Satuki @ Home

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

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.

Today, the 2 weakest sectors were Financials and Basic Materials. The market gaped down because of Financials. So the direction was obvious. That was to short guys from these 2 sectors.

PNC (PNC Financial Services) was the first target.  My entry was nearly perfect. But a good entry alone is only half of a successful trade. You need a decent exit to complete the trade.  It moved down nicely after my entry. So I eagerly moved my stop loss down a bit below my entry to protect my downside. As you can see, if only my stop loss was a bit wider, that position would have turned into a nice winner.  It would have triggered my profit taking when it broke the the previous low.

There is nothing wrong with this trade.  It was just bad luck.  A lot of stocks would shake you out in a situation like this even if you leave a bit more room for the stop loss.

Here were 2 short trades I took in PNC today. You can click on the images to have a better view.

The other trades I took were GES(Guess?, Inc.) and ANF(Abercrombie & Fitch Co). But they were pretty flat. You can see all the trades here.

Try a bar-by-bar replay and then feel free to tell me how you would approach this stock.

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.

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

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.

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

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

The market today would have ended further down without AAPL.  The bulls should use some caution at this point since the market has seen quite a big run in the past few days.

I woke up this morning around 8:30 as usual, quickly packed lunch for my husband and sent him on the way to work.  At about 9, I sat down in front of my trading desk  and started to check if the stocks I picked last night were all shortable today. Most of them were.  Here was the list: PWRD BG X HES WLT CNX VMW FISV CNQ TJX and PCX.

I knew it was going to be another tough day for the bears since APPL’s earnings sent the stock higher, which held up the big market.   The first short trade was PCX.   The entry was good and the exit was not bad.  A good entry/exit is an entry/exit you make according to your plan.  It is not about catching a top or a bottom, which is a fool’s game.  See the picture below.  I actually had a 2% move on paper. But I was shooting for a 5% move.  Therefore it did not materialize.  I exited the postion almost flat.

Click on the image to have a better view

I tried to short STEC 5 times today.  The results were not so bad considering the super strong general market, which helped a lot to hold up STEC. STEC itself was weak.  A lot of other stocks went up 2-3 times as much as the general market.

As stated last night in STEC: Do we have a short here? I was shooting for a 3% move.   That was my plan.   I followed my plan like the Bible.  If you were tracking my trades today, you know that the first short moved down 1.5% right after the entry, the second moved down 2% right after the entry too.  These 2 entries were impeccable since they moved immediately after I opened them.  If we add them up, it would be a combined 3.5% profit and mission was accomplished.  I wish trading was that easy.LOL! I actually made 0 dollars out of those 2 trades.  I did not take profits in those 2 trades because my plan did not allow me to do that.  We all know what happens to traders with discipline issues. 

There was nothing special about the other 3 shorts.  They were not as good as the first 2 since they wiggled, wobbled and squirmed for quite a long time after I opened them.  You can see the timestamps of all my trades here. Please note they might be 30-45 seconds off since I need to set up my stop losses first, post them on my website and then on Stocktwits.

It was a very strong market today.  It should be slightly easier to trade on the long side.  Why slightly easier?  It was because the market gapped up way too much.  If you pull out the 5 min charts of a lot of stocks that went up today, you can easily see that most of them had one good move in the morning and stayed flat in the afternoon.  So trading really is an art.

Once again, do not forget to control your risk at all cost. Your trading is as good as your risk control. 

I hope you did well today.

STEC has moved from 5 to 27 within 3 months.  I did not find too much information on why It had a late day rally on 7/13. Form the chart below, we can tell that the long up shadow today shows that the bulls are a bit long in the tooth.  There is no such a thing as “a never fallen stock”.   It is a strong stock in the long term.  But it might be a bit of tired after such a run. You know what most of the longs with profitable positions are thinking now.  They probably ask themselves one hundred times a day if they should lock in their profits.  Any weakness in STEC will kick them out, which will cause a decent drop for us to profit from.

See the charts below( click to enlarge).

Daily

5-Min

I will watch this stock tomorrow closely.  My stretgey is to wait for weakness and jump in on a break-down.  It will be a day trade though.   So my target will be a 3% move.   Nothing is for sure in trading.  Always remember to control your risk.

Are you interested in STEC?   If you are, how would you play it?

The market moved higher today, which I sort of expected since it was somewhat oversold.  That is why I stopped trading(shorting) in the afternoon. When the market rips higher and higher like that, we should stop shorting.   Yes, trend does not matter that much for day trading.   But you need to wait for some signs of weakness at least.

The first 2 shorts were OK.  But the 3rd one (CNW) was very contrived since I took that trade when the market was still moving higher.    That is I did not wait for signs of weakness.  Considering I have been day trading full time for so long, I should not make this type of low level (stupid) mistakes.   LOL @ myself…I do, and still will in the future.

Of course, what I did well today is that I stopped trading (shorting) in the afternoon.  Like I said on Twitter, this month will be all shorts.   I would love to go long on a strong day and go short on a weak day.   But reality is that it is extremely hard to flip flop like that.  You might get slapped hard by both sides.

Look at the 5 min SPY chart below.  It was just too hard for the bears.  But the least we could do was to avoid a market like this.

I hope you did well today.