Trader Mom @ Home

The market kept moving up in Nov. partly because there was no tangible bad news except the Dubai one. Technically speaking, we are in a medium uptrend and I am cautiously bullish. When every one is bullish, the bull is at its last gasp.  The reason is simple.  The market goes up because of the buying pressure from the money on the sideline. If your grandma or the cleaning lady next door is bullish, then everyone has already bought in, which means the buying pressure has been exhausted.

On Twitter or StockTwits, you can see that there are still a lot of bears that have not surrendered yet. A lot of them actually have merits in their reasoning.  One, arguably the most important, is that we have not seen any real green shoots as the Government claimed.   However, the market is seldom rational because It is driven by human emotions most of the time. If you look at the daily, weekly, and monthly charts of S&P 500, they are all in a very clear uptrend.

 
For me, Nov. is just another month in 2009, in which I made around 2000. I do not think I made many mistakes in Nov except the MOS short. As 2009 is approaching the end, I can proudly say that I have been doing well consistently throughout 2009.  My goal is to get back to my trading performance before 2008.

A few very strong stocks that I like are LFT, GNK, PCLN, AMZN, RINO.

Today, the stock market was closed at 1pm. It was a volatile day and good for traders of both directions. As we can see, if you went long at the opening bell, you would make some money. You also could make money from the short side like I did. The market was better than I expected. I thought it would be off 300-400 points due to the Dubai news.

I am starting my Forex trading adventure on the side. I just had my first currency trade today. It was a bit unconventional since it was real money instead of a virtual postion like we do in a trading account. I had 140,000 JPY (Japanese Yen) I brought from Japan a few years ago.

JPY has moved up to a 14 year high, which I do not think is sustainable. So I bought some US dollars with that money at my bank, which actually ripped me off @1:91. And we all know the closing price of the USD/JPY pair is 86.467 as of 11/27/2009.

My Forex adventure is just for fun and it is going to be swing trading only.  Although I do not use leverage in stock trading.  I will in Forex. Interactive brokers will be my broker and platform.

USD/JPY 

Ryohoji, a Japanese temple, in suburb Tokyo hired young beautiful girls as temple maids to attract tourists. Temples are normally considered as sacred places. You do not see young beautiful girls in temples every day. Let alone hot maids and sexy cartoon characters.   Japanese men just love nurses, maids and girls in high school uniforms.  Well,I should say all men love those characters.

Agriculture stocks have under-performed a lot of other sectors.  However, they have been on the move for the past few days. We all know that MOS, POT were stars in the last bull run in 2007.  I doubt that they would run up to their previous highs any time soon.  But it really should not matter because it is much harder to hit a home run than the hit-and-run guerrilla tactic.

Here is a list of the agriculture related stocks in order of their strengths. They are relatively safer than those that have risen 200-300% because they just started moving out of their consolidation ranges.

TRA [Terra Industries Inc.] is the strongest among its pack, which has broken out to the 52 week high.  With a relatively low P/E (12.5) and a mid-cap size, institutions like it.  Here is its daily chart

Click on the image to have a better view

AGU[Agrium Inc.] is strong.  The chart is fine since its uptrend is intact. However, it might see a small pull-back soon since it has moved quite a bit from the last low.

 
MOS[ The Mosaic Company ] and POT[Potash Corp./Saskatchewan] are on the move too.

BTW, it  is very important to  Follow Leaders , in whch I deteailed why and you can also see a few examples.

For day traders like you and me, nothing is more important than our first trade everyday.  It is so crucial that it can be used as an indicator how well we do in the remainder of the day.  If it is a flat trade or a small loser then it might not have any impact on our psychology.  If it is a big loser, then most would try to fight it all day long and hope for a flat day in the end.  This is especially true for the majority of day traders out there. The reason I say “the majority” is because only less than 15% of day traders can make money consistently.  I am a bit lax on that number because I do not want to scare you away. Some people say it is less than 10%.

Why do many people still like trading?   It is because of the euphoria a winning bet can bring them. It is like drugs.  When people are high, they tend to forget how painful the side effects are.  I think I have digressed a bit from the subject. 

So let’s get back to why the opening trade is important. Simply put it this way, a big first loser will exert a huge impact on your subsequent performance.  You will have to first recover the loss before you can even think about ending the day profitably. With this on your mind, you make irrational bets/forced trades all day long that make the hole even bigger, thus form a vicious circle.  I experienced all these cycles and still clearly remember the agonizing pains of losing 3-4k a day back in my old dark learning days. Good thing is that there were only a few days like that.

For an experienced trader, this might or might not happen after a few small losers in a row.  For them, it is impossible to have a huge loser due to their rock solid discipline.  But a few small losers in a row add up quickly.  No matter how experienced a trader is, this would still have some impact on her/him. A good one will bear the pain and fight through it.  A bad one will still cave in. After all, they are humans too.

If the opening trade is a decent winner, experienced traders will most likely have a decent day unless they become greedy.  With a big winner in your pocket, you will leave the psychology baggage in the dust and play the market like a game.  With nothing on your chest, every bet you place seems to be in your favor. You look at the market and think that nothing will ever stop you. You feel like the Lion King. Everything looks so small in front of you and soon you feel you can conquer the whole market and dominate the world. You burst into laughs when there is no one around and you frown on anyone who dares to belittle your little day trading business until the market slaps you in the face and wake you up. But at least you will end that day profitably.

I try to be very careful with my opening trade too. Here comes my shameless self-promotion, which is my lucky first trade this morning and the remaining day was extremely easy for me because of that winner.  Here is the short trade RINO.

 
Click on the image to have a better view

So be very picky about your opening trade and try to find an impeccable setup for this guy.  Pamper him like your first lover……….. well at least for one day.

I did it anyway. Why was it dangerous to short in a strong market? It is simply because doing so is like picking the path of most resistance, aka bucking the trend. Do you still remember what the “boy plunger”(Jesse Livermore) once said? That is a rhetorical question. We already know the answer.

I should have gone long right after the market open. Instead of doing so, I hesitated for some reasons I do not even remember. Trust me. It happens. There are always a lot of voices in my head pulling me in different directions. So the big rally in the morning slipped through my fingers. This is totally fine and it happens more often than you think. I do not chase stocks. Day trading requires entries with laser point precision due to our tight stop losses. If I miss out on an opportunity, then let it be. So I was quite all the morning. I wanted to go long since it was natural to do so in a market like this. I looked all over the place. Nothing fit my requirements. One of the reasons was that I did not see much upward room for most stocks after such a big rally.

But I have a habit, which is to prepare for both directions regardless the current market conditions. So I went short on GS and RIMM, 2 of my pets. You have to love these guys’ amazing liquidity. GS dropped because Meredith Whitney was bashing Financials on CNBC. Thank her very much for this one. Here is the chart.

Click on the image to have a better view

GS ( Goldman Sachs Group, Inc)

As for RIMM, this guy was weak all day long. I use both level 1 and 2. Tape reading is essential here. I watched both RIMM and GS the whole morning. You could see big buy orders coming in one after another and yet the stock just could not move up. It was totally suppressed by the sell side. So RIMM was extremely weak. It happened to GS too but not as bad as RIMM. Ironically I made more money in RIMM on the long side than the short side.  See how I flip flopped RIMM below.

RIMM (Research In Motion Limited)

You can see the trades here. I hope you are doing well.

Normally Fridays are somewhat flat because most traders are not in the mood for trading. I guess it is the same for most other professions. People start to plan on Friday for what they are going to do over the weekend.  It is not different for traders.  However, this Friday (11/13/09) was somewhat more active than usual.  For day traders, especially for traders like me who like to flip to either side of a trade(for example, short SUN now and long SUN 10 minutes later), volatility is key. I do not care which direction the market goes as long as it is not flat.  I heard you could even make money trading options when the market is flat.

So the general market was good for us on Friday. If you pull out the chart of SPY, a proxy for S&P500,  a decent rally in the AM and a decent drop in the PM were clearly visible. I pay attention to the general market closely because it has impact on a lot of stocks. However I do not trade the general market exclusively. Or I would go trade E-Mini. You have a lot fewer opportunities to trade E-Mini than regular stocks because stocks with significant news do not move with the market such as GENZ we saw on Friday. Of course, one good thing about trading E-Mini is that all you have to watch closely is the E-Mini Index.  Most stocks I choose to trade every day are news driven. I have subscribed to a few paid news services, which contribute a lot to my daily picks.

Now let’s have a look at the RHB long trade I took in the AM.  RHB, RehabCare Group, is a provider of rehabilitation program management services. On Friday, RHB announced that it would offer 5.4 million shares of its common stock at $24 each to fund its acquisition of Triumph HealthCare.  The market welcomed it by gaping it up.  In addition, the stock went up against the general market on Thursday, which implied relative strength. Here is the screenshot that captured my entry and exit.

Click to have a better view 

One of the screw-ups was my short in MOS. I waited long enough just to be shaken out right before it started a good drop in the afternoon. I waited almost 2 hours and it started to edge lower around 2 pm.  I thought my patience was paying off.  However, this guy shook me off of his back and started moving lower without looking back for a while.   What was the problem?  I was too eager to move my stop loss down. I take pride in my risk control, which backfires sometimes ^_^ .  At least 200 bucks were left on the table.

Another one was SUN.  I flip flopped this stock a few times.  If you followed my tweets or watched my portfolio closely, you know that I screwed up the SUN long trade before the close.  I dumped my long position around 3:40 PM and it started to move up 2 minutes later.  Another 100+ was left on the table. The day ended fine with 300+ in my pocket. But it could be way better (double) if I did this, that and such….    In the stock market (any trading market), we seem to have endless “ifs” and “buts”.

BTW, all these stocks are liquid enough for me to scale to a few thousand shares per trade. For example, the volume of RHB was 4.8 Million,  MOS 6.5M, CRM 2.4M, SUN 5 M, BUCY 3M.  I normally do not trade anything that has an average daily volume less than 1 Million shares and price lower than $25 (used to be 30). It would be much nicer if I had 2000 shares of RHB long instead of 300 shares. I do not have the confidence now. But I promise you it will not take too long before you see me hit that size.  That is exactly why I do not trade thin stocks. My trading is meant to scale.

Have a wonderful weekend.

October has passed.  It was actually a pretty flat month. Unless one bought/shorted stocks that outperformed the general market, he perhaps was flat.  Do not be upset if you were flat in Oct. because being flat is much better than a negative number. 

As we can see from the chart below that the market has recovered a lot from the low a few months ago. This does not mean that the market is going to drop though.  I believe a lot of hot money missed out on the bounce. But they are afraid to get in now because they think the market is perhaps due for a correction.  We traders will have to deal with this kind of conflicts every day. For beginners, it is perhaps easier because they have loads of courage and they got in the market at the right time. Because they do not know how much the market could hurt them, they would buy anything until one day or a year like 2008 hits them so hard that they could never get up.

 Here is the monthly chart of S&P 500.

This actually makes it harder for the old hands.  If the market is tanking hard, he does not want to buy because he knows not to catch a falling knife.  He would wait for a visible uptrend to go long.  But when an uptrend is clearly visible, it might be due for a small correction.  Does he have the courage to sit out that small correction or buy on a dip?  What if he buys on a dip and it continues to dip further like we saw in STEC?  There are always a lot of questions to ponder over in the market.

I did pretty well in October considering I beat the SP 500 by quite a margin in term of percentage.   In terms of absolute dollar amount, it is more than enough for the food, gas, and other regular household expenses for Oct.  You can see the results here.

I think the market is still in a healthy uptrend. The weekly SP is still in a visible uptrend.   Whether you and I think it is overbought is totally irrelevant. We trade the charts. There are 2 months left in 2009. Let’s see if I can have 0 monthly draw downs for year 2009.

Hope you are all doing well.

 I have taken about 1600 trades so far in 2009, which averages 160 or 80 round trip trades, per month.  Back in 2007, I averaged 40-50 round trip trades per day.  Yeah that is right because I was a scalper, whose average holding time was around 2-3 minutes.  For some super scalpers, 100 round trip trades per day is not considered over trading.  For others that like to milk every bit out of a position, 5 trades per day might be over trading.  Therefore, we perhaps can not use that as a criterion to see if one is over trading or under trading.  The number of trades a person takes might very well be just a matter of different trading styles. 

My current trading style is like a holder or a “day investor”, who intends to hold onto a winner for as long as humanly possible. This strategy has been working nicely so far this year.  However, I do under trade.  Here is why.   I have 75k sitting in my account.  And TradeStation gives me 4 times leverage for day trading, which is 300k daily purchasing power.  However, I have a hard time utilizing my 75k buying power to the fullest extent, not to mention the leverage. If you have been with me for a while, you know that I rarely have more than 30k worth positions open at one time.  For example, I took one long trade in AIG in the morning today, which was worth about 7000 dollars.  That was the only trade in the morning.  Then there was another long trade in PNC in the afternoon, which was worth only 10000 dollars.  After I closed my PNC trade, I took 2 shorts together, one SLG and one IOC, whose combined position size was slightly over 10000 dollars.  It looks as if I only needed 30000 trading capital. Ha-ha, talking about under trading. And this is it.

Some friends asked me if I could trade their accounts.  Now you see what problems I have with trading others money.  I can not even take full advantage of my own capital.  Anyway, here are 2 of the trades I took.  I will spare you the 2 shorts which were basically flat.

2 pictures are worth 2 thousands words.  I do not know what to explain.  After so many trades, trading has become a subconscious activity for me.  If you have questions, feel free to ask in the comment section.

Click on the image to have a better view

AIG

PNC

Here is the timeline of my entries