Slow and Steady

I’ve finally managed to stop the bleeding today. Didn’t trade much since I didn’t get many stocks to show up on my radar. To be honest, the only thing that popped up was FDC. It didn’t move as much as I hoped, but a move is a move, so I can’t really complain.

FDC:

I got short on the break of the 7th bar. Got filled at 41.93 and I held till the end of the day for $65 profit. Feels good to get back on the winning track. I don’t think my account can take the onslaught it took last week.

This weekend I had a conversation with one of my friends about the market who happens to be a stockbroker. I’m sure you traders out there have had this type of conversation.

Friend: So how did you do last week?
Me: I got raped
Friend: Did you see Ford last friday?
Me: No, it didn’t show up on my scanners.
Friend: You should have shorted a big position in that stock .
Me: If I knew it was going to go down, that’s exactly what I would have done.
Friend: Even I knew it was going to go down. It was DOWNGRADED. I don’t get it, trading is so easy. I don’t think it’s that serious.

I can’t wait to make money and tell him ,”yea, it is easy.”

Another one bites the dust

Yesterday was another losing day (-$37), so i wasn’t too enthused about posting. I’ve been reading comments about posting losing trades. One of the reasons is so that we can all figure out what went wrong with the trade. Now, when I post, it’s mostly to illustrate a point. The point is that the system works. I want to inspire confidence into anybody that reads the blog. I don’t want people to sit down and overanalyze the trade.

This is what I fear will happen if I start posting the losers. These setups, don’t work all the time. I forget where it was that I read about this guy, Thomas Bulkowski I believe his name is, where he has stats on different formations, and his highest ranking one worked about 48% of the time. Just because I don’t post the losers doesn’t mean I don’t look at them myself.

As such, what I have realized so far is that I don’t like this drawdown. I”m sure nobody does, but it’s not the actualy drawdown that’s annoying. It’s the swings as we wannabe poker players would explain it. I don’t mind losing. It’s part of the game. But I would rather make 600 one day, and lose 100 the next, instead of making 1000 one day and losing 500 the next.  So I was looking at the trades I’ve recorded and paying attention to the big winners (1 dollar or more). Of the 15 I’ve had, only two of them had average volumes of less than 1M shares. Over the same time frame, if I had not traded shares with less than 1M volume, I would have had almost the same net P&L. The greatest differences  are  the Risk expectancy (1.52 to .91), the trades (62-111),  the profit factor (3.66 to 2.35, and the drawdown($50.80 to $258). I know this can just be a coincidence, but if the numbers are so much better as far as variance is concerned, but the end result is the same, then I would feel much more comfortable with the 1M share trades. It would also allow me to risk a bit more. Of course this is all premature so I’ll be keeping on eye on it for now. Today there should be lots of false candidates because of quadruple witching so watch out and best of luck in your trades.

Trades for the day; 09122006 ; PCL & CMVT

Today I went 0 for 3 so I pretty much lost about .86 cents. Doesn’t really bother me, it’s just annoying because I’m waiting for my account to get to a certain amount before I step up the size. Once I start trading a decent size I can enjoy the end results of trading a bit more. Making 1.50 on 100 shares doesn’t sound as good as making that same amount on 2000 shares. A good thing is that every time I have a day like today I learn something about my setup.

I scan for stocks that are trading above average volume. At the same time, I look for stocks that are trading at higher volume than the previous day. Sometimes , you may have a stock trading at 10x average volume one day, and 3x average volume the next. Therefore, the same stock will show up on both days. I would rather get involved with a stock on the first day of movement so I want it to have more volume than the previous day. The problem is that I was looking for stocks that not only trade at 3x their average volume, but 3x the previous days volume. Because of that I probably miss out on trades like this one:

PSYS

This trade would have made me positive for the day and would have shown up on my scans had I tweaked it better. Sure I would probably get more stocks that don’t work as well, but in the end if the R expectancy is positive, you want to trade as many times as possible, if your account can handle it that is.

Not sure the dummy setups work? There were multiple opportunities on a day like today. Some didn’t fit my criteria, which to me is the real work behind trading, figuring out what works for you, but they were there. GS and BBY are just a few stocks. Look at the 15 or 30 min charts. Where would you have gotten long?

How to be your own boss

Would you like to have more time to do the things you really want? Would you like to make money from your own home? Would you like to be your own boss, have more freedom? You can make thousands of dollars a month just working part time. If this sounds like you, don’t pick up the phone and call one of those 800 numbers. Do yourself a favor and look seriously into trading.

“90% of traders don’t make it.” This is true. It has to be because I read about it in the internet somewhere. However consider this. Of those 90%, how many of those traded for more than a year. How many of those people actually found a successful method, studied it, and adapted it to their own personality? How many of those people had unrealistic expectations?

Your typical day trader comes into the industry expecting to make six figures in six months to a year. If they can’t do that then it isn’t worth it. Well allow me to let you in on a little secret. If you approached trading as a career, just like any other career, your probabilities of making it would be much higher.

If you want to have a white collar job and make a median wage, which for sake of argument I’ll say is 50k here in nyc, then you can’t just show up at the office. The first thing you need is a college degree. Sure your first two years are classes that will for the most part be useless, and even those things you learn in your later years won’t be used at your new job, since you will be trained, but you do have to find a way to fork up 10k a semester.

Let’s just say you were a good student , but not the best , you’ll probably get a few scholarships and loans, and if you’re lucky only get 15k in debt. So let’s get this straight. You spent four years learning your craft, of which you’ll use different textbooks that are directly related to that craft for only two to two and half of those years. You’re already in the hole for 15k. Yet, you’re not even getting that starting 50k salary unless you’re the creme de la creme. You should be happy getting anywhere from 37.5k to 45k.

“But it’s a sure thing”. The only sure thing in life are death and taxes. By your third year you would have learned about the popular corporate term called the layoff. New hirees will get higher salaries than you. By your third year your lucky to be making 60k. If you want to get to 100k, you probably have to be in some mid to high level IT or finance position. Of course, this will probably happen at your third job, because that’s the best way to get a raise. Companies don’t believe in promoting their own. Mind you, this is seven years after you started your journey, because that’s what you went to college for , to get a job.

You want to make 75-90k out of school. Go get an MBA which will take you a year or three after your four year college. After that your pay raises won’t go as quickly as you want either. Want to make 120k or so, go to law school or get a doctorate. Oh yea, I forget to mention that neither getting your MBA or getting your other degrees are free. That’s proabably another 20 – 50k in the hole, and that’s being conservative.

Succes at trading is a matter of approach. If you took four years and invested 15k into your account and went about it in a methodical method, reading books, watching succesful traders, taking time to perfect your own method, there’s no reason you can’t make 100k after four years. Once you increase your equity you can increase your risk and guess what? Your pay raise will be much higher than a paltry 10 to 20k. Heck after ten years you can be making more than 500k a year. There is no ceiling as to how much you can make.

The beauty of it is that there are no time constraints. You don’t have to take four years. Maybe it takes you one to be profitable. Maybe you’re making 100k after two years. This is very possible. The key here is to treat trading for what it is. It isn’t a get rich quick scheme. It isn’t a fun way to spend your time. It is a job. A career choice where not only can you make a living, but a very good one at that. Once you do that, you don’t have to deal with the excess BS forever constant at a “secure” job. No sucking up to your boss. No avoiding certain coworkers or worrying about being politically correct at the workplace. No getting yelled at by your superiors. No having to use your vacation days to take your kid to a ballgame in the middle of the summer. You are your own boss. Better yet, you hold the keys to your destiny. So what are you going to do with the rest of your life? Are you going to contnue to make the 90% a fact or turn it into an urban legend? Take control now. Operators are standing by.

Don’t make trading harder than it is

One of the tenets of Buddhism is that life is hard. Of course you don’t have to be into that kind of stuff to already know that. However, we have this knack for finding ways to make it harder. We like to make things more complicated then what they are. It makes us feel better if we are doing something complex. Better yet, we gain the approval of our peers if it looks like we’re doing something that isn’t simple.

My best everyday example happens at your regular job. It’s no coincidence that the most competent person rarely moves up in the ranks. It isn’t because s/he isn’t doing what needs to be done. It’s simply because s/he can’t put on a show.

The person who get’s the promotion is the one that stays late the one time the boss stays late. The one that takes credit when things go well, but can accurately shift blame when things go wrong to the people that are his (okay assume i mean hers too) competition.  The person that can do the project on time, but at the same time makes his attempt to finish  an excel data entry assignment  look as though he has solved Beal’s Conjecture. If you get the job done, but make it look diffucult, you will look like a hard worker.

The skilled laborer doesn’t find merit in being dramatic about the job. He simply gets the job done. The problem is he makes it look too easy. So while he’s busy browsing the net because he has finished all of his tasks, and his supervisors have no more work to give him, he is looked at someone that is wasting company time. God forbid the people upstairs actually realize that maybe they should give this person something more up to standards with his abilities. Instead, they reward the actor, and do not acknowledge the actual worker.

Just another case of perception and reality working against each other. I pretty much fit the latter, and this is how I ended up day trading. In the markets it’s not about show. Why? Simple, the market is a real thing and totally objective. It doesn’t care how you make your money. It simply will reward careful risk management and strategy. It will crush those who even attempt to pick bottoms and tops. Day traders that claim to know the ins and outs of the market will be destroyed. If they’re really knowledgable, they’ll end up getting jobs at CNBC, talking about how everyone is making money  because the market is up. Explaining that the negative inventory numbers are the sole reason for the market’s down move in a particular session.

Let’s leave the excess of information to the market gurus. As daytraders we probably don’t need much of the stuff that we use on a daily basis. Sure it’s cool to tell people your economic forecast for the next four years at your next cocktail party. I would love for people to come into my office and see my desk full of six monitors, a fresh copy of the Wall Street Journal, and subscriptions from every financial magazine from Trader Monthly to Technical Analysis of Stocks & Commodities.  But in the end, what’s the use of all of that show if it doesn’t necessarily make me more money.

The key to making it in this businsess is simplicity. Don’t make it harder than it is. No, you don’t know it the market will continue to go up, down, stagnate, nor for how long it will do so . You don’t know how far a stock will plummet or rise. You don’t know how X company’s stock will react to news that it missed earnings. All you really know is how much you’re willing to lose on a particular trade, and all you can do is hope that at worse that’s all you lose because with slippage that’s not even guaranteed.

I’m not saying this solely based on my day trading experience. I’ve read this type of inormation on other blogs. More importantly, I’ve seen guys that make over 100k a month in my office, but do it with such ease and carelessness. They’ll even tell me that they don’t know where the market will go, they just take setups that have worked before, and manage risk.

If you read Maoxian’s trading blog, you’ll realize that through his dummy methods he tries to explain just that. Trades on a larger timeframe, takes fewer trades, and doesn’t really mess with the the stops. It’s so simple that it took me 7 months of trading to actually give the method serious consideration. This is after I have tried every other method that had a higher level of sophistication, and therefore logically had to be more profitable. Of course this wasn’t the case, and I’m only upset at myself for having fallen into the trap of making my job harder than what it is.

I know I digress and this post could have been a lot shorter. Hey I could have just said the secret to making money is cutting your losses short and letting your profits run. However, for  some reason, I think people wouldn’t have paid attention to such a short post because in the eyes of many, daytrading can never be that easy.

Mechanical vs. Discretionary Trading

I am a strong believer of KISS (Keep it Simple Stupid). When I look at great busines ideas  and inventions, and the success of people it different fields such as entertainment and sports (isn’t that the same thing?), it all comes down to keeping it simple.  Something like myspace, which is really just microsoft frontpage done the right way ,makes hundreds of millions of dollars. If you are  a loser like me and actually watch sports interviews for insight, you will see the athlete say something such as ‘I just saw the ball and decided to swing’, or ‘I just let the ball go off of my hand’. You hear how they just let their bodies react and try not to think.

This has always been my problem. I’ll overthink a situation to the point where so much pressure exists that I become as uselss as a CNBC floor reporter. I do everything wrong , and then I get frustrated, and then , well ,we all know what happens. This is why I am a big fan of mechanical trading. If I knew how to program I would set something up to take those signals. Since I don’t I’ve set up rules that allow me not to question why I’m getting into a trade. I’ve seen more money lost by not taking a trade than by questioning whether or not to take it. My stop losses are always set, so I already know how much I stand to lose from the beginning.

I find that when I become discretionary it becomes more a matter of me wanting to look smart by being right. I want my peers to approve of how I picked the best time to get out, or how I’m consistently profitable. Sure I can make 70 dollars on every trade more times than not. However when I add it all up, losing 20 dollars one day and making 130 the next is more profitable.

The key with mechanical rules is that they have to take everything into consideration. I’m not up more this month because I’ve had to add more rules when new situations that I hadn’t accounted for come up. Something such as what if I miss a possible trade for the day, should I continue to take signals. Technically I should. However, I’ve realized that sometimes on bad days you can still make money, but it comes down to not missing that one trade.

Had I missed VIP yesterday I would have gone home with a loss and complained about how the market just won’t give me an opportunity to make money.  Mind you, yesterday was a bad day when it comes to volume anyhow, but I still managed to make a decent profit.

Today I slept over someone else’s house. I left the house at 8:50, expecting to make it to my office at 9:55 the latest. Nonetheless, the MTA had different plans, so I arrived at 10:25. That was ten minutes too late to take a trade on DY on the break of the third bar. The entry price would have been at around 19.20, with 15 cents of risk. The stock closed at 19.80. That’s almost 4:1. The bottom line is that I missed it. Since I did, my rule was to not enter anymore trades for the day. COST gave me a signal to short  on the break of the 11th bar. That would have given me a loss of about .25 cents if you include slippage. Maybe even 30.  DY gave me another signal to go long on the ninth bar. That would have been about 25 cents of profit.

Now I’m not saying that the results justify my actions. The reality is though, or better yet my reality, is that I feel as though sometimes being too late can be just as bad as being wrong. I still wouldn’t have lost , but I made as much with less the hassle by just not trading, because of my rule.

The point of this post is to illustrate the usefulness of having rules. You can’t trade if you don’t feel comfortable in a stock. The best way to do this is with rules made beforehand. Rules don’t only account for entries and exits. You have to know what stocks you’ll be looking at. What happens if it goes against you. What happens if you miss the first sign. I’m sure the are more situations that will come up, but make sure you make enough rules so that all you have to do is react when you see the trade.

Born Loser

Isn’t that stressful? How do you do that? Man, the market is rough, it must be hard. These are the things that I hear when I tell someone that I am a daytrader. It’s funny how people could no so little about what someone does for a living, yet be so right in all of their assumptions. That is unless you are actually a successful trader.

The journey to become a profitable trader is a long and arduous one. You find yourself questioning whether or not you should buy a stock. If you do buy it, should you get out now. If you get out early, you usually see the stock skyrocket. If you let the stock go, you see it go back down to breakeven, maybe even get a loss. Whenever you see  a stock that made a run go back to your breakeven point, you get out thinking that you did the right thing only to see the stock take off. You get stopped out by one cent. These are all things guaranteed to happen to you. You will find yourself questioning yourself. Questioning your strategy. Questioning whether this is the right thing for you. There’s no way to make money in this gig unless you’re an institution and you have insider info. The worst part is that you have every right to have these doubts.

Yes, the market is out to get you. God forbid you start to make money. You decide to increase your size, and that exact day, everything, and I do mean everything goes wrong. So you end up suffering your worst loss ever and now the system you thought was good, is no good, so you stop using it. Start from the drawing board.

The biggest problem with trading isn’t the market, it’s you. Unfortuanately we see the world as we are and not as what it is. Many people get into trading for instant money when in reality the succesful traders are the ones that grind it out. People think it’s exciting, while in reality, when you are trading to make money and not for thrills, it could be one of the most boring things in the world. Why do you think so many blogs get so many hits. Daytraders have to do something in their downtime.

The reality is trading is a reflection of life. In life you will get lots of shit with a few sprinkles of good stuff in between. It’s a matter of dealing with the shit, and moving on. If you’re not worrying about paying some bills, your car is getting towed. If you’re car isn’t getting towed, you’re getting dumped by someone. If that’s not happening, you have a tragedy strike in your family. We don’t wake up expecting these things to happen, but they do, and they will with a high probability. That’s what trading comes down to.

You have to learn how to lose. By that I don’t mean you shouldn’t get upset. I get pissed every time I lose. I just don’t bang my head into the desk. Instead I channel my anger into figuring out if there is something I can do to prevent losing the way I do. You want to minimize your losses. You want to make sure that when they do happen, they just hurt your ego and not your pocket. Sure, it would be cool to be right all the time but get real. You will be wrong. Question is, what are you going to do about it. Are you going to actually sit down and figure out that you could have avoided the loss. Better yet, are you giong to understand that you’re supposed to take that loss.

Even when you think you’re learning from your mistakes by making changes to your approach you may be regressing. People tend to change all of the variables and end up with something totally different. Every strategy has its drawdowns. Any book on trading will tell you that.

So the key isn’t only taking losses and learning from them, but taking the right approach when it comes to learning. I know this post may not make much sense but I figure that one day this blog will have lots of hits because I will be making money hand over fist. The cool thing will be to look back at this post and see if my perception of trading has changed by then. This is a new week so as such I wish everybody best of luck in their trading, because they are going to need it with this choppy volume.

Still in red

I haven’t posted because i’m still not profitable. Better yet, i’m lazy. Aside from the fact that no one wants to read about my losing trades.  I don’t think anyone will learn as much from my losses as much as I will. However, I’ve decided that since I have no money, I have nothing else to do during my evenings so I will resume posting. I shorted HANS at 32.70, only to get stopped out at 33.13. I also tried shorting CTV at 27.78. It was stalling, so I moved up my stop and eventually got out at 27.82.

During these losing months I have learned more about what types of trades make me comfortable. I don’t like to be in a trade for much more than an hour and a half. Moving the stop right away makes me feel better about the trade because the risk is minimized. I don’t care if i get stopped out only to see the stock make the move later on. Frankly, more times than not, my original stop gets hit. Besides, any stock that makes start second guessing isn’t worth the headache. I like to know right away if i’m right or not. The best trades are the ones that require the least effort.  I will post the charts regarding HANS and CTV tomorrow. On another note I made $21 today in Omaha Hi-Lo .50/1. I was going to make this a long entry but I just realized that I’m too tired.

May Day

Even though today is Tuesday, this is supposed to be about Monday's trades. Before I get into them, allow me to briefly explain how I trade. As far as timeframes are concerned, I use the 30-min timeframe. Why? Simple. I find 5-min charts to be too hectic. I tried 15-min charts, but I still found myself with too many losing trades. Bottom line is, I'm a rookie, so the more trade signals I get, the more opportunities I have to lose money, plain and simple. I don't care if I only have one trade on the day, as long as its good. Heck, if I don't get any signals than fine, I saved money.

As far as the stocks are concerned I only trade NYSE stocks. No particular reason other than the fact that the platform I use freezes up when I bring up NASD stocks. Another thing that I find is that most of the NASD stocks leave me with risks that are too big for me. You see, I can't base my risks on percentages of my account, since it's only , or once was, 3,000. By default I pretty much have to stick to 100 shares and eventually, once I'm profitable, I can up my risk tolerance, or better yet, I'll have enough money with which to risk a larger amount.

I search for my candidates based on volume. Whichever stocks have highest volume for the day are the ones that i'm looking at. I simply see how they're trading in relation to the 20 EMA. If it's up, i'm looking to long, if it's beneath it, i'm looking to long. I'm pretty much putting into play the Trading for Dummies strategy talking about in Chairman Maoxian's blog, which is pretty good.

I've found my biggest problem to be when to move up my stop and at what point will I be happy to exit the stock. According to the Trading for Dummies session, you could hold on to the stock until the end of the day. Now, I've seen too many stocks move a certain direction only to retrace a large amount towards the end of the day. The only thing worse than losing a lot of money is losing most of your profit. So this is what I"m going to do. I'll move up my stop to the low (long) or high (short) of the first strong bar. As far as exits are concerned, I'll wait until I have at least three times my original risk before I start applying a stop loss to lock in the profit. Otherwise I"ll close all positions at 3:45 p.m. Now the hard part, actually following the rules. On to the charts

My first post

As the title indicates, this is my first post in this blog, and probably my seventeenth attempt to start a blog. Unlike the blogs that I've started in the past, I don't expect anyone to read this one. This is just a way for me to keep track of what I'm doing, and since i'm too lazy to read through excel sheets or word files, I figure this would be the best way to document my meteoric rise from a rookie stock investor who knows nothing about the market and continually loses to a master daytrader who still knows nothing about the market but manages to make a good living at trading it.

A little info about me. After many half assed attempts at having a career, at the ripe old age of twenty six, I have found my true love, daytrading. Actually, it's basketball, but daytrading is a close third. Anyhow, I have one of those accounts where you deposit 3000 dollars, and get 100 to one leverage, a sure recipe for disaster. From the beginining of January 2006, I have managed to only lose half of that amount, which really came in the first month and the beginning of April. After top picking, scalping, not using stop losses, pretty much committing every rookie mistake possible, even after knowing i shouldn't, i have finally decided that it's probably best if i stick to following the trend on my daytrading positions. Of all the strategies I have tired I have found breakouts to be the best, so that's what I'll be doing . I'm tired as I write this, so I'll post up today's and tomorrow's trades tomorrow. Wish me luck on my journey.