Trader Mom @ Home

Traders are hunters. Hunting can be very exhaustive sometimes. After a few failed attempts, you are not only exhausted but hungry as well.  When you are not in your tip top shape, you tend to make more mistakes.

Let me show you one mistake I made today when I was “hungry”.  I picked my prey this morning and ambushed it. It was all good. The prey never struggled. It looked as if it was totally dead after a while. While I was preparing for the nice food, it jumped up and ran away. I was too “hungry” to remember pinning it down( moving down my stop loss).  Once it started running, I kept telling myself that it was wounded and it would fall on its own. It never happened. It just kept running and running until it totally disappeared.

That was a fat one.  If I had moved down my stop loss, I would have had 300 at least. You see I was so “hungry” that everything looked like a buffalo to me. Why? it was because I wanted one badly after being hugry for so long. It was hallucination.  A smaller one such as a deer, a goat or a gazelle would do just fine.

Anyways, I caught a gazelle in the afternoon.

Short BID [Sotheby's].  Click on the image to have a better view

I do not remember when I had a negative week last time. It was perhaps some time in early 2009. Now here it comes again. I am down more than 400 dollars last week.

Having looked at all the trades from the the last week, I found 2 issues.

1. Not a single  winner
2. Bad judgement about the general direction

Not a single winner

I normally aim for a 1.5% -2% move, which gives me 300$-400$ in profits because my position size is worth about 20k on average. Only one move was needed to cover all the losses. But I caught none. These small losers were the direct results of whipsawing.

For example, I shorted CF(CF Industries Holdings) and CLF(Cliffs Natural Resources ) on last Friday.   They never really moved in my direction that much.  I could have had a small profit in my CF short(200 dollars). But it was not my plan.  My thinking was “OK move 1% more, I would break even this week”. It was a wishful thinking and that position ended up flat.

Click on the image to have a better view

Bad judgement about the general direction.

We had a nice rally last week.  But 50% of my positions were on the short(wrong) side. Trading against the general trend is like an uphill battle, which is totally opposite of choosing the path of least resistance.

There is at least one shinning spot in my trading last week. That is my risk control. A loss of 400$ in a week is perhaps nothing because I only need one winner to cover that.

By the way, although there is 150k sitting in my account, I rarely use more than 50k at one time. But knowing that I have enough capital to cover the rainy days(a long losing streak) makes me sleep better.

Our first swing trading competition started on 2/16/2010 and ended on 2/19/2010.  People coould enter/exit their trades during that time frame. We try to make it as close to real time as possible. However, people can still enter trades off hours. But their entries are calculated using the last close.  For people who enter their trades during the market hours, we use real time prices determined by the time stamps generated by the forum. 

OK here are the 3 best performing trades.

Let’s take a look at these 3 trades.

ARUN [Aruba Networks, Inc.]

IEM_Chris was expecting good EPS after it bounced off a recent support.  There is a maximum 3% stop loss in place.  His entry was 11.09.  The stop loss was 10.75.  The stock touched a low of 10.80 after his entry. It was close to being stopped out.  But it turned and popped almost 12% on last Friday. 

 Click on the image to have a better view

SNDK (SanDisk Corporation) by jaybee216, who is an old hand in stock options. Here is his logic behind his pick

1. Forming nice triangle for break
2. Sitting below 34 EMA break-out above 27.14.
3. CCI, which is indicator I use, moving up strong here. (We need to get him to talk more about his CCI)

SNDK never retraced after his entry.  So this was a very smooth trade.

Third is my own pick, LZ(Lubrizol Corporation)  My logic was

1. It is a very strong stock
2. It is still in a uptrend
3. It has stories.
4. It bounced at a very strong support

So the prize (25 dollar Amazon gift card) winner is IEM_Chris. Of course, the best prize is participating in the game and honing one’s trading skills. I will also keep a log of who are consistent winners because winning over a long period means a lot more than anything else.

Not long after the market open today (2/12/2010), I got a call and had to run a few errands.  So I was not able to trade until the noon.  My pre-market analysis suggested “short”. Naturally all my attempts today were biased toward shorting.

I never chase hot stocks. When I have selected a few targets, I trade them repeatedly throughout the day. AFLAC Incorporated (afl) was my target because it was weak all day long and it has a decent beta of 1.77. After I chose my target, I started to follow it closely. 

So a short opportunity presented itself around 12:35 because it was very close to the morning gap.   A gap normally has a strong resistance/support.  So I shorted it at 46.85.  The entry was perfect. It never churned.  I set the stop at 46.97 and went to nap.  As we can see the chart below, it went down to 46.41, which showed a decent paper profit of 200 bucks.  I am normally content with anything over 150 dollars per trade, which flips on my profit taking switch.

But I was napping. So when I woke up around 2, it almost bounced back to where my entry was.  So I just moved my stop loss to break even and forgot all about it.  Naturally, it was a flat trade.  Actually, I lost 16 bucks, which was the commission for that round trip trade. I would have moved my stop loss to the horizontal line if I had not napped.  Nevertheless, napping is part of my trading plan.

You can see the timeline of all my day trades here

Click on the image to have a better view

There are different types of stock manipulation in the stock market.  Penny stocks, small cap or even some mid cap stocks are prone to manipulation. The Chinese stocks are the worst.  Let’s take a look at TSL(Trina Solar Limited).

TSL was one of the strongest bulls during the recent run. The performance of other solar guys such as FSLR( First Solar, Inc), LDK (LDK Solar) or STP (Suntech Power) was very pathetic during the same period. There must be some reasons behind this run.  However, if you look on the Internet, you can hardly find any concrete evidence to support this run from 4 to 31( 8 t0 60 before the split).

Why was this guy so special while other solar stocks were pinned down by the overall weak solar market? It was the split.  Technically speaking, a split does not make a share holder any richer. But a stock split is normally regarded as good news for a company becuase only decent companies can afford a split.   Poor companies do reverse stock split.

So a split normally carries a very favorable market sentiment toward a company. But how the hell could an average Jane or Joe like you and I know this in 2009?  The split news hit the wire around 1/06/2010. Here it is from thestreet.com http://www.thestreet.com/story/10656574/trina-solar-to-split-stock.html .

Nevertheless, some people must have known this way ahead of the time and ran the stock up. The SEC is basically powerless in dealing with this kind of manipulation.  Do not blame the SEC though because it is extremely hard to gather concrete evidence. Let alone a Chinese company.

Click on the image to have a better view

Having said that, I personally do not mind this kind of stock manipulation (penny stock pump and dump excluded) because it adds liquidity and opportunities for us. It took quite a few months for TSL to run from 4 to 31.  If you are a trend follower, you would have plenty opportunities to make some dough in TSL.

TSL is just an example.  As for the stock itself,   the swift 30% reaction with huge volume tells us that It has lost the momentum and might face a prolonged consolidation from here.  You can see a bunch of similar stocks such as STEC and MED(Medifast), both of which are dead from a bull’s perspective.



Now, let us watch two vdeio clips from the movie Boiler Room. which talks about how people manipulate penny stocks. It is basically pump and dump. Rent it if you have not seen it. It is one of my favorite movies.

Disclosure:   No positions in any stocks mentioned in this post.

Today’s drop was gut-wrenching for the bulls. We have not seen this kind of drop for a while. The bears were in total domination throughout the day. As I have said a couple of times in the past few days, the market desperately needed a reaction. It was just waiting for a trigger.  Here came the trigger today, the deteriorating fiscal health of a few European countries such as Portugal, Greece, and Spain.

Short term and mid term is somewhat bearish.  The SP 500 has punched through the last low. See the chart below.

Click on the image to have a better view

Like my yesterday’s short in GES(Guess?, Inc), the exit of my today’s short in ATI(Allegheny Technologies Incorporated) was not optimal either. As you could see from the chart below, I left quite some money on the table. I am not implying that I should try to catch the whole move. Nevertheless, I should have caught 2% around 40.69.  One way to mitigate this problem is to scale out.

Bears had their revenge today .

January is over. I did OK because my profits broke the 3K mark, which is close to the goal (4k per month) I set for 2010.  Nothing has changed about my trading except that my size was slightly bigger.  This is just a start.  Hopefully one day, I will be able to short/long 2000 shares of something like AAPL or GS without blinking an eye .

Speaking of trading super liquid stocks like AMZN, AAPL or RIMM, they are extremely hard to trade. Why?   It is because there are just too many professionals in them.  These guys put out big lines from time to time. When they need to get out of a stock, they do not want to crack it wide open.  So liquidity is key for them.

Anyway, the market had some decent reactions near the end of Jan, which is not a bad thing. The market desperately needs to digest the wild bull run we had in 2009.  Lets take a look at SP500 below. It indeed broke the trend line.  This shows some weakness on the daily chart only.  The weekly is still fine.  So I do not see an imminent crash from here.  But I would at least have 50% of my assets in cash.  If you have a full line, hedge it properly.

Click on the charts to have a btter view

The bulls might ask if they would buy into this dip just like dip 1, 2 ,3 showed on the chart above.   I would say why not.  A small long position is fine here.  But caution should be exercised since the higher it goes, the more likely a dip becomes a bull trap.

Here are 2 double top set ups for shorts.   It is too late to get in.  But they are eye candies.

AMZN (Amazon.com, Inc) and IOC(InterOil Corporation)

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.

I made a bit less than 500 dollars today, which is decent by my standards.  My daily goal is actually 300 dollars. Once the goal is reached, my trading is relaxed or becomes conservative. I would scale back to very tiny positions or even stop trading.

300 dollar daily target is a lot for my account size. Here is why. We have about 22 trading days a month.  Although my account rarely ends up in red at the end of each day, it does have quite a few flat days. Let’s say I have 8 flat days, 2 down days, 12 up days that have reached the daily target, $300. Then my monthly profit is around 3000.  That is 36000 per year or 72% annual gain relative to my account size.  Do you know what a 72% annual gain with no draw-downs means?   It means that it is unsustainable.  It means even the 300 dollar daily target is a big stretch for me. A more realistic target is $150. Anything more than that is a bonus.

Having said that, I must improve my profits somehow. Increasing my account size and my position size seems to be the only way. Technically, you trade a 300k account the same way as you would do with a 50k one provided that you trade liquid stocks. For example, let’s assume that I was a computer which really does not give a damn about fear and greed. I would proportionally scale up my position size. So my profits in 2009 would be over 150k. Based on the way I trade, there is probability that this result could be reproduced year over year regardless how the market behaves.  As I build my account, it would not be long to beat a brain surgeon. To be honest, this is my first goal.

However, this will remain as a theory on paper for quite a while until you can build a very strong mental fort.  The bigger your account, the stronger your fort will have to be. For me, the fort relative to my current account szie is almost impregnable. But it will perhaps crumble if I abruptly increase my account size and trade much bigger lots.  So I am taking it one step at a time. As some of you perhaps already noticed, I have slightly increased my position size.

Ok, here is a quick recap on my trading today, 12/28/2009. It could have been a much better day if I had managed my exits well in the AMZN, MED and X shorts.  Or my profits today could have exceeded 1000. But… alright no buts.  Here is the opening trade, AIG long

Click on the image to have a better view

The entry was around the open of the 4th bar and the exit around the close of the 7th bar.

 Safe trading.

Here are 2 of the trades I took last week. One was the WLT short and the other was the CELG long.

WLT(Walter Energy, Inc.) is a very strong stock that you do not want to swing short into. By “swing short”, I mean “open a short position and hold it over night”. Nevertheless, when day trading,  I short anything that moves and shows weakness. Most of the time, when a stock starts weak, it will remain weak for the rest of the day.  Here is the 3 min chart on 12/17/09.

Click on the image to have a better view

A was a good short entry , which I missed.  So I waited a bit.  When WLT rebounded to B, I opened a short position.  Please note that B and A were at the same level.   A was a key point taken out by the bears in the first drop. Hence, it was bound to be ambushed by the bears.  In addition, it was a psychological support for the bulls trapped above A. However, that support became a resistance when it was effectively broken.  These 2 reasons made B a good short entry. In fact, C was another good short entry since it formed the second top with B.  Among all these 3 short entries, I personally think C was the best.  Your millage might vary though.

CELG (Celgene Corporation) is just an average stock whose beta is only 0.5.  But it was extremely strong Friday.  I had to give it a try.

Here is the 3 min chart on 12/18/09.

I opened a small position of 100 shares around A, which was a support.  It was only 100 shares because it was still consolidating.  when it broke out of the previous range, I added 300 shares immediately.  The breakout was relatively clean.  But it lacked strength because the volume did not follow.

Do you remember the post about my first forex position? Technically, it is a profitable position.

The US dollars has been strengthening recently. All major pairs have moved quite a bit except USD/CAD. I think it might try to catch up with the other guys. So I will open a long USD position in this pair. This time, no printed money is involved. It is a real electronic position. I promise :)

EUR/USD Daily (Click on the image to have a better view)

USD/JPY Daily

USD/CAD Daily

I just started trading Forex.  Let’s learn it together.