Measuring Risk

A few of you have asked what I mean when I say that I made "4 times my risk" in my previous post. I'll try and explain:

For each trade I risk a dollar amount. It's different for every trade. So, for example, I buy KEX today (not a recommendation) at 54.84. I see that on average it hasn't lost (or gained) more than $2.24 in a day over the last 2 weeks. I decide that I will sell the stock if it varies more than 2 times that amount in a day (2.24 X 2 = 4.48). I am willing to lose $4.48 per share on KEX.

My portfolio is $100,000 (as an example--I really have billions). I decide to risk 1% of my portfolio on each trade--or $1,000. For KEX that means I can buy 223 shares ($1,000/$4.48).

If KEX goes $4.48 against me, I sell and I lose what I risked or $999.04 or 1 times my risk. If KEX gains $8.96 I make 2 times my risk. I keep track of each trade and record how much I risked.

At the end of the month, I add the winners and losers and come up with a risk number for the entire month.

Here's are my stats for April: I had 14 winners that totaled 9.55 times my risk and 11 losers that totaled 4.96 times my risk.

Calculating risk this way can help you get a feel for your system while allowing you to "plan" your earnings. So, I know that if I can average 4 times my risk each month and I risk $1,000 on each trade, I can earn $4,000 per month with my system (theoretically of course).

Month in Review -- April 2008

I'm learning that every time I have a terrific day (or week) and I get a bit too cocky, the market ALWAYS kicks my buttocks and makes me re-think everything. Once again, the pattern continues. I was euphoric about my best day ever on April 16th, and then I managed to allow the market to siphon off 6% by the end of the month.

I still managed to meet my goal of making 4 times my risk this month. That is my new measure of progress since percentage gains really doesn't reflect the accomplishment of my trading system. I was up around 10 times my risk a few weeks ago, so once again, the market humbles me. Maybe one of these days I'll be able to keep my gains. Probably not.

For the month of April, the screens looked like this:

To the Moon: 5.39%
Zweig MACD: 10.79%
Zweig and Zacks #1: 10.63%
Zweig Relative Strength 5: 12.9%

My returns for the month were 9.68%.

The Market is Mean

I got another 1.34% taken away today. Thank you Mr. Market.

I don't have anything witty or amazing to say. Maybe I'll recover a bit tomorrow.

Lame

I gave back my wimpy gains from last week today. Things look a bit uncertain out there, but I'm going to hang on. I like the smaller movements the market is showing lately.

This Week With StockPunk

It's been busy. I did some research on Portfolio 123 and StockFetcher over the weekend. Both look like promising applications, but I need to spend a lot more time in each one to figure out if they can help my trading.

I don't think that I'm going to be able to get the portfolio to break-even by the end of April. Unless we have an amazing week, I think I'm still stuck underwater for the year. If I would have stuck to the Zweig & Zacks screen or the Zweig MACD screen I'd be sitting pretty right now. So much for all my thinking and analysis.

Zacks and Zweig has no qualifiers again this week. The Zweig screen has only 10 picks. I'm not sure if that means anything, but it's worth thinking about. Happy trading!!

Week In Review 4-25-2008

This week was disappointing for me. It started off really good and I have to admit I got a bit cocky about my stock picking and whenever that happens I get kicked in the pants. I had very few stocks from the Zweig screen this week and naturally the screens kicked my buttocks. I made a whole $16.86 this week.

The Zweig MACD screen screamed thanks to an excellent performance by GDI at 18.29%. MACD had many other good performers including AMED, ARO, GHM and AME. The screen is also out of the hole for the year now (I wish I was).

Zweig Relative Strength 5 had a pretty good week as well with a 3.47% return. WFR drug the screen down while the top 3 in the MACD screen also appeared in this one.

Zweig & Zacks had no qualifiers this week so it gained (or lost) nothing.

To the Moon didn't do much.

Yeeow!!

There's nothing worse than seeing green across the board as my portfolio takes a dive. Nearly every one of my stocks lost money today and I was handily beat by the indexes. In fact, I was down 1.72%! I guess all of my positions were top heavy because they sure came tumbling down.

To me, it's kind of a good sign that some of the former leaders took a hit while stocks that were languishing did very well. MS was on my watch list and made a major move today. Of course I didn't own it.

Things are starting to get interesting and we may be on the precipice of a nice extended rally. Don't count your chickens yet, however.

Ho Hum

Another consolidation day today. Nothing much to worry about. My portfolio lost .19%. No big deal. This kind of stuff will probably go on for the next couple of days. I'm just going to ride it out.

Not bad

I made nearly 2% on a consolidation day. I'll take it.

MSN has a bunch of doom and gloom article about the stock market in their Money section. I'm becoming more and more convinced that it is detrimental to my trading when I watch or read stock market news. I stopped my subscription to the Wall Street Journal (I felt guilty when I didn't have time to read it) and I no longer watch any stock news on TV. I'm limiting my total TV time to 3 to 5 hours each week (mostly for Lost and The Office). Yesterday, I avoided any contact with the market until after the close.

I'm trying to get back to reading a book a week. Right now I'm reading The Progress Paradox by Gregg Easterbrook. It's about how much better things are now than they were 50 to 100 years ago and still people think things are worse. Interesting stuff.

AAII Stock Screens

Most of you know that I cut my teeth on AAII's Stock Screens. I have been following them for several years and I love their simplicity. Moneysuckle (of the complicated poker post) has put together some information on why he has chosen just a few screens among the several that AAII shares each month. The results he discusses are assuming monthly re-balancing and holding all stocks that qualify in the screen.

Buffet averaged 25-30% a year compounded to amass his fortune. Of course, he dodged a lot of taxes with his buy and hold strategy. I cite this as a baseline to judge the AAII screens.

In order to get a total (pre-tax) return of 1000% over 10 years, you need to average 26% a year. A 1500% return over 10 years is 39% compounded per year. A 2000% 10-year return is 50% per year compounded.

So, when I look at the AAII screens, I am looking for anything with a total return of 1000% or more since 1998 - or returns Buffet would be happy with. I know, of course, that I'll likely be paying 28% cap gains tax on my profits, so I need as much cushion as possible.

The other things I am looking for in these screen results:

1. Consistency in returns. If a screen has a 1200% total return, but has 6 winning years and 4 losing years, that's not as attractive to me as a 1200% screen with 9 winning years and 1 losing year. When a screen has a big return but several losing years, it implies that it is not suitable for use in all market conditions.

2. No horrible years. I consider a horrible year a double digit loser.

3. Emphasis on recent performance. If a screen has a great total return, but 1998-1999 played a big role in it and recently it hasn't done as well, I will downgrade the screen.

4. 15 or less qualifying stocks on average. I don't want to invest in more than 20 positions at a time, and I am really interested in 6-12 positions at a time. Therefore, a screen that gives me 45 qualifying stocks on average is of marginal use. Further, if I think I can screen the screen (like with Zacks rankings), then the more stocks I am screening out with Zacks, the more the AAII total return % becomes meaningless since I am doing something completely different than AAII did. Finally, if I invest the same in each stock, if I use a screen that produces 45 stocks and 1 that produces 15, I will end up weighting the 45 screen more. Which is probably bad since Zweig and CANSLIM have the best results, and they produce fewer stocks.

With that in mind, let's examine the candidates.

Currently, Graham Enterprising Investor is at 923%. It produces 4 qualifying stocks per month. It lost money in 1998 and 1999. While the losses were small (single digit), the market had great years in 1998 and 1999. Thus, this screen vastly underperformed the market in those years. It has vastly outperformed the market since. In fact, from 2000-2007, it's total return is 1109% (which is over 50% per year compounded for 8 years!!). This tells me that the screen works well in periods when fundamentals matter. Fundamentals didn't matter much in 1998-99 - it was mania. Finally, the screen is up this year! I will use this screen for current market conditions.

Foolish Small Cap 8 Revised - 623.1%. Through 2007, this screen was very impressive at nearly 1000% 10-year total return. Plus, it had 9 winning years in 10. It's only loss was small (3.9% in 2004). Otherwise, it made at least 12% every year. Very consistent. Plus, it produces only 7 passing stocks a month on average. However, this year, it is down 35%. Until I can figure out what's going on, I am not planning on using this screen. I am going to keep an eye on it, however.

O'Shaughnessy Growth - 652%. Another very consistent screen. 10 straight winning years of at least 10% gains. Until this year (down 13%). But it produces 50 stocks per month. Not suitable for my purposes, but I will watch it.

O'Shaughnessy Small Cap Growth & Value 985% - Another impressive screen. 9 excellent years and flat in 2002. But it's losing this year (down 13%). Plus it produces 25 stocks a month. Not suitable for my purposes, but I will watch it.

O'Shaughnessy Tiny Titans - 2262%. Awesome total return. But poor recent performance. $100 invested in Jan 2005 would be $114 today. Clearly, the weakening dollar has helped the larger companies recently (who have international operations) at the expense of small domestic companies. This may explain the drop off in performance. Plus, it produces 25 stocks a month - too many for my purposes.

Value on the Move - PEG with Est Growth - 833%. Another 1000% winner with 10 straight winning years until 2008 (down 15%). After a poor 1998-99, it made 970% from 2000-2007 or 49% compounded, which is incredible. But it produces an average of 47 stocks a month. Not suitable for my current purposes.

Zweig - 2107%. By far the best, most consistent screen on AAII from 1998-2007. Never returned less than 17% a year. 10 straight winning years in all sorts of market conditions. Until this year. I am willing to forgive it 2008 (down 12%). I am also willing to forgive the "slowdown" from 2005-07 when it "only" earned 18-27% a year. However, I am keeping my eye on Zweig to make sure it doesn't go south on me. Produces 15 stocks a month on average, in my sweet spot. I will use Zweig.

CANSLIM - 1471%. Excellent total return. Very consistent. 9 winning years of at least 20% a year vs. 1 modest losing year (3.8% in 2004). All on 9 stocks a month. Down only 3% this year, which beats the market. My second favorite screen behind Zweig. I will use CANSLIM

Est Rev Up 5% - 1302%. Excellent total return, but got a huge boost in 1998-99. This screen focuses on positive earning surprises, and everyone was buying/selling on news (instead of fundamentals) back in 98-99. Still, had excellent years in 2003-07. But it produces 43 stocks a month. Plus, when I cross-screen Zweig and CANSLIM through Zacks, I get stocks with good earnings surprises. As you might imagine, more of the Est Rev up 5% stocks get 1 ranks in Zacks than Zweig stocks do. So, if I used this screen, I'd be heavily diluting Zweig. I will watch it, but I don't plan to use it.

So, there's my analysis of the screens. I will focus on Zweig, CANSLIM and Graham Enterprising, which should produce a combined ~30 stocks a month. Edited for Zacks 1-2 ranks, that will bring it down to a manageable 6-12 stocks a month.

I plan to fully invest my portfolio each week, and invest in each stock equally. So, at 1% risk, 12 stocks means I need to put a 12% stop loss on, and 6 stocks means I need to put a 6% stop loss on. I saw your 2007 stats. For Zacks 1 + Zweig, your average loss as -3.2% on your losing trades. Therefore, I'd think a 6% stop loss is way sufficient. Unless you had a lot of experience with stocks losing more than 6% off the bat and coming back to be winners. Which I doubt.

Theses are the types of stats that I love to gather for myself. I think that thinking through issues like these often make you a much better trader. I know it has helped me put together my own ideas, and has helped me tremendously during periods of drawdowns.

Trading and Poker

I'm fascinated by the number of traders who also dabble in game playing. Ugly loves chess and games of chance. Chris Perruna thinks that poker has some parallels to trading. Warren Buffet loves to play bridge. And Dr. Van K Tharp enjoys poker playing as well.

I played a few poker games with my brother and a few friends of his at a recent birthday party. It was the first time I had played since playing on my Mattel Intellivision back in the mid-80's. I'm guessing that most StockPunk readers don't even know what an Intellivision is. Whippersnappers. I digress.

I think there are many lessons that poker teaches that can be integrated into a trading system. Issues like drawdowns, bet size, risk, ruin, and probabilities are common to both trading and poker.

One StockPunk reader sent me an interesting and math-intensive article he wrote that utilizes a computation called the Kelly Criterion for poker. The Kelly Criterion is also found in many books about trading systems. The writer asked me to use his cryptic poker playing name which is Moneysuckle.

The Kelly Criterion and Bankroll Management for the Live NL Cash Game Player

By Moneysuckle

After reading Fortune’s Formula, Phil Laak’s interview and Al Kratz’s article in the July issue, I decided to explore the application of the Kelly Criterion http://en.wikipedia.org/wiki/Kelly_criterion to bankroll management for the live cash game no limit hold’em player. 2+2 poster Pzhon illuminated my way.

Here is the formula, in layman’s terms:

((Odds * Chance of winning) - chance of losing) / Odds

Most live game players keep records by session. It is quite easy to figure out:

1. How often you log a winning session,
2. What your average winning session is, and
3. What your average losing session is.

Let's say Player A wins 60% of his sessions, and loses 40% at 5-10 NL. He buys in for $1000 and his average winning session is $2000 while his average losing session is $1200 (because he brings more than one buy-in).

Player A’s odds are 2000:1200 or 1.67:1. In other words, on average, he risks losing $1200 to win $2000. Employing the formula, ((1.67 * 60) – 40) / 1.67 = 36%. So, under the Kelly Criterion, Player A’s bankroll * 36% should equal his average loss ($1200). We use average loss because that's the denominator we used to figure the odds payoff. Player A therefore needs a $3333 bankroll under the Kelly Criterion if these are his true winning stats. At 5-10, this would be three buy-ins!

The problem with full-Kelly is that you have a 13.53% risk of ruin. See http://www.bjmath.com/bjmath/proport/riskpaper1.pdf This risk of ruin is too high for a player dependent on poker for income. If you double the bankroll ("half-Kelly"), you get risk of ruin down to 1.83%. If you quadruple the bankroll (“quarter-Kelly”), then your ROR is down to 0.03% with only a 2% chance of ever losing half your bankroll. Quarter-Kelly bankrolls are therefore conservative and considered appropriate for professional players. But Player A’s quarter-Kelly bankroll for his 5-10 game with these stats would be $13,333 or ~13 buy-ins of $1000!

Bottom line, the wives’ tale advice you hear about having 20-30 buy-ins for a given game is very conservative for a top winning player. Of course, no amount of bankroll is big enough for a losing player, while marginally winning players need much larger bankrolls than solid winning players -- or the customary 20-30 buy-in advice. An example:

Player B plays 5-10 NL too. He buys in for $1000, and wins 52% of his sessions. Player B’s average win is $2000 while his average loss is $1900.

His odds are 2000:1900 or1.05:1. Using the formula, ((1.05 * 52) – 48) / 1.05 = 6.3%. So, at full-Kelly, $1900 (average loss) should be 6.3% of Player B’s bankroll. Bankroll therefore equals $30,158. But full-Kelly has 13.5% risk of ruin. Player B’s quarter-Kelly bankroll would be $120,632 or ~120 buy-ins!

There you have it. Using quarter-Kelly, the top player can operate with 13 buy-ins while the marginal winning player needs 120 buy-ins for the same game.

In reality, most top players operate at bankrolls far greater than quarter-Kelly would require of them, while most marginally winning players operate at bankrolls far short of their quarter-Kelly requirements. This is why many marginally winning players go broke from time to time – they take too much risk of ruin, especially if they like to take shots at bigger games.

Week In Review 4-18-2008

I guess I can't be too cocky about having a good week since everybody and his grandma had (or should have had) one. I don't care. It's still a good feeling when things go your way.

All of the screens posted positive gains this week with To the Moon coming in first. It had a pretty good distribution with STLD being the winner at 7.49%.

Zweig Relative Strength 5 was next on the list with the best showing coming from ARO at 9.37%. AEHR pulled the screen down with a loss of 6.19%.

The Zweig & Zacks combo still leads the pack with a +20% gain for the year. That's looking really good right now. ESL pulled that one down with a 1.81% loss.

The last time my portfolio was down less than 8% was back in mid January. That's a long time to be languishing in the hole.

Dr. Van K. Tharp Training Tapes & DVDs

If you're interested, I'm selling a series of DVD's and cassette tapes from Dr. Van K. Tharp's Institute for trading mastery on E-bay.

The DVD's explain position sizing in very clear terms. I watched them several times and it really helped me formulate a trading strategy. He uses an example of trading from newsletter recommendations that is very revealing about the power of position sizing. You can see the auction here.

The other series is on cassette tape (that makes them retro and therefore really cool). The cassettes took me a long time to get through, but they were very interesting. He basically has a roomful of traders that he teaches the techniques of position sizing, money management, and developing a trading system with a positive expectancy. It's interesting to listen to the experts and compare your own trading to theirs. You can see the auction for the tapes here.

StockPunk Readers

I continually am impressed with the quality of folks who peruse this dumb blog. What are you people thinking? Don't you know I don't really have a clue about what I'm doing?

When people go back and read my previous posts they often become confused about my strategy. There's a good reason for that--I change my strategy often. I don't change it because I'm so smart. I change it because I still am trying to figure this whole thing out (and I have a LONG way to go).

Shaun had the misfortune of wanting to figure out my philosophy and strategy, so he went back and read all of my posts over the past year. He became even more confused (who wouldn't) so he wrote me. He gave me permission to post some of the questions and answers that we went through and I thought it would help the other two people who read this blog (Shaun's questions are in blue):

I'd be happy to answer your question. I think the reason that you are confused about what I do is because I am confusing about what I do. This has been a learning process for me, and I am by no means any sort of expert. I've kind of stumbled into the type of trading I do after taking bits and pieces from experience, books, and blogs.

I've been all over the place in my trading as I've learned new things. Some things have worked very well so I continue using them. Some things were ridiculous, so I quit (probably not soon enough).

I've totally changed the way I trade recently after really starting to understand the concepts of risk and money management. Until recently, I thought trading was all about picking the right stock. This is a gut wrenching game because I had to pick the right stock (usually from a basket of stocks like the Zweig screen). Then I had to buy it at a good price. I struggled getting in at good prices on Monday morning which was always frustrating. Then I needed to figure out how long to hold the stock. Sometimes I'd have a stop, other times I didn't. Sometimes I'd sell the stock unemotionally when it dropped of the Zweig screen. Sometimes I wouldn't sell hoping to squeeze a few more percent out of the stock.

The mechanical approach I had served me well for a couple of years. I think it's a great approach to learn the mechanics of trading. It takes very little time and effort and it can help to manage the emotions of trading (I still struggled with the emotional thing).

But I now think that money and risk management is the key to staying in this game long term and I think that I can really boost my returns and avoid unnecessary risk by utilizing those management tools in my trading.

Currently I am trading stocks in a few different systems. I still use the Zweig screen, but I am also using some technical indicators to make additional trades. I am pretty new to technical analysis, but I am starting to see its value in my trading "package".

>>>In one comment a guy asked what you did with cash since you said you only risked 2% on a trade and wanted to hold 5-10 stocks. You said the rest was in cash. Is that right? If you had a $100,000 account and there were 5 stocks you liked, would you be investing 2% of 100,000 into the 5 stocks, so $10,000 invested and $90,000 in cash? Did I read it right?

The whole risk and position size thing seems simple, but it has taken me over a year to get it figured out. I've probably written some confusing things over the past year as I tried to get things figured out. Here's how it works.

The least complicated way of using a position size with the Zweig screen would look like this. I've got 5 stocks that qualify. I've got $100,000. I determine that I want risk only 1% of that $100,000 on any one trade (a good rule of thumb). That means I RISK $1,000. I determine that a 10% stop works best for my system. So I can buy $10,000 worth of stock with a 10% stop on each one. 5 X $10,000 means $50,000 in positions and $5,000 risked.

>>>>I have been thinking of risking 2% of the account per trade, but saw it as setting a stop that would be 2%*100,000=$2,000 loss max on each of 5 positions. So I'd buy $20,000 in each of the 5 stocks picked, at set price stops for $2,000, which is 10% of the position. What do you think of this method? (I am going to work through the Chris Perunna links that you posted and I plan to read the Van Tharp book that you recommended.)


You’ve got the idea! I recommend you read the Van Tharp book—it’s excellent and thought provoking. I learned a lot more about stop setting and now I’m using a volatility stop rather than a set amount like 10%. It’s less gut wrenching because it seems to have mathematical value.

>>>>>Have you refined your 'volatility system' for taking profits mentioned on October 6th, 2007?

The volatility system was a spreadsheet developed by Henry Ford at Pitbull Investor (I subscribe). It’s a great tool. I also use Average True Range (you can find that out on a StockChart). I use 14 periods and times the result by 2.5 to give me a number that I use for stops.

>>>>What is the "To The Moon" screen? Did I miss its description or is it secret sauce? You mentioned that it relies on Zacks metrics that you will not be able to screen for if you do not renew Research Wizard. Could you use AAII and Zacks Premium to replicate it?

To the Moon incorporates Zacks screens of my creation and elements from the Zweig screen. I really haven’t bought any stocks on that screen for some time because I know that I won’t be renewing my subscription. I’m going to let it die this summer.

>>>Has your view of Zack's Research Wizard changed at all? Last I heard you were not impressed with it, particularly the client service. Maybe the way to go is do a trial once a year?

I’m moving a different direction. I still like the screener, but I want to focus more on technical analysis. I’ll still subscribe to Zacks to get the Zacks number (I think it is a powerful qualifier), but I don’t plan to renew RW.

>>>>I enjoy reading the blog of someone who has trail blazed the path I have set ahead for myself. My results lately on discretionary trading are terrible, so mechanical investing is my future. Now I have to steel myself to dump some losing positions that I hoped would come back, but have learned that hope is a lousy hedge.

I’m glad my dumb blog has kept your interest. Thanks for your contributions! It makes things much more interesting. My goal was to provide a place to put down my thoughts and a place where I could get some feedback on what I was doing. I’ve learned a ton in the last year, but I still have a long way to go.

I think I just got lucky. If I had lost money from the get-go I would have quit doing this a long time ago. Hang in there! Trading is extremely rewarding and fun. You’ll find your grove and things will take off. Just keep learning as much as you can. Turn of the news.

The best thing that I came away with from Van Tharp’s book is that trading stocks is a probability game. Probability and emotions don’t mix, so you need to have a system that takes your emotions completely out of your trading. Otherwise you bias your trading and create all sorts of problems.

Things looks positive so far this morning. Yesterday I lost over a percent, but I'm still happy with the direction things are going. Maybe I'll be out of the hole by the end of the month. That would be swell.

NOW, THAT'S WHAT I'M TALKIN' ABOUT!!

We have an official StockPunk best day ever today. The portfolio was up 5.55%! Nice. That's not the best percent-wise. Way back on May 2nd, 2006 I made 6.03% in one day. I have a lot more money now so this is my best day for dollars gained. Back in 2006 I was betting the whole portfolio on one or two stocks. I had some good days, but my portfolio sure took a licking during the bad times. I've learned a lot since then, thankfully.

The 2nd best day ever dollar-wise isn't that long ago--December 10th 2007. I made 4.65%.

Let's hope this continues, but as I've learned--past performance is not a guarantee of future returns.

Buying Interest

Looks like today could be an interesting day. INTC was inline and most tech stocks should follow. I could use a +1% day and even more would be better. I actually have a bit of time to trade this morning but I'm fully invested right now. I'm thinking about using a bit of margin for one more purchase. I usually don't like using margin (and I don't use it to calculate my position sizes) but I think this is a pretty safe bet. I'll let you know if I was whacked later on today.

Doldrums

My hayfever has kicked into high gear as the market meanders all day. I was up a piddly .10% today. Thanks everyone for the good discussions you've got going. They are much more interesting than my boring posts as of late.

I'm currently doing some tutelage under the watchful eye of Corey Rosenbloom at Afraid to Trade. I've followed his blog for a while now and I have really appreciated his take on the market. He's a lot smarter than I am, and I feel he can teach me a lot. His fees are extremely reasonable, and now is a good time for me to learn some new stuff.

I'll let everyone know how it goes. I truly believe that is important to always hone your trading skills and the stuff that I've paid to learn has (usually) paid for itself several times over. That's more than I can say for most of the education that I've been through in my life.

This week with StockPunk 4-14-08

Things don't look too promising right now. GE is still affecting the world and we could see further downside if more companies chime in missing their estimates.

I'm not taking any new trades today. I plan on holding on to what I have and let the market and my stops give me some direction this week.

Be careful out there!

Taxes

I'm turning in my taxes today. Trading sure creates its share of headaches when it comes to taxes. I've only been trading for 5 years, but I've already got a threatening letter about owing lots of money to the IRS. That was a mistake that I made on my tax forms and I got it cleared up, but it was a hassle.

This year I owe a large sum of money because of my gains last year. It's a little hard writing that check when I've already lost half of those gains. I know that eventually I'll get it back, but paying taxes on money that no longer exists makes me a bit miffed.

I used Gainskeeper which is offered for free when you trade with Scottrade. I like the package and it saves me a ton of time. My federal return was 14 pages and would have taken a ridiculous amount of time if I hadn't been able to download the information into my tax software.

My first house

My family just moved into our new home last week. For the past 10 years we've lived with 8 teenage girls in a group home. While this has provided great cash flow for trading (our housing and food is paid for), we've had very little privacy for a decade.

We still live at the group home, so the new house is like our "vacation home" when we have some time away. I'd forgotten how quiet a home can be when it's just your family there. Nice. It's also much more fun to entertain when you aren't managing the emotional highs and lows of teenage girls while making your guests feel comfy.

Charles Kirk paid off his mortgage this week. It took him less than 5 years. I decided to put nothing down on mine and use the money I would have used on the house for trading. My friends and family think I'm a nutjob, but I think it's worth the risk to eventually be financially free. Once I can live off of trading and pay cash for the house, I'll do it. I do see an advantage to having no payments (the house is our only debt).

Week In Review 4-12-2008

I had a good feeling on Monday about the direction the market was heading, and once again the market has taught me the value of my "feelings". For the week I was down 2.44%.

The Zweig Relative Strength 5 screen was the best "performer" this week with a loss of 1.37%. GHM was the best stock in that screen with a gain of 5.12% while WATG was the worst with a 7.42% loss.

To the Moon was the worst performer for the week with a 2.69% loss.

The Earnings report from GE sure put a damper of what was looking like a decent rally. Hopefully next week will produce some companies who have handily beat earnings. Otherwise we could be in for a nasty month.

No excitement here

My portfolio lost 1.14% today. The market is churning on low volume which makes me a bit unhappy. Initial earnings have been tepid, but next week is the real show. I plan to continue staying fully invested until I feel that it isn't wise anymore.

Another anemic day

Not much going on out there. I ended up the day down .27%. Next week begins the bulk of earnings announcements so we'll see what the real trend will be then.

I wonder if I'll look back on these last few months and remember how chaotic the news made the markets seem. It seems like everyone has a different opinion on what is happening and where things are headed. Will I learn that it will be like this next time and make better decisions? Or is every time different and you can never really predict the future from the past? I haven't been doing this long enough to know.

The folks at Earnings Whispers have an interesting article about the recession and how unemployment numbers may be a positive sign. You have to register at their site, but they have lots of great information. Here's an excerpt:

In January, we projected a 20% decline in the S&P 500 and a 28% decline in the Nasdaq Composite with a bottom between May and October, but we also said we expected the S&P 500 to end the year above 1,300. Now that we have more data about the current recession, we are projecting the S&P 500 to be above 1,500 around August 2008 - up an additional 9.5% from its current level - as long as the employment data continues to weaken and the Fed continues to lower interest rates.

But stock prices dont go up in a straight line so the question is how are we going to get from point A to point B? not to mention the fact that we need to look for confirmation of our thesis along the way as well. This week has the potential to confirm or quickly make us doubt our position as the S&P 500 nears resistance and the CBOE Volatility Index (VIX) hits its support line. All of this suggests that the market is a little top heavy right now and is likely to pullback, but if the uptrend is intact, the S&P 500 could break above resistance and it could be swift. We should also point out that the chart on page one of this report shows declining peaks in our advance/decline oscillator for the Nasdaq Composite while the index has seen rising peaks. This is a sign of near-term weakness.

Disappointment

Things started out very nicely, but I ended up giving back .65%. There seems to be a lot of uneasiness out there and there are a lot of smart people who think we're headed for another downturn. I'm not smart and I think we're headed higher so we'll see who wins in the end.

Nick at Ambitions as a Trader, thinks GHM is a good shorting candidate. You can read his comments here.

This Week with StockPunk

GHM has appeared on the Zweig screen as the number 1 in relative strength. Dang it. I had it on my radar for the past two weeks waiting for a breakout and missed the last 30%+ gain. From my experience with the Zweig screen, it still has upward potential.

Zacks #1 picked 3 stocks out of this week's Zweig screen. KEX is back in the running.

Week In Review 4-04-2008

This was my best week since the first of December. A lot of people told me I was crazy to go full throttle this week. They were probably right, but it turned out OK for me anyway. I had already lost 2/3 of my gains from last year and I was starting to get a little frustrated.

This may just be a pause in the market before it sinks lower. I feeling pretty good that we've established a bottom, but I'm quite ignorant on these matters.

For the week, the Zacks and Zweig screen shined with a 10.45% gain on 3 stocks. NGS gained 19.37% which helped greatly in a this screen and a few of the others. I'm glad I held on through the week. I've been trailing my stops up and plan to get out of NGS as soon as it shows some weakness.

Zweig Relative Strength 5 also did well with a gain of 6.29% on 5 stocks. Again NGS was the winner and KAI was the loser with a 3.71% drop.

The Zweig MACD screen didn't select NGS this week, but it did grab some good gainers, AEHR with a 14.45% gain and AMED with a 12.31% gain.

Missed this one

I've been watching GHM (a former Zweig screen selection) since the end of 2007. I rode it up for a really nice gain and then got out at near the top. It has been consolidating for the last 3 months and I was waiting for a confirmation (either down or up).

Today it had a breakout with a 25% gain, but I missed it. Oh well, there will be others.

Usually these are really good plays because you watch for a breakout and place a tight stop right below the breakout. You can often make a lot more than you risked with trades like these.

Gaining confidence

There's nothing like making a couple of good decisions to boost my confidence. I made two good calls today. I held on to WFR after dropping the stop to 2% below what it was gyrating at during the first half hour. It ended up losing only 3.44% after being down over 10%. Whew!

I put a 4% stop on NGS and it gained another 3% today. I was tempted to sell it while it was declining after the open, but I'm glad I waited. I shut the quotes off at 9:00 am and left them off until the close.

This has been the best two-week performance for me since early December. Yikes! That's a long time. No wonder I was getting a bit edgy.

It's good to see that the averages held above support today. It gives me some more confidence that I'm moving in the right direction.

Days like these

It's days like these that make me glad that I'm managing my trades better. WFR is about to open with a big gap down. It will blow through my stop and I'll lose a good chunk of money. But I didn't bet the farm on that one stock and I will live to trade another day, dagnabbit.

I never know what to do in gap-down situations. Do I try and sell during the craziness of the market open? Do I wait and hope the gap fills later in the day, week, or month? I just don't know.

For WFR, I removed my stop and I'm going to watch it today to see if I can get a read on what to do. I'll probably end up losing much more than if I sold it in the morning rush, but I'm here to make the mistakes so you don't have to. You're welcome.

A better day

I can't complain about a day where the averages are down but I'm up a percent. I played everything as planned today and it worked well for me.

One of the reasons that I am fully invested now is this chart. If you ask me (I know you didn't, but it's my blog dang it) things have bottomed out. I think there is opportunity for some gains right now, so I'm taking it.

I'm struggling with what to do with NGS tomorrow. My volatility stop system says it's time to sell. It's made 20% since I bought it and it looks like it's still trending up (it gained 4% today). The MACD just went positive and the chart looks good. I think I might follow it with a tighter stop because I don't think I can pull the trigger on it yet.

I'm starting to record my gains and losses as "R" (risk) multiples and that has really helped take the emotion out of my trading. So far I haven't had any huge R gainers (like Ugly), but I'm starting to get the hang of this whole risk management thing, I think.

An OK day

My portfolio got dragged along kicking and screaming to a gain that got beat by all the indexes--up 2.88%. A disastrous trade of CALM (don't ask me why) hurt me badly yesterday and today (I lost over 17% on that one).

This market is so wishy washy lately. It makes it very hard to gain any confidence in any move. But, at least I'm moving in the right direction. I'd like to be even for the year by summer. What a wimpy goal.

I've been moving into our new home this week, so it has been very busy. I'm getting behind in my classes and that has stressed me out a bit.

I've switched the StockPunk Market Meeter to "Go For It!" which means I think conditions have improved enough that going long is no longer scary. I'm an idiot, so please don't take my musings as anything actionable.