Trader Mom @ Home

Perhaps a lot of us already know how important it is to let our winners run.  However, scalping is totally the opposite of that idiom.  And it works for day traders.

 

Almost every stock can move a few percentage points every day. The stock market consolidates 60-70% of the time, during which most stocks chop around.  Choppy moves are the biggest enemy of the traders who like to ride winners. However, scalpers love choppy moves since they try to capture very small moves only. For example, it is very easy for AAPL or BIDU to move up/down 1% during any time frame.   A good scalper might capture a 0.5% move within a few minutes and then repeat it over and over again. Not only are smaller moves easy to capture, but they are a lot more frequent than bigger moves as well.  For example, AAPL might chop around 5-6 times a day and each chop moves 1-2%.  But it might have only one big move of 3-4% during the whole day.  Small profits add up very quickly.

 

A good scalping trade is profitable right after your entry.  So you will be closing your position in the next few minutes.   This kind of rapid firing makes your trading stake less exposed to risk. This also solves one problem for some people who can never hold onto winners

 

There are 2 hurdles in scalping though.  One is the accuracy of your day trading rifle assuming your marksmanship is a constant.  The other is that it is a bit of exhausting since you might need to aim and shoot more than 20 times a day.

 

As for me, I used to be a scalper (strictly day trader) before 2008. I did pretty well back then.  I averaged 6k-7k per month in profits for 7 moths in a row in 2007 running a 50k account.  And it started to go down hill from Jan 2008. I lost 10k in that month alone and stopped scalping immediately after that.  That quick and solid damage control really saved me.  

 

One single best thing about scalping is that you can trade any stock you want since all of them have multiple small moves of 1-2% every day.  Now I am determined to pick up scalping for day trading again. I will need to look at my previous trades again to see why I made those good solid scalping trades and why I failed in Jan 2008. 

 

See the daily charts of my glorious days of scalping  DRYS, RIMM, FSLR and VMW.  Of cousre, there were many other more stocks I day traded.    Each dot is a trade I took back in 2007.

 

Click on them to have a better view

VMW

DRYS

 FSLR

 

 RIMM

 

Of course my swing trading is all about “let winners run”.  I hope you are all doing well.

Today is the inauguration day for President Barack Obama. The stock market slaughtered the bulls without mercy. I have full confidence that our economy will recover in a year or 2. Nevertheless, I only care about if I am on the right side as far as trading is concerned. It would be a beautiful day if you were on the bear side. So there is no such a thing as “The market is brutal”. The correct way to say is “The market is brutal for traders on the wrong side”.

 

 

As I mentioned in the past, 8 out of 10 stocks move with the general market. So you need to pay attention to it. I use SPY to analyze the market, which is a proxy to the S&P 500. Left is a 3 minute chart that shows today’s down-trending market clearly. As we can see that each bull attempt was very feeble. There were lower highes one after another. Your attempt to go long should be limited. So you could protect your trading stake by sitting on the side line at least. Or if you went short, then it woud be even better.

 

 

As I said on Twitter yesterday, I would day trade Drys and a few other stocks. I did trade Drys once on the long side. I lost a little bit,which was basically the commission. As we can see from the 3 minute chart below. I went long @ 13.56 as I mentioned it today on twitter before I entered this position.

 

The entry was perfect. Take a look at the volume and the pattern. Tell me what you see here in the comments. It was a text book set-up. I will talk about what a good entry is in the future. Immiedately it spiked to 14.05. That was around 3.6%. But I did not make any money on this one,since it did not hit my target(6%). So I had to let it go. Of course, I moved up my stop loss to the break-even point right after the spike. So 2 things here. 1: rock solid descipline (No Randam Exit). 2 Never turn a winner into a loser. I had some 260 paper profits right off the bat. But when it hit my stop loss. I wasn’t thinking like “Oh, I need to remove my stop loss since I had a chance to make 260 early.Now it is almost red. I can not take it.”

 

For my swing positions in My Portfolio, RIMM hit the target and I was out. And all others except FSLR are gone. I am actually doing fine even if all my trades were on the wrong side. The Profits from RIMM easily cancelled the losses from the losers. I would have lost more if I had not cut them. So when NASDAQ tanked 80 some points, I did not lose any money as a bull. That is not too shabby.

 

Quite a lot went through my head today. It was one emotional day. But I toughed it out. Every trade was executed 100% according to the plan.

 

I watched 400 dollars of profit from fwlt vaporize right in front of me. Fwlt hit my trailing stop. I had no choice but to get out of it. My 700 profit in flsr almost did the same thing. The fate of the 700 fslr paper profit is still unknown yet. Thank God, it did not hit my trailing stop.

 

As of now, you know what emotional waves I rode today. My rules are very rigid. Once a plan is set, no human interventions whatsoever are allowed even if a stock flips on a penny. I pat myself on the back for being very disciplined today.

 

I am not too worried about rimm since it is not a very volatile stock. I thought about shorting drys since it exploded in the past 3 days. My system generated a short signal at 10.61. But I second guessed it.