?  Anyway, the reason is that I was afraid of being whipsawed since my numerous past attempts to short STEC did not result in any tangible profits.   If I had tired to short it today, I could have been more likely to catch a good move (2-4%) since there were 3 big moves today.   I caught some small fish today though, which somewhat alleviated my pain of not catching STEC.

It was another flat day, during which whipsaws were all over the place.  I have never had problems cutting losers. My ability to ride winners is improving too.  But whipsaw is another huge issue I need to overcome.

I woke up this morning as usual and the first thing I did was to check the Futures market, which pointed lower.  Therefore, I was a bit biased toward the bear side.  Next, I looked at my watch list and found most of the energy stocks were red.   So the energy sector was on my hit list.  Due to my limited firepower, I need to concentrate all my resources on the weakest/strongest sector. Do not waste any energy looking at stocks like MSFT, WMT that move like a 90 year old turtle.   I think some turtles can live for a few hundreds years.  Anyway, you get the idea.

So I kept hitting WLT and HES.  By noon, I was down 200+ due to the crazy whipsaws.  It was the same in the afternoon.  Due to a string of losers in the AM, I was happy to break even by the close. But I did not recover the losses. It is normally my siesta time from 12 to 2. In today’s case, I missed a good move in HES during that time. I would have broken even if the move had occurred after 2. See the chart below

Click the chart to have a better view

Another month flew by.  Indeed, time goes flying. There was a lot of buying/covering pressure, which made my shorting some what difficult. 

I ran a little test this month, which was to take short positions only regardless of the general trend.   As we can see from the monthly S&P chart below, July was a much stronger month than June, in which 30-40% of my trades were long.   June actually was a very flat month.   Therefore it was easier to short in June than July.    In other words, I bucked the general trend badly in July.  If I had traded more on the long side, I could have probably made more money. 

It was difficult to short in July.     But I was still up 1600+, which was very close to the performance in June.   One of the reasons was that I tended to trade much less on very strong days such as 7/30 and 7/23.   Avoiding losses is just another kind of winning.   For example, If your opening trade was a loser, then you need to have a winner that covers that loss before you can start making money. If you have a few losers in a row in the AM, then you will play catch-up all day long for that day and you would be happy to end up flat for the day.   On the flip side, if you do not trade in the AM for whatever reason, your life in the afternoon will be much easier.  So it is important to know when not to trade.

S&P Monthly (Click on the image to have a better view)

S&P Weekly

As for how far the market will advance from here, no one knows.   For me the market is too far from the 15 week moving average and too close to the 15 month moving average.  Bulls use some caution here.

Starting from August, I will be back in the flip-flop mode (mixed longs and shorts).   I hope you all did well in July and will continually do well in August.