Trader Mom @ Home

Here is how I lost only a little bit over 300 on my GS short position. Here is the playback of this swing trade.  I opened a short position on 3/30/09 @ 103.91 and it tanked to around 100.  So there were around 400 paper profits and I ended up losing 300+.  If I had the ability to look ahead in time, I would have covered my GS around 100.  This kind of scenario happens only in my wildest day dreams. To achieve something extraordinary, you will have to be a dreamer, a doer and a calculating risk taker. Here is why…  For example, when you were a kid and your parents always told you that you should …….  I am sorry about digressing.  Back onto trading.

 

Ok so that was like 700 dollars from +400 to -300.  I am totally fine with this. I was just following my trading plan.  If every time I take a small profit like this, I would never ever catch anything like this (FAZ: 31% Gain (8k+) in 2 Days) or that (How I held onto FAS for a 26% gain for a day trade.). I closed the position this morning when I saw something strange. The market gapped down quite deeply. Yet GS showed all upward strengths.  Within 5-6 minutes, it turned green while the market was still very weak.  Something was not right.   If a stock does not act right, get rid of it.  GS should have gone down with the market.  Yet it did not.  So it did not act right and I got rid of it quickly. I would have been stopped out later anyway. But my quick reaction saved me a couple of hundreds dollars. Here is the chart and my GS trade.

 

 

 

 

I took a day trade in FAZ and made 400+ and I also opened a small swing long position in FAZ.  Let’s see how it plays out.

We have seen a solid rally for the past 3 weeks that almost erased the entire loss of 2009.   Have we hit a major bottom here?  It is possible.  But it is meaningless for day traders and short swing traders like me since our timeframes are very short.  Let’s assume that we have hit a major bottom here.  The market is going to chop after such a big rally.   I firmly believe that 8000 is a formidable resistance for the bulls.  It is equally hard for the bears to bring the general market to a new low.  So we will perhaps see a chopping range for a few weeks before the market chooses a direction to break out.    Since targets for my swing positions are mostly 15%, so the ensuing range-bound moves should be good enough for my set-ups.    Occasionally my target is 12% for big cap stocks like AAPL, GS or RIMM etc. or 20% for volatile mid-cap such as WLT or NOV.  I like breakouts/resistance/support for day trading.   Day trading is like all you can eat buffet for me.   I almost only buy support and short resistance for swing trading.

 
Since I believe it is very hard for the rally to continue beyond the 8000 level.   I have been looking for short set-ups or long set-ups in the inverse ETFs.   The first one is of course the most loved and hated FAZ. Click on the pictures to have a better view

FAZ

 

 

From the chart above, we can see a few characters that are quite interesting.

1.  There is a pretty solid double bottom formation, which is one of my favorite patterns

2.  The first dead cat bounce met the resistance around 22.33 or 23.60% of the Fibonacci retracement line.

3.  The volume has slight increased, meaning there was some buying interest at this level.

I hope it does not gap up on Monday so I will have a chance to get in.  My first target will be around 25 (30% from here @ 19.87).  Second target will be around 29, which is 50% of the retracement.  My stop loss will be around 18.

 

AMG  [Affiliated Managers Group]

1.  It is a text book double top formation.

2   It is very close to the last resistance area which formed around 2/5/09

 

 

APOL [Apollo Group, Inc]

1. It has had very sluggish moves in the past few days.

2. It has touched the suppressing trend line

 



GS [Goldman Sachs Group, Inc]

1. A double top is in the making.

2. The financial sector has seen a very strong rally.  It might require a strong reaction

 

 

WLT [ Walter Industries, Inc]

1.  The coal sector was quite strong in the past few weeks.  It might require some reaction

2.  It has sluggish moves in the past few days.

 

 

BXP [ Boston Properties, Inc]

1.  it is extremely weak

2.  It seems to have broken the last trading range
This stock is not volatile.  My target will be 12% if I decide to open a short position

 

 
FLSR [ First Solar, Inc.]

FLSR is actually very interesting.  It has formed a very bullish wedge.  The consolidation seems to be very healthy.  I will not touch it for now.

 

No matter how convinced I am by my own technical analysis, my risk control will always be in place.

The market has seen a bear market rally lately. I was not able to catch this rally since my system did not generate any signals. I am totally fine with it since it is very hard to catch all the moves.  The question is how much longer this rally will last. I am wearing a bear hat now. My bearish view is strictly pertaining to swing trading. Here is why.

 

From the start of this bear market that started in Nov. 2007, it has been right to short into every single rally. Why is this rally different than every other? We can not rule out the possibility of mid term reversal. But that kind of probability is quite low until I can see some tangible signs indicated by weekly and monthly charts.

 

As a successful trader, you and I always choose the path of the least resistance. That path is of course on the bear side because we are in a very big bear market. You should always try to short 70% of the time and long 30%. In other words, follow the trend aka Path of the least resistance. Ok, so we know what the general direction is. Shorting is my strategy.  We need tactics also.

 

The first is timing. That is I will not short into this rally blindly. I will wait for my indictors to show signs of weakness. Of course we all know technical indicators will be off the mark quite often. But that is OK. I will get out of my short positions as quickly as possible to keep my losers small.  As you could see from my WLT, FAZ and GS, I had 10% paper profits from both FAZ and WLT. I had to close them since I don’t allow such positions turn into losers once they have a 5-7% paper profits before they hit their targets. People who have been following my portfolio for a while know this. GS was a completely loser. It just hit my stop loss.

 

The second is that I will keep shorting into the rally until my system tells that we are possibly going to see a major reversal. I will not hesitate to short into it just because my first attempt failed.

 

The third is that I will hold onto my winners once they start to move in my direction.

 

All these 3 are very important. If any one of these 3 is missing, it will greatly increase my risk.

 

Which direction do you think SRS and FAZ will give us the best Risk/Reward set-ups?   I will go long on these on any signs of weakness in the general market and my profit target for FAZ will be at least 40% and 30% for SRS.  When they were high up over 100 dollars, I could not short them.   Now I should have no issues going long on them

 

Click the photos to enlarge them

 FAZ

 

 SRS