Satuki @ Home

As some of you might have noticed it, I have reduced the auto-update interval of my portfolio from 180 seconds to 60 seconds, which means that you will be able to see all my trades within 1 minute at most.

Even if it is set at 1 minute, you should NOT follow my trades. The proper usage of my portfolio is to use it as a bench mark against your own performance or take notes on my entries and exits. Then work your butt off to incorporate it into your own trading strategy.

To be honest, sending day trading alerts is never a solution even in real time because of the following.

1. In most cases when a position moves, it moves at the speed of light. You just do not have time to react.
2. Even if I tell you what stocks I am watching, I still can not tell you where to buy/short ahead of the time because a stock could show weakness now and strength 5 minutes later if some favorite elements kick in.
3. Now you understand how silly it is to subscribe to a paid “service” for day trading alerts.

Speaking of real time, some people suggested using a chat room. I looked into this. It is perhaps not a feasible solution for me. Here is why.

1. Day trading requires very high concentration power because it allows little room to make mistakes. I do not know how others in a chat room manage it. My performance would suffer if I need to constantly interact with other people. If my performance suffers, everything else I am doing would be meaningless. That is why I will alawys be a solo trader during the market hours.
2. If I can not interact with others, a chat room becomes like Twitter.
3. A chat room is fine if it has only a few traders. It will be chaotic if it grows to a few hundred or more.  I can guarantee you that we would have that many people if I set up a chat room.
4. Messages published in a chat room are not persistent. I want people to be able to see useful messages even after a few days, weeks or even months.
5. Learning a systematic approach is way more important than receiving a few real time alerts.

Go to my portfolio.  You will see the “Auto Update Window” and click it.  A window similar to the one below will pop out.

Safe trading.

It was a beautiful day(1/26/2010) for day traders of either direction.  We had a decent bull move in the AM and a bear move in the PM.  I have found that the market provides plenty of opportunities 2/3rds of the time. So if you are good, the market is your ATM.

I have been watching ICE for a few days. If you look at its yesterdays chart (1/25/2010), it gapped up and trended lower without any resistance from the bulls. What does it tell you?   It means “weakness”.  How do we take advantage of the weakness?  Short it!   In fact, it also showed weakness in the pre market.  So I watched it like a vulture around a dying animal.

Not long after the market open, you could see on the tape that the sell orders were flooding in. The small candle sticks were jumping up and down so rapidly that you could feel the heat. It is a feeling that you will obtain after so many trades. How long you have been trading does not matter. It is the intensity that counts. My father has been learning Spanish for 30 years. But I think he can say only simple stuff in Spanish because he practices his Spanish 5 minutes a day and 5 days a month.

The 2 setups were pretty much similar with only one difference. They were both breakdowns of a range.  The difference is that the second had slightly higher probability since the range was much longer than the first one.  The longer a range is, the more powerful a breakdown/up is.   When the second breakdown was unfolding, a lot of trapped bulls scrambled to find the exit.  Look at the chart below. The second breakdown did not even a green bar for almost 50 minutes.  This is the kind of moves that we,day traders, would die for.

My first attempt was not very successful. It actually dropped 1%, which did not trigger my profit taking mode. Of course, I would not allow a position like that to bite me either.  So I moved down my stop loss and it was a flat trade. But I nailed the second one.

On a side note, due to the fact that the second ICE short had a higher probability because of the solid range breakdown mentioned above, I was going to hit it with 500 shares. I filled the order ticket with 500 shares and chickened out in the last second. But again, it was still slightly bigger than my first short.

3 min chart [ICE ].  Click to have a better view

Consecutive big drops like the ones in 2008 rarely happen because that kind of moves needs very strong fundamental reasons behind them. The weekly and monthly of the S&P500 are still in an uptrend. There is no need to panic for the time being. Nevertheless, I am expecting a mid term correction.  How is this correction going to unfold is still an unknown. It might be stuck in a range and retrace a bit more from here.

TSL(Trina Solar Limited) was one on my watch list too.  With a beta of 3.6, it was a perfect candidate .I missed the long entry around 11 AM and tried a second time near the close. It ended up a small loser.

As for the other 2 guys, PXP(Plains Exploration & Production Company) and JCI(Johnson Controls, Inc), there is not much to talk about except that both have a decent beta value.

Stop loss is perhaps the best weapon for a trader to control risk. I have already talked about the importance of using stop loss in the past.  Today, this post is about what kind of stops suits you better, a soft one or a hard one.

A soft one is a mental stop. You do not place a real stop loss order after your entry.  However, there is a virtual stop in your mind.   When it is triggered, you exit. One of the biggest advantages of using a soft one is to prevent the crooks from peeking into the order books and playing with our stops.  I firmly believe that some market makers and specialists have the ability to do this. 

There are 2 scenarios. For example, after a stock has consolidated in a range for a while, it might have attracted quite some buyers, who set their stops around the lower bound of that range.  A lot of people like to do that because it is a very good support on paper. Once there are enough stop loss orders accumulated, a crook can take it out for a real quick profit.  Those stop loss orders would crack some small cap, even mid cap stocks wide open for a quick good drop. Unlike a major bear raid, this type of operations needs very little ammo(cost of operation).

Another one is to clean out those wavering bulls/bears so that subsequent pushes will be much easier. You think the stocks are moving up because some retail traders like you and me are buying?  Wrong! A stock moves up because someone wants to move it up.  We will talk about manipulation in the future.

In either case, the stock will quickly rebound to where it was.  Have you ever wonder why there are many head fakes?  A soft stop can help. However, you need to be very experienced in reading the tape so that you are able to tell real breakouts from head fakes.

Some drawbacks of using a soft stop are

1. You need to constantly watch your positions
2. When your internet is down, your positions are exposed to huge risk.

A hard stop is one you send to your broker immediately after your entry. It is suitable for traders at different levels.  It does not have any drawbacks mentioned above. The only one is that crooks might play with your stops.   But again, you could use a wider stop loss or avoid placing your stop around those key points where others love to set theirs.

I would recommend hard stops for most traders.

Learning trading is a very daunting task for the beginners. Not only is trading itself extremely challenging, but also it is hard to find quality educational materials or programs.  If you google it, you will be swamped by a huge number of websites trying to sell you this newsletter, that subscription or other types of products. It just seems that everyone wants to sell you something.

It is actually worth paying for a quality educational product. If you learn everything by yourself like I did, you are bound to make a lot of mistakes, lose a lot of money and waste a lot time in the beginning. A good program will not make you a great trader. But it will teach you the basics and show you the door for further exploring on your own.

Let’s look at trading as a degree and compare it with an engineering degree from a decent university (top 100). How much will you have to pay for your education?  Let’s make 20k per year (10k for the tuition and 10k for the living expenses).  So that is 80k and 4 years for a normal education. Are you willing to pay that much for a trading degree? 

Having said that,  I have to admit that it is extremely hard to find good quality programs out there.  A lot of self claimed trading coaches are basically BS artists. They normally put up a sales pitch page claiming absurd returns, and then use some “testimonials” to prove how good they are. Have you ever wondered how come all of those “testimonials” are positive?

Anyone with half baked trading knowledge can BS like an expert in front of a beginner. One way to tell if someone is a BS artist is to see if all he does every day is to promote his “products”.  If he does, then stay away since a real trader should spend 70-80% of his time trading instead of doing something else and his main income should be from his trading.

Safe trading

First,I have 2 stocks on steroids. One is GMCR(Green Mountain Coffee Roasters Inc.) and the other is IOC(InterOil Corporation) . I looked around on the web trying to find a bit of news/rumors that propelled these 2 guys so high and so quickly.  I did not find anything tangible for GMCR and found a little bit on IOC.

So GMCR is basically running on drugs.  It is like CROX in 2007 which saw a massive short squeeze.  Massive short squeeze happens when inexperience shorts keep hammering a stock on drugs. Yes, the shorts were right about crox. However, their timing sucked.

GMCR might not tank like CROX when the flood gates open. But it will come back down for sure. Once it starts to go down, it might drop quite a bit since some shorts and the profitable/trapped bulls will pile on each other looking for exit.  I will be looking closely for good intra-day short entries in GMCR.  I would advice against swing shorting into it since it is against the big trend. 

GMCR

IOC has signed some kind of deal with Government of Papua New Guinea. I did not look much into the deal.  Even if the deal is very solid, it might have shot up a bit too fast. I will trade it the same as GMCR.

 IOC

 
Secondly, I have 2 other stocks that are showing some weakness. One is Amazon and the other Bidu.  These 2 guys are very solid companies.  But at their current valuations, they are a bit stretched.  As we can see from their charts, they have been kind of sluggish lately. This is especially obvious in BIDU.

AMZN

BIDU

Trade Safely

We are done with 2009, which was a very wild year for both investors and traders. The gut wrenching drops before March 2009 are perhaps still vivid for many of us. The amazing comeback so far perhaps have already made some forget what has happened. It has attracted a lot of aspiring new traders who overheard about some amazing returns their friends/relatives have earned in 2009. It is what it is now and will remain the same in the future because it was the human psychology that carried the DOW to around 6000 in March and also brought it back to 10428 in 9 months and we will never change.

For 2009, you can see the stats of my trading above. It is decent. The percentage gain is actually nothing. A friend of my husbands, who is basically a noob, made a triple digit return in 2009. He does not know anything about risk control or money management. But he entered the market in April with the buy-and-hold strategy in his mind. So whatever he bought rose. It is not because he is good at picking stocks although he thinks he is. It is because the rising tide lifts all boats.  You would be actually very unlucky to have bought a garbage like Drys.

Another example is that my husband’s 401k has made 43% in 2009 after it sank 55% in 2008. So my 59% return was not much of a big deal. The market basically allowed enough room to create that kind of returns. Nevertheless, one bright spot in my trading is that I do not have a single down month in 2009. I almost eliminated weekly draw-downs in the later half of 2009.

What is ahead of us in 2010? One thing I know is that we might not get the kind of wild swings we had in 2009. In other words, we might see a normal year that moves up/down around 10%. This will test our trading skills.

Here are my new years resolutions 2010,

1. Improve the accuracy of my entries
2. Keep my current draw-downs
3. Try to make 4000 per month
4. Learn Forex

Improving the accuracy of my entries will certainly help me with resolution 3. But I will achieve that mainly by increasing my position size. My starting capital is 150k for 2010. My goal is a 30% annual return without compounding, which translates into $45000 per year. 45000 a year is what average people can make in the US. In addition, I work 4 hours a day doing the thing I am most passionate about. So I will be content with that number for now.

Good luck in 2010. “Good luck” is just an expression. We know very well how much “luck” counts in our trading.