Satuki @ Home

I was talking about flipping to the long side last night on the mailing list because I really like to practice my mental flexibility.   Let me explain what mental flexibility is.  When you are in a bullish mode, you tend to keep buying even if the market is trending lower.  Naturally, most of your trades will die. After some real hard work, you might learn how to stay on the sideline in a situation like this.  This is already a huge step for most traders.  In other words, you never go long in a bear market.  That requires you to have a very strong will power to sit out the bear market, which a lot of traders/investors just can not because they always want to catch that elusive bottom. If you have passed that, here comes the final stage.

It is that you can long a stock now, close it and immediately flip to the short side if there are signals to do so.  In other words, you try your best to capture movements in both directions.  Both you and I know how hard it is.  It is our trader psychology.  It is just that hard to switch between being bullish and being bearish in such a short period of time.  We might get slapped by both sides.

As for today’s trading, I shorted CS and SPG.   It was a trending market and very hard for me to go long on anything.  As someone said last night, trade what you see, not what you think.  This is a very important rule. Please recite it every day so it becomes a reflex. Trading will become some kind of reflex once you have placed thousands of good trades every year.  I am referring to day trading here.

The SPG was not a very good trade, which reminded me of this post Chicken Little Says “Good Entry+Bad Exit” = Bad Trade!.  Nowadays, I watch a stock for a while and make a plan on the fly.   I took this trade near the market close.  My profit target was only 1.5% since the market already went down a lot.   It actually hit my target (50.69). But I hesitated. I was hoping for a bit more.  It quickly reversed before I even had time to react.  That is the price I pay for not sticking to my plan. The only thing comforting me is that the entry was perfect. See the chart below.

Click on the picture to have a better view

It is a felony not to short WYNN today considering its recent run-up.   I shorted 3 stocks out of 4 I mentioned on the mailing list last night.  They were WYNN, FSLR, MHK, and ROK.  

WYNN was the worst offender.  So I naturally targeted this one.  Nevertheless, I missed the first and second big drops and only caught a small one in the end.  WYNN gave us so many opportunities to short into today and it was truly very hard not to make any money shorting it. When the signals were there in the morning, I lacked a strong conviction. I knew I needed to act but… No buts…  I just chickened out. If the first one was forgivable, then the second one was absolutely not. I need to take some notes about these 2 missed opportunities.

As for ROK, It was a loser but a good trade since I lost a tiny bit in that position.   It was the same with the AAPL short trade.  I should have flipped to the long side of AAPL right after I closed my short position. I really thought about it.  I am still wondering now why I did not pull the trigger.  Where is my mental flexibility?   I had 100% short positions today and that was not too normal.   Shorts and longs should be even in a choppy market.  I also took 2 short positions in MHK.  Both were small winners.   Here is my portfolio in which I post my day trades real time.

Market has moved up so much.  The only question I asked myself this morning was how far it would continue like that.   Without seeing too much possibility of a further rally, I decided to short something again.  Well I think that was just an excuse for my bias toward shorting.  Right now there is too much bubble in the market.  I always try my best to contribute my part to reducing the size of the bubble. As a result, the market rewarded me for my selfless and endless contribution to the overall health of the market.

So what stocks should I short?   I kept asking myself this morning.   While I was looking for a target, PCX jumped out. It basically screamed at me.    “Me Me Me, pick me” screamed she.  I then asked her why?  She gave me 2 reasons

1. I went up over 150% in the last week.  It is just crazy that people pushed me up so high in such a short period of time.
2. I am no different than my brothers and sisters like MEE, WLT and others.  Why am I the only one up when they are down so much?

I pondered over it and thought what she said indeed made sense.  Then I asked her what I should pay attention to when I take a short position in it since I normally do not trade low priced stocks like that. She said

1. Keep your position size small due to the wide spread
2. Hold onto it when it moves

That is exactly what I did.   Because I kept my position size small, I could afford a wide stop loss.   Because I kept my position small, I held onto it for an 8% winner.  My position size was ridiculously small (less than 5000 dollars).  But it worked out perfectly just because of that.

There was another very good short target AMSC this morning, which I talked about it a few times on Twitter. See the picture below.  AMSC could have made a killer short too.  But it was not shortable with TradeStation. 

After that trade in the morning, I decided to call it a day, have a nap and watch 2 DVDs in a row in the afternoon.   Would you give up this kind of life style for anything else?

The market moved higher relentlessly and totally disappointed the bears, including me.  I have also been waiting for some kind of signals for a short term correction. No luck so far.  Therefore I have not had any swing trades lately.  Can you believe our beloved FAZ is almost a penny stock?

S&P has erased all the losses for 2009 and it actually has a tiny gain. The news behind today’s rally is from the housing sector.   And of course short squeeze also helped pushing the market higher.

80% of the trades I took today were shorts.  I shorted AAPL once and flipped to the long side right after I closed it.  If you followed my portfolio in which I post my day trades real time, you knew it.  This kind of flexibility is essential.  Of course, you will have to be careful not to get slapped by both sides.

The trades I took in RIMM and AAPL today were scalp trades.  I have no fixed targets for this type of trades.  Once they move in my direction, I will never allow them to retrace.    The first short I took in CYOU had a bad entry.  The second was fine. Since it was not a scalp trade I waited a little bit before I took profit.   CYOU was one of the stocks I mentioned on my mailing list yesterday.

I do not know about you. I just like to short stocks.  I did very well in 2007 scalping the market   ,averaging 40-50 round trip trades per day.   Most of year 2007 saw a bull market.  However, half of my profits were from the short trades.  As far as I know, we do not have to pay interests for short positions as long as they are day trades. 

I think that a scalping system is like a BB gun. BB guns are known for its accuracy and rapid firing due to its small caliber.  Nevertheless you can shoot only flies with a BB gun for the same reason. Do not look down on the effects of a super accurate BB gun though. If your marksmanship is good, flies will pile up in front of you in no time.  Swing trading is like a canon, very powerful yet less accurate.   My marksmanship has deteriorated a lot since 2008.  I had greased and put away my BB in a very secret place until a few weeks ago.  Now,I have taken it out and re-greased it. It is still shiny as new. What it needs is a good shooter.

As ususal, I was looking for a short position today.  And I found shld (Sears Holdings Corporation), which would have made a good short position if only I could short it.  I also had a few other candidates. But Shld would have worked out the best.  I left out one task this morning.  That is to check with Tradestation what stocks are shortable.   I remember I checked with TS last night and I saw that SHLD was shortable and It was not today though.  Either my eyes lied to me or TS pulled shld off the list this morning.  The shortable list changes every day. 

Speaking of the shortable list, Tradstation has a staggering 8000 stocks that are shortable every day.  We have around 17000 stocks listed on the US market.  Some brokers are jokes when it comes to shorting.  You need to check with your broker if it even publishes a shortable list every day.  TradeStation,ThinkorSwim and Interactive Brokers all do.

Day 4 Of the automated trading experiment

The computer sent in a buy order right after the market open.  SRS churned all day long.  And it was stopped in the afternoon.  So we have 2 losers in a row now.  See the chart below.

Click on the image to have a better view

A BB Gun works best used in a choppy enviroement.

The market moved higher today  led by the technology sector.  Technology heavy weights such as RIMM, APPL and MSFT all moved higher significantly.  Due to their mega-market caps, a 3-5% move is huge.  One reason that the market moved up today is that people were betting that Google would give good numbers.  Google’s numbers are out.  The market’s reaction is kind of tepid as we can see from the price action after the market hours.

It was another boring day for me. I am kind of flat after 2 trades.  I went long on FAZ and shorted GS as you can see from my portfolio.  I was on the wrong side of the fence today. But I managed to stay flat, which is very important. My monthly goal is that I have 3-4 solid trades a month and the others cancel each other.  Therefore, a good number of my trades will either be closed without hitting their targets or at a small loss.

Poor FAZ has almost become a penny stock. It was over 100 in March.  Relaxing of the mark to market accounting method killed our beloved FAZ. Now the crooks at those banks can write whatever value they think their rotting assets are worth.  You and I are not going to fight them because we will not win.  Instead, we will join them to take the path of the least resistance. SRS has bee experiencing the death spiral too.  We will have to face a possible reality that they might never return to half of what they used to be. These fallen soldiers deserve a proper burial.  They might be resurrected in the future and rumble on the Wall Street again. But for now, may they rest in peace.

I will be day trading them only

I took only one trade in SRS today, which is an inverse ETF that corresponds to twice (200%) the inverse of the daily performance of the Dow Jones U.S. Real Estate Index.   In other words, I shorted the market by going long on SRS today.

Reflecting back on the trades I took yesterday, I think I was a bit slow to cut the losers , which resulted in a big loss of 1300.  Nevertheless, the trade I took today was impeccable as you can see from my portfolio.  I thought about buying only 300 shares of SRS today because I talked about my position size being too big yesterday on the mailing list.  But I changed my mind and bought 650 shares.  This was still a bit smaller than what I had yesterday since SRS is a double leveraged ETF unlike the triple leveraged FAZ.   The reason I bought 650 shares is because I should be somewhat consistent in my position size.  And I normally increase my position size slightly when I have a few losers in a row.  Some people might frown upon this strategy.  I wrote another post the other day to explain why this makes sense.

Here is the chart.  You can also see the timeline on http://www.stocktwits.com/u/trader_mom

Here are a few good things about this trade

1: I did not try to catch the bottom.
2: I did not second guess myself.
3: I used the same position size as I did yesterday.
4: I held onto it until the market close as I did yesterday.

All these are attributed to a well prepared trading plan.  So I do not second guess myself or panic over the unexpected.  SRS can stop me out a few times.  But when it moves, I will have to make sure I am on it.  That is one of my missions.  The other is that I will try my best to reduce the number of times that SRS (any stock) shakes me out before it moves

BTW, I chose SRS over FAZ today just because I prefer high priced stocks.  I hope you did well today.

The market was very choppy today and I took a beating(-1300).  I took 3 trades that were 1 small winner(bidu) and 2 big losers(SRS and FAZ).   You can see the trades in my portfolio.
 

I guess this had something to do with  the Somali pirates that were shot dead by the Navy snipers.  What were these pirates thinking?  They had a horrible set-up(asking the massive warship to tow them) with a horrible risk/reward ratio of 3:1. How did they come up with this kind of set-up? This question bugged me all day long and totally distracted me. These Damn Pirates!  However, I still had a tiny winner and they were all losers.  So I beat them by a very small margin today.

Here are the 2 big losers. 2 pictures are worth 2 thousand words.

Tell me whether I have beaten the pirates…….

As I said on Twitter and in this post last night, I would focus on shorting MGM and RIMM today. I did short RIMM. But it would be much nicer if I could have shorted MGM(-19%) since it had a much bigger move than RIMM. Bigger moves are relatively easy to catch. But I could not borrow any shares of MGM to short from TradeStation, which is not known for lending penny stocks. I normally do not trade penny stocks. But MGM is very liquid. I believe that ThinkorSwim and Interactive Brokers are really good for shorting penny stocks.

Anyway, If we pull out the 5 min charts of both MGM and RIMM, it is not hard to see that MGM was a much easier play. It did not gap down too much and had a very big dead cat bounce immediately. It also had 2 break-downs subsequently.   1, 2, 3 were all good short entries.  I hope some of you out there caught some of the moves.

Here is the chart 

If you followed me on Twitter, you knew that I shorted RIMM and went long on SRS today.  Those 2 were winners. I left 2 dollars on the table for the SRS trade. But I am already content with the profit (1000) on SRS.  Check out the timeline of my 2 trades today on StockTwits, whose timestamps is in sync with the US Stock market.  I did publish my thoughts last night on Twitter albeit brief.  I was going to send the message to the people on the mailing list.  But I was distracted by something else. I am sorry about that. There will be many more opportunities like this though.

Sign up for my mailing list if you are intersted.   It is totally free.

BTW, when I publish my day trades in real time, I always update Tiwtter first, then my portfolio.

Tomorrow I will focus on these 2 stocks, MGM and RIMM. These 2 stocks shot up too fast and too much. They are due for a serious reaction.   What I mean by a serious reaction is a 4-5% drop or even more.  They are definitely good for day trading.  I will not swing short them though, especially RIMM since it has been very strong lately.  I might go swing long on FAZ again tomorrow if it shows signs of strength.

Click on the pictures to have a better view

MGM has a long upper shadow with huge volume on its daily chart, which is a tpyical sign of weakness.

RIMM has not showed any signs of weakness yet.  I will be patient.