Woke up late today, missing the first two hours of trading, and decided to not trade at all. This is pretty good considering I’m usually quite trigger happy on Mondays.

I have some stuff on my plate during next two weeks so trading may not be too heavy. We shall see. Maybe it’s best that I ride out the rest of this month sitting on my profits.

Most likely though I’ll be back at my desk tomorrow because I just can’t stay away…hehehe.

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William Eckhardt On Trading

I first was exposed to William Eckhardt when I read The New Market Wizards by Jack D. Schwager. This past Thursday, Charles Kirk posted a series of quotes on trading and investing attributed to Mr. Eckhardt. In these quotes, Eckhardt touches on many subjects that should hit close to home for many traders.

My favorite in the series is:

“In many ways, large profits are even more insidious than large losses in terms of emotional destabilization. I think it’s important not to be emotionally attached to large profits. I’ve certainly made some of my worst trades after long periods of winning. When you’re on a big winning streak, there’s a temptation to think that you’re doing something special, which will allow you to continue to propel yourself upward. You start to think that you can afford to make shoddy decisions. You can imagine what happens next. As a general rule, losses make you strong and profits make you weak.” - William Eckhardt

To read all nine quotes that Charles has featured, click here for the full post.

Blogs I Like To Read

A visitor to this blog recently asked me what finance blogs I enjoy reading and I thought I’d share that answer with everybody.

The type of blogs that I find interesting are the ones where the writer shares his daily profit and loss. I’m curious as to what others are doing and more importantly it shows me that everybody goes through their up and downs. With that in mind I read Dinosaur Trader who each day lists the P&L of a bunch of traders in his “Virtual Office.”

Glenn is a trader from British Columbia (my home province) and he writes a blog called DehTrader. I also enjoy reading Trader Bubs’ daily recaps. Others that I read who also share their P&L include Boogster and 10K Thrown Away.

However, Charles over at The Kirk Report runs my favorite market blog. He packs lots of great information into every post and his paid Members Area is well worth the $50 a year donation fee.

Back in the day, I used to read NYSE Trader on a daily basis but he stopped blogging which is a shame because his daily recap posts were quite good.

Adam Warner’s, Tim Knight’s, and Frugal Trader’s blogs also make my daily reading list.

Game Plan For The Week Ahead

After reviewing the past two weeks and trying to figure out why I haven’t felt comfortable on a few of those days, I came up with a game plan for the week ahead.

I am going to make a conscious effort to be patient and look for the best entries. I know I should be doing that every single day but sometimes I stray away, get lazy and impulsive. This has certainly been the case a few times lately.

If I keep this on my mind all week, I should reverse the course I’ve been on and get comfortable again. Enjoy the rest of your weekend and let’s hope that Monday is a high profit day for everyone.

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I came into today with the goal of being patient and waiting for opportunities. I also wanted to take quick profits to circumvent the recent problems I’ve had with that aspect of trading. I’m happy to report that I accomplished both of these goals today.

However, there were some negatives like fighting the trend in AAPL and going long GOOG in a down market. I made most of my trades during the half hour span when the market bounced a little.

If you look at my trades you’ll notice that I traded 400 shares of AAPL and 500 shares of DXD as opposed to me normal 100-300 share lots. This was a conscious decision that I thought would help in a choppy market. Instead of looking for larger point gains, I would just take quick scalps. Now, this is all fine and dandy when the trade goes my way (which these did) but if it reverses and I don’t get out, it can do damage. I think I will stick to my 100/200 share trades next week though. I didn’t feel comfortable holding 400 shares of AAPL in this type of market.

Here is the recap:

Subtracting $42 in commissions from the total above left me with a profit of $353.75 on the day.

Now for the daily self-evaluation:

Pros:

1. I made a conscious effort to be patient with entries and quick on taking profits.
2. Stopped after three trades. This always seems be easier to do when I’m ahead.

Cons:

1. It was a down market and I did go long both GOOG and AAPL. GOOG could be excused as it was up when I entered it but APPL was a trade where I definitely fought the trend. This is evident by the fact that it dropped shortly after I got out. Had I not been quick on the trigger to exit that trade would have ended up in a loss.

Overall, I felt much better about my trading than I had in the previous days. Let’s hope the feeling carries over to next week. I’ll be back later on today with another post.

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Today would have been great had I taken the profits that were presented in front of me.

My overnight GOOG holding gapped up and I was up over $400 at one point. I ended up taking a loss.

After I went short GOOG I had a profit of $150 that transformed into a $100 loss.

When I went long SKF, I chased it on the first spike and ended up with a loss.

Every loss today could have been avoided had I followed my rules and did what I know is right. However, I was caught up in nonsense today.

This always seems to happen to me after I have a nice run. I end up holding positions longer, get greedy trying to squeeze profits, and don’t pay attention to my entries. The end result is always the same; frustration and a drawdown.

For the last two weeks I haven’t been happy with my trading at all. While there have been trades that I’m happy with how I executed them, there have been many more bad ones than good. This has to change and it has to change now.

The problem is not that I don’t know what’s right, the problem is that I get caught up in the moment and let go of my rules. I press and try to squeeze out extra profits or hope for reversals. I know what I’m doing wrong, but at times I can’t help myself. This is partly because of the fact that I do get bailed out of my mistakes when the market reverses my way.

I’m thinking of implementing a time limit rule, be it either 10 or 15 minutes. Basically if the position doesn’t go my way in that time I bail. Again, it’ll be easier to put it down on paper than actually execute on it.

Here is today’s recap (the bottom two trades were overnight holds):

$56 in commissions left me with a loss of $370.36 on the day.

Now for the daily self-evaluation:

Pros:

1. Took my losses and kept them in check.

Cons:

1. Gave up gains twice in GOOG. Over $700 was given up on these two trades.
2. Chased SKF on the initial spike. Caught up in the moment.
3. No rhyme or reason for my trading, Really disorganized and just not feeling it. Need to start fresh tomorrow.

After my trading was said and done I replayed everything in my mind and had a good talk with my thoughts. I’ve been getting more undisciplined as the month has progressed whether it be putting on riskier trades (options) or getting greedy trying to turn profits, into bigger profits. This coupled with the fact that the market is choppy and undecided as to where it wants to go makes for a bad recipe. Time to start fresh tomorrow with an renewed emphasis on entries, exits and good trading rather than money.

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Sorry about the late post tonight but I watched the market right up to the closing bell. Afterward, I wanted to get a nap in before heading out to do some errands and having dinner with the wife and kids at our favorite Italian restaurant.

Today turned out great money wise but I wasn’t too thrilled with the way I traded. That being said I did feel more in tune and focused which correlates directly with getting lots of sleep the night before.

I entered the FSLR trade with the thought process that it was being unfairly punished due to STP’s earnings report. That was all fine and dandy but I never was confident in the fact that it would reverse thus I bailed after a small gain. I should have trusted my instincts and let the position play out.

POT was far and away my best trade today as I entered it perfectly when it bounced of the 50MA on the 5 minute chart. My exit on it was also nice.

Now comes the dissection of my BIDU trade. When trading BIDU you have to keep in mind that it does have abrupt movements. You must give it some leeway and let it play out. It is also a stock where you should book profits because it can quickly reverse. Do these two statements contradict themselves? You bet! 

When I entered BIDU I had a feeling that it would print 249 and I held on to that belief most of the afternoon. I gave up $200 profits in that stock twice I believe and watched it reverse into a $400+ loss at one point. Worst of all I held it through the fed minutes. Was that bad trading? You bet! 

My thought process went something like this after I entered the position:

Market looks good, this should pop after a little rest…..there it goes…..$100…..$200…..this is going to print $249 for sure, no point selling here……ok back to even now, just building a base here, give it some time…..there it goes….nope down again….ok reversing a little….down $100…won’t go lower…..fed minutes are coming out soon, really would like to be out of this one before that…..oh wait a minute, there it goes….up $150 now….Should I take the risk free gain ahead of the fed minutes? Nah look what FSLR is doing, go with your gut….back to even….fed minutes out, small pop…..just a matter of time now….market digesting minutes….-$200…..-$400…just post fed nonsense, it’ll bounce off the 50MA…there it goes….back to even now….market firming up….there it goes….blowing by $245, $246, $247….if you showed any sort of patience you’d be buying now instead of prior to the fed you dummy…..prints $248…..stalls a little…GET OUT NOW BEFORE IT REVERSES!!!….out at $428.20….blows past $249……jackass!

LOL, re-reading that, it’s pretty much on target.

I also entered into two swing trades that I’m holding overnight: 100 shares of GOOG at $508.63 and 100 shares of SIGM at $41.60. These positions aren’t part of my daily P&L total as they are still open. Here is the screen cap of my trades (with my overnight open positions listed on the bottom):

I paid $42 in commissions on my closed trades which left me with a profit of $909.80.

Now for the daily self-evaluation:

Pros:

1. Good night of sleep and good focus. Felt in tune with the market.
2. Held on to my convictions with BIDU which I think can be viewed as a positive. There weren’t that many signs that it would breakdown and I like to believe that had there been I would have bailed.
3. POT trade was very nicely executed.

Cons:

1. Looking back on it, I should have taken the $150 profit ahead of the fed minutes and not risked it amidst the volatility that ensued after.
2. I had a thesis on the FSLR trade and chickened out of it. If I have these “thesis” type of trades (as opposed to my regular day trading) than I should follow through on them and let the day’s action play out. To help me with this I should take a smaller position to prevent from getting shaken out. Had I bought only 75 or 100 shares of FSLR,  I wouldn’t be as neurotic about the position and would have let it play out longer.

My veal dinner was fantastic today, hope you all enjoyed your evening as well. Now I would like GOOG to have a nice gap up tomorrow.

I was quite eager this morning to get things going after the long weekend. However, the market dampened my enthusiasm by being choppy and caused me problems all day.

I really didn’t trade very well today and the only positive I can take away is that I did take my losses like a man which saved me from a bigger drawdown.

Here is the recap:

16 total orders cost me $112 in commissions and my loss on the day amounted to $409.57.

Now for the daily self-evaluation:

Pros:

1. Was able to take a loss today which wound up saving me.

Cons:

1. Over traded, revenge traded. Took three trades in both PCLN and SKF. Ridiculous.
2. Didn’t seem like I was focused today. It was a tough market to trade and I really should have stopped trading after three trades.

Ugh, that’s all I have to say about today. Time to take a nap and re-group for tomorrow.

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What is your trading style?

If I were to sum up my trading style with one word  it would have to be “opportunistic”.

I’m a day trader first a foremost but I don’t limit myself to only that. I do swing trade and pull an options trade here and there as well.

With that said however, my bread and butter type of trading revolves around buying strong stocks near support on the 5 minute chart. The support can be the 5MA, 20MA, 50MA or some other point of interest like a breakout, etc. Also, I use the daily chart to gauge support/resistance areas as well.

I try to not fight the intraday trend on a position but that’s not always case. Sometimes there is an area of interest on the daily chart that will trump the intraday trend, if only for a quick bounce.

Why don’t you have comments?

This is something I’ve heard a few times before because it surprises some people that I run a blog without comments. The reasons for this are as follows:

1. My favorite blog, and the first one I ever started reading, is The Kirk Report. Charles doesn’t have comments enabled so I never was trained to feel like comments were needed to make for a good blog.
2. I prefer people email me their comments so I can address them personally instead of getting lost in the shuffle.
3. Open comments can lead to spammers or hating/arguments/negativity that will clutter up the pages with nonsense. I prefer to keep things clean and positive.
4. I don’t like the aesthetics of having comments on the site. I guess that’s an entirely personal thing.

Also, when I go read a blog I read it because of the writer and not for the comments. In fact, I hardly ever check comments on the blogs I read.

How long have you been trading?

A little over 2 and a half years. I started learning in the summer of 2005 and have been hooked ever since.

I’ve taken a few months off after blowups here and there.

The first year was spent trying out different methods, instruments and just learning about the movements.

Year two was spent getting blown up after thinking I had things mastered. The second year was a crucial to experience and I believe it was a make or break year as far as if I was going to continue to pursue trading. It was filled with so many ups and downs. I learned that if I were to be succesful I would need to try to manage risk and emotions as best as I can.  This caused me to trade with a smaller account, not gamble on earnings, take out profits and really realize that there is no limit to how much a stock can drop or go up during the course of a day or  week.

The biggest thing however, that finally hit home is to not fight the trend. If I do so now, I’m much better at realizing that I’m fighting it and there has to be a technical reason for it rather than “I think the price is too low/high”. The “I think the price is too low/high” thought process is totally irrelevant and doesn’t hold any weight.

I still have a long ways to go and there are days where I disgust myself but I can see the progress I’ve been making and feel I’m on the right track.

What makes for a good trader in your eyes?

I believe there are three things that are essential  to have any shot at this:

1. Experience. You need to follow and trade the market on a day to day basis for quite a while to get comfortable with it. Experiencing different scenarios and seeing them play out in front of your eyes definitely lends a hand to becoming more confident with your trading.

The following quote sums up what I think about experience:

Experience teaches you to recognize a mistake when you’ve made it again.

2) Understanding Oneself. So much of trading is psychological. You need to know your strengths and weaknesses in order to create a system/environment that brings out the best opportunity for you to be successful.

For example, When I was trading on a platform that had a “one click order” feature, I noticed that I had a problem in that I sometimes found myself chasing big spikes or buying stocks on impulse. Some days I would literally make 50 trades.

What I did to keep that problem in check is I switched to a two page web-based entry form. This helped enormously as it cut down on my impulse purchases because it takes around 10 seconds to put in an order. You would not believe what a difference those extra seconds make in making you realize you’re about to do something stupid.

Knowing yourself and finding ways to get around your problem areas is critical.

3) Patience. This is something I struggle with quite a bit. You need to be patient and let trades come to you instead of chasing them. The market will give you opportunities every day, it’s up to you to pick the best ones. You have the advantage because you’re never forced to put on a trade, you can pick and choose. Many times traders like myself forget this.

How do you pick what stocks to trade?

I have around 50 stocks on my watch list that I follow and I don’t trade names that aren’t on that list. Every now and than I add or remove a stock based on a few factors.

The list pretty much entirely consists of stocks priced at $60 or higher. In fact if you look at my trades the majority of them are in stocks priced at over $100. I find that this price range works the best for me.

Another big factor in choosing which stocks make the cut is the liquidity. Even though I only trade 100-300 shares, I like stocks that are liquid and have consistent movement. To achieve this I look for stocks that trade at least 1,000,000 shares on an average day. However, most of the ones on my list trade much more than that.

I hope you guys enjoyed this Q & A session. Get your questions in for the next one by using the contact form.

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Well my plan to not trade today was going well until I woke up and loaded up the charts to see what’s up. After glancing at the indexes it looked like they were setting up for another fall after a little bounce.  I wanted to take advantage of that by finding some shorts and AMZN looked ripe for more downside.

I decided to make the play with the FEB 75 PUT options as it’s option expiration day and the premium is almost non-existent on them. Basically, the in-the-money options, which move very much in sync with the common stock, allow you to control more stock at a fraction of the cost. AMZN options are also pretty liquid and the bid/ask spread isn’t horrible.

The trade panned out nicely and I called it a day afterwards (again, a different type of graphic because it’s an options trade):

On the buy side, I was filled with a cost basis of $1.844 (with the stock trading at around 73.20). On the sell side I was filled with a cost basis of $2.32 (with the stock trading at between 72.60-72.70).  After commission costs were factored in, I ended up netting $436.97.

Now for the daily self-evaluation:

Pros:

1. Let the position play out and run before taking profits once the downside seemed to stall out.
2. Went with the trend. I don’t seen to like to short stocks that are already down quite a bit on the day.  Purely a psychological thing I guess. However, doing so usually results in gains. I need to do it more often as it’s the path of least resistance

Cons:

1. I don’t like the fact that I traded without following the market today. I only looked at things for maybe 10-15 minutes in the middle of the day before pulling the trigger on the trade.  I said that I won’t trade and I wasn’t prepared or following my routine today.

Have a great weekend and get your questions in. I’ve received a few already.

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Tomorrow is options expiration and on Monday the U.S. markets are closed due to Presidents’ Day. With all that in mind, I will be taking a four day weekend off from trading.

I thought it would be fun to do a Q & A with the reader’s of this blog. If you have any questions you’d like to ask me, please use the contact form and submit them.

Hopefully I’ll be able to get at least 10 questions from you guys which I’ll answer on a blog post over the weekend. If this is  successful I’ll make it into a monthly thing.

SUBMIT YOUR QUESTIONS HERE

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What if I were to tell you that you could make a 100% return on your money in 2 minutes? Is that something you might be interested in?

This certainly doesn’t happen every day, or even every month, but there are certain times where you just see something and you have to play it. Today was one of those days.

In doing my prep work for today I was very focused on trying to gauge the sentiment on the BIDU earnings report that they released yesterday. The stocks was gapping up in pre-market trading and, as is always the case after earnings, it was going to be a big mover.

BIDU beat estimates by 16 cents which was quite good but from what I could gather it wasn’t a clean beat. Growth appeared to be slowing and the company lowered estimates for the next quarter. Most analysts were not too happy with the quarter and didn’t exactly give it a ringing endorsement. Goldman Sachs lowered their price target to $280.

However, the price was still up pre-market and it continues to be so as I write this. This one of the anomalies when it comes to Wall Street. Perceived negativity can be met with a higher price and positive news can sometimes result in the stock trading lower.

Anyway, after my research I was pretty convinced the stock would retrace the gap with traders being content taking profits at the open.  There is also resistance in the 275-280 from what I could see on the charts.

I played this hunch using the Feb 270 PUT options which expire on Friday. The fact that they expire Friday meant that you weren’t paying a huge premium to own them. Here is the result of the trade that lasted a little over two minutes (the different type of graphic is because it was an options play):

Bought at $5, sold at $10, for a total profit of $4960.89 after commissions. Now was this a high risk play? Sure, I would say so. Anytime you make 100% in that amount of time you’re playing with volatility that can go either way. However, all the factors that I mentioned above gave me confidence that I would be on the right side of the trade.

I don’t dabble in options often but when an opportunity presents itself like this I like to use them. It seemed like the perfect storm.

Riding high off my big score, I made 5 more trades on the day which I thought were clean and quick. I used yesterday’s SKF lesson to take profits quickly and build a nice winning streak. Here is the recap:

$70 in commissions on the 5 round trip trades left me with a profit of $441.18 on these. Coupled with the options trade I fattened my pockets by $5402.07 today.

Now for the daily self-evaluation:

Pros:

1. Felt like I was in the zone today and really focused. Took quick trades, didn’t hesitate. If I could rinse and repeat this every day I’d be on to something.
2. Took fast profits, didn’t give them back. This is in direct relation to the SKF trade from yesterday being still fresh on my mind.
3. When I thought I had an opportunity I couldn’t pass up, I went for it. I researched it and was confident in the play I was making. That’s the way to trade.

Cons:

1. I’m not going to beat myself up after today. I’ll save that for the days I mess up.

Now I have to protect my gains on the month and trade intelligently.

On another note, after listening Bernanke ramble on to congress about housing and the economy, I long for the good old days when CNBC aired stuff that made a difference. I kid…I kid.

Have a good day guys. Market seems undecided where it wants to go.

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