Progress

I papertraded today, and this time followed my rules. One option only, daytrading only (no overnight holds), watching it closely, selling while I have a profit if I am unable to stay for the close, trailing my stop tightly, etc. I traded USO. The only downside is that I had put in an order to buy at the open, and bought high - and if it hadn't been for the rally late in the session, I may have had a loss. But otherwise everything was good and smooth. It is curious that USO did not move more than it did given the world events, but such is life. Oil could go higher tommorow, or it could go straight south. Interesting - the more I learn about the stock market, the less try to predict its direction. Maybe that is a good thing.

Nursing My Wounds

Ok I'll admit it. I am still nursing my wounds from options expiration last week. I should never have held overnight. Then, after the gap down (instead of up, as I had surmised), I should have sold at the open. No, I continued to hold, hoping for a rally, and letting losses mount. Soon I found myself in that lonely place where I am seeing time decay tick away -- and I am still there like a deer in the headlights, hoping for a rally. About the only good decision I made last week was to take my losses like a man late Thursday, instead of waiting until late Friday. I learned that the hard way. I distinctly remember a day in January when my APPL calls literally went to zero on a Friday afternoon, while I was on the phone with E*Trade hoping for some consolation from the trading desk. 

Psychological research states that it takes about 7 times of making a mistake over and over again until we finally get it. Well maybe more. I even some rules surrounding options week in my trading rules, but I did not actually consult my rules before trading last week.  Well rules are no good if they are aren't followed. 

OK well by now it is clear that I am no pro - this will be the blog of someone who is in the midst of learning. I got interested in stock investing for the first time in mid-2007, and then trading in the fall of 2007, so it's been about 15 months so far. I started off with E*Trade and no live quotes, and have since changed brokers to ThinkorSwim (TOS) which has free level 2 quotes and live streaming Prophet charts, as well as much lower commissions. I now have a set of stock-trading rules - even if I don't yet stick to them. I'm pretty determined, and once I get a lot better someone will be able to dig through these old posts and relate to all the newbie mistakes.

At some point soon, I'll start posting actual entry/exit points and profits/losses, but for now I will just describe things. 

The Fed comes out swinging!

The Fed came out swinging today. The the market reaction was positive. Well at least on the 5 and 15 minute charts! I was watching the 1 min charts and there were 3 sharp moves: up, down, and then up into the close. I bought some calls on the initial reaction, held through the down reaction (stomach churning), and ended up holding overnight. My intention is to sell in the morning on strength, or put a stop underneath any initial strength. I don't have any illusions this rally will last, but who knows. For all I know we could open down lower, and my decision to do an ONH (overnight hold) could be a bad one. From experience I've learned that if I am wrong, I'll need to sell quickly at the open before losses pile up.

The calls I bought were in AAPL, GOOG, and QQQQ. Unfortunately for me, today AAPL wasn't acting as a proxy for the market. We'll see what happens tommorow. 

Sitting on the Sidelines

Sometimes it is good to sit on the sidelines and just see what happens. That's what I've been doing lately. The market seems to be treading water, stuck in a range. Sometimes the smartest move is to actively...do nothing. Ive decided this is better than getting chopped up in the volatility.

Tommorow the Fed will most likely lower interest rates, despite the consensus that it is useless. Foreign investors holding a lot of treasury bills will get upset because they will soon earn negative interest. Banks will of course refuse to lower loans, instead using the rate cut to hoard cash and nurse their balance (and off-balance) sheets. And my personal mortgage and car loan rate will remain unchanged, preventing me from gaining any money back which I could spend on the economy. Oh well.. another day, another locked-up financial system...

The Automaker bailout is wrong!

Today's post has nothing to do with trading stocks, but it is important. A number of these big-picture issues came up at our last Wallstreak meeting.

It looks like some form of automaker bailout is getting closer. Even worse, the CEO's and management who made poor decisions at the top will keep their jobs. The government will throw bad money after good, and use taxpayer money to prop up companies that can't compete. The UAW will remain strong, and be around to vex the automakers in the future. Why not let the Big 3 and their crappy management die, but bail out individual workers by paying for extended unemployment benefits and job retraining costs. If the US government really wanted to invest in the future, it would fund startup companies like Tesla Motors (http://www.teslamotors.com/), which make electric cars, and was about to introduce a series of family sedans , that is, until the price of oil began to plummet. And on the topic of oil, frankly, I believe that oil is being manipulated artificially downward by the very same speculators who manipulated it upward earlier this year.

The more I learn about the economy, the stock market, and how things really work behind the scenes, the more cynical I become. In the end, the rich and powerful protect themselves by working the system, and by screwing over the Average Joe. Wall Street CEOs are still going to get multi-million dollar bonuses, after running major financial institutions into the ground, and lopping off 35-40% off of most people's retirement savings in the process. Dylan Rattigan on Fast Money gets this, and won't stop his rants -- Go Dylan! Also, for a good cynical /consipiracy website, see Gaming The Market (http://www.gamingthemarket.com/)

Live by the Sword, Die by the Sword

Well I am realizing the pitfalls of being a "momo" guy. Volatility presents opportunity, but you need to have time to wait for the right opportunity, jump in quickly, and the get out. For me, I have a day job and so I don't always have control of when I can trade. That used to mean I would try to swingtrade only, but in this environment it is still to dangerous to swingtrade for the momo stocks (maybe for the sleeper stocks). My whole philosophy is to try to capture money using short term movements in volatile stocks, but these gains can easily turn into losses, or easily be wiped out by the morning gap, as I recently learned for the umpteenth time.

To give a real example, last Friday I bought a QQQQ call. The day went great, and everyone was predicting a nice gap up on Monday. So I kept the trade on. On Monday, the market did exactly the opposite: tanked especially into the close. I had to go to the gym 1 hour before the stock market close on Monday, so I loosened my stop to just below recent support, and I went away. Bad move. My loose stop got hit as the market reversed hard and tanked in the final hour. To make maters worse, we rallied today, so that if I had stayed in, I might have been OK.

Lessons learned: (1) If you loosen up your stop to make it below support, you better recalculate the amount you could lose (your risk) -- and if you don't like the results - JUST DON'T DO IT.

Also, (2) the first and last hour are very important. If you can't be there for the final hour, don't try to "set it and forget it" or just "hope for the best." Hope does not belong to any trading plan.

That's why I am retiring my old username on Wallstreak: HopeToGetRich (HTGR). Bye Bye HTGR!

OK well I am taking a break for a few days . I need time to collect myself. Luckily it was only a very small amount of money I lost, but mistakes are good if you learn from them.

A Daytrader's Dream?

I hate how the media goes around saying that in the current environment, with so much volatility, it is a "daytraders dream." Perhaps it is, for a select few, who have years of experience and can capitalize on very short minute-by-minute moves. But unless you are one of those select few, it makes sense to either stay out of the market, daytrade only if you must (no overnight holds), and you'd better be watching each bar tick-for-tick. 

A good example is this Friday. I was papertrading on Friday. At 11:01 I bought 1 SKF call, for $5,680, and 20 minutes later, I got out at $5,060. I lost $620 (plus commission) in a very short time. I did several things wrong in the heat of the moment and volatility: (1) forgot to enter an OCO order, or even set a stop, (2) didn't get out when I was down only $180, and (3) walked away in between on an errand. And it was only because of my prior losses that I determined to get out fast once I got out, or I could have lost a lot more. Of course if I had waited until the end of the day, I would have made out like a bandit. In hindsight I still feel I did the right thing by getting out and trying to preserve capital. But next time I day trade I'll need to watch the bars closely and be glued to my screen.

Blog Initiation and Momo Trading Philosophy

Hi,

I am starting this blog officially. I've had this blog in mind for a while, and I've learned that it's better to make progress than to come up with something perfect. Let me start by mentioning some of my favorite momo stocks that I follow:

Tech Names: AAPL, GOOG, sometimes BIDU
Ag Names: POT
Financial Names: GS
Health Names: ISRG

All or of these stocks used to be $100 - $150 or higher, and are quite liquid. My strategy is to capture big moves in these stocks, usually through options, over the short term. It remains to be seen if these Momo's will be the same names that lead us out of the current downturn.