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The past 2 days were relatively easy to make money because the markets had great volatility.  On Thursday (10/29/09), all 3 markets (each was close to 2%) went up a lot.  And they went down a lot (2.5+ %) on Friday. We have not seen this kind of volatility for a long time.

Why is it easy to trade that kind of markets? There are 2 reasons. One is that most stocks move with the general markets. Even the markets themselves move together. For example, DOW, Nasdaq, and S&P move together 99% of the time. Hang Seng and Nikkei move with us most of the time too. As long as your direction is correct, your odds should be well over 70%.  On Thursday, you could literally long any stock and still make good money.  On Friday, you could short any stock and also make good money.

The second reason is that the markets were trending during these 2 days. There were very few whipsaws. You make easy money in a trending market as long as you can hold onto your winners.  During a choppy market, your entry/exit and stock picking skills are rigorously tested.  Unfortunately, the markets chop around most of the time.   So when there are opportunities like these, we ought to hit them with some size.  But I have issues with bumping up my position size. My comfort zone is always like 15000 dollars per position at most.  I think it will be like this for some time util that one magic momement comes.  I would be like “Ha, I got it. 15k and 50k are just the same…..” 

S&P 500 (10/29/2009)

S&P 500 (10/30/2009)

I did not trade on Thursday because I had to run a few errands. On Friday, I took 2 trades only in the AM and then found my website was down.  I had to take care of that since my husband was at work. It almost took a whole day to bring it back up.  BTW, I took 2 long trades and made bit money on Friday.  Basically I traded against the general trend.  LOL, I was just lucky.

In my last my post, I mentioned a few dilemmas that people might face when they want to quit their day jobs and trade full time.  One more thing I would like to add here is that there will be a huge amount of pressure on you to trade for a living. The pressure to make the ends meet every month could take a huge toll on your performance.  If you are making decent money now, however boring your current job is, please think twice.

But if you are making very little, then you have an advantage here. For example, if you are only making 30-40k a year, your opportunity cost will be much lower than someone that makes 70k or more. You do have to factor this into your total cost since the probability of your failure is high.  OK, let’s make this as condition 1.

For the love of your family, please do not quit your job if you are the sole bread winner and you have a few mouths to feed.  You should be single or at least you are not the only bread winner. This is condition 2.

The younger you are the better you will be.  It is not ageism.  You could trade well into 80′s if you have the right skills. It is about keeping costs down in the first couple of years of your trading and you might still have the time to turn around if your trading fails. This is condition 3.

You need at least one supportive person during your down times. Those times will hit you hard and fast. You will feel like a total failure sometimes.  During your down times, the last thing you want is a nagging person. My mom nags a lot. I think I would nag too when I am old.  This is condition 4.

50k trading stake in the first couple of years is fine, during which you do not trade for a living. You trade for experience, improve your technical skills and your psychological strength. This is condition 5.

Aside from your trading capital, you need to save enough for your living expenses for the next 2-3 years, which includes your rent, food and health insurance. I will further talk about this another post. This is condition 6.

You need the attitude to work your butt off and the courage to keep your chin up during the down times. This is condition 7.

You need at least a semi tangible and sensible trading plan before you start.   Although the trading plan you design at this stage is not going to stick around for long, you still need a basic trading framework to follow.  This is condition 8.

In summary, here is the list

1. You are making little money from your day job.
2. You are single or not the sole bread winner in your family.
3. You are young.
4. You have 1-2 people who will support you in your down times.  Or at least, no one nags.
5. You have 50k trading stake.
6. You have enough savings for the living expenses for the next 2-3 years. A part time night job might keep you afloat while you are still learning.
7. You have the right attitude.
8. You have a tangible trading plan.

In the next post, we will explore a few options to keep your daily expenses down. Day trading is like opening a store.  It is a business.  At the end of every day, you need to see how much money is sitting in your register.  And then you will do some simple arithmetic operations to figure out your net losses/gains.  Cost control is very important here and the video clip below teachs you “one way” to do just that.

There is a lot of aspiring day traders out there.  I think that they would ditch their day jobs in a heart beat if they know they could day trade for a living. This statement is not exaggerated considering all the freedom that trading can bring you.

First of all, let’s define what a successful day trader is.  A successful day trader is not necessarily some one that makes millions a year.  It is someone who can consistently reproduce his income that he would otherwise make from his day job. There is no stress/dramas/draw-downs since trading has become a routine for him day in and day out.

This is the ultimate goal that an aspiring day trader needs to reach. We all know that the success rate of reaching that goal is quite low. Or everyone around us would be a day trader.  But there are extremely successful examples around us too.  These successful day traders worked their butts off and sacrificed a lot to get where they are today. Hard work is the only answer.  But here comes a dilemma for an aspiring day trader. 

This typical trader normally has a day job. He went to a four year college and got a job that is paying him 70k per year now in a small town.  That money is decent although he has to deal with a lot of BS at work.  He dreams about trading for a living one day. He clearly knows he has to put in a tremendous amount of hard work into it.  The question is “how could he find the time to put in the hard work?”

Have you ever heard of a successful part time day trader?  I have not.  “Part time” and ” successful day trader” are contradiction.  Simply put it this way. If he were successful, he would go full time.  Day trading requires one’s full attention.  He can not blatantly open a streamer at work unless he has a corner office.

One might think that he should quit his job so that he could devote all his energy and time practicing it.  This is not an easy decision to make.  He has all kinds of bills to pay and might have a few mouths to feed every month. How about health insurance? Health insurance is very expensive in the US. Canadians score 1 and Americans sore 0 here. If day trading does not work out for him after 3 years of dedicated practicing, his opportunity costs would be 210k. In addition, he might lose some money during these 3 years. All these factors will deter quite some aspiring day traders. For the most determined, a few of them will rise from the ashes eventually.

I hope I have scared you enough so that you would look at trading as a hobby, which includes swing trading while holding onto a full time day job.   If you are among those most determined and die hard aspiring day traders, I will talk about how to prepare for the first couple of years as a full time day trader.

I had 4 losers in a row in the morning last Friday   However, the subsequent 2 decent short trades recovered all the losses and left me some more to enjoy over the weekend.

First short was WLT.   The basic materials sector was the weakest. I normally have a few pet stocks in each sector and WLT was in that sector.   “Short the weakest and long the strongest” is one of the trading rules I always observe. One picture is worth 1000 words.

Here is the 5 min chart and the trade I took.  Click on the images to have a better view.

The second short was RAH, which was downgraded by Credit Suisse.  Regardless how good these analysts are, their downgrades and upgrades can swing the market in the short term.  So if you are a short term trader like me, do not fight them.

After years of full time trading and thousands of trades, I still suffer from the powerful impact of a trader’s psychology.  I believe my mental strength is already strong.  For example, I took the short trade in WLT even aftter 4 losers in a row in the morning.  But I have to admit that I hesitated, which is reflected by my tiny position in it.

STEC has dropped from around 42 to 26 within just 2 weeks.  There are different kinds of rumors floating around about the steep and fast drop. One is that there is increased competition from other solid state driver makers such as Pliant Technology.

I believe that was just a trigger to the crash since STEC moved up too fast and there were a lot of profitable positions ready to be dumped at any moment.  But the drop is a bit exaggerated.  This is trading.  Fear and greed is everywhere.  Due to this type of market exaggerations, there exist money making opportunities. We, as short term speculators, are like vultures that fly wherever there is a possible meal.  I really like the vulture analogy when it comes to shorting.   It is a win-win scenario where you get a nice meal and clean up the environment at the same time.

I believe we might see a bounce very soon in STEC.   Will it make a new high?  I neither know nor care.  What I care is if it can have a quick bounce of 20% from here.  Technically speaking, STEC is still in its uptrend.  And theoretically, every dip of an up trending stock is a good opportunity to buy.  In addition, the little green bar on the daily chart looks like a bullish morning star to me.

Click on the image to have a better view